Disaster appears to have struck at ilotron Ltd., a U.K. startup developing optical switches and transmission equipment to compete with Corvis Corp. (Nasdaq: CORV) (see Corvis Gets Some Competition).

The company has failed to get a second round of financing and, as a result, an official administrator has been called in to "undertake a detailed review of the business and seek expressions of interest with a view to selling the business as a going concern" (see Ilotron Appoints Administrator). The company’s CEO, Chris Lilly, has lost his job, and Ilotron's workforce has been slimmed from 90 to 67.

Ilotron’s problems began at the end of last year when Goldman Sachs & Co. (NYSE: GS) and Spectrum Equity Investors withdrew their offer of a second round of finance, having already agreed on a term sheet with Ilotron, according to Lilly. Since then, Ilotron has been trying to find other backers without success. “We’re still trying to find funds,” Lilly said today.

Lilly has lost his job as CEO -- partly as a cost cutting measure and partly because the administrator has taken over his role at the company, he says.

Ilotron's relatively small $10 million first round funding from 3i Group PLC meant that the company could only build one prototype switch for trials, according to Stuart Barnes, the company's director of engineering. It's been undergoing lab tests at British Telecom (BT) (NYSE: BTY) for several months.

A second round of finance would have enabled Ilotron to build more prototypes so that multiple lab trials coud be conducted in parallel. Ilotron had two more big carriers lined up to evaluate its switch, just as soon as it could raise more money to build further prototypes.

”It was really my baby and it was going so well,” Lilly told Light Reading today. “We had a wonderful product, a wonderful team, and we were really going places. We just got hit by the market.”

Ilotron’s suppliers include OMM Inc., which makes the MEMS-based subsystems in its switch.— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com