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Innovance Scores $55M

Core optical networking startup Innovance Networks has closed $55 million in Series B funding, making it one of the industry's best-funded new companies.

Advanced Technology Ventures led the round, which comes from the same group of backers that kicked in Innovance's hefty first round in December 2000 (see Innovance Scores $75M ). Corning Inc. (NYSE: GLW) and JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), for instance, renewed as "strategic" investors. Ex-JDSU chief Kevin Kalkhoven's KPL Ventures joined in, along with Archery Capital, Azure Capital Partners, Banc of America Securities LLC, Morgenthaler, and Thomas Weisel Capital Partners.

The funding announcement was expected (see Iolon and Innovance Deal: Good Omen?). But, interestingly, the round wasn't kept open to admit new investors, as had been rumored. Indeed, one of the first-round investors, PCG Ventures, has dropped out.

But losing one investor may be only a drop in the proverbial bucket, sources say. That Innovance has been able to raise so much money in the midst of a record slowdown is not only good news for the company, but also bodes well for the industry.

Innovance plans to use the money to launch its first product next quarter, as well as to fund ongoing development of other wares. Innovance's ultimate plan is to provide end-to-end optical transport for carriers, incorporating a kind of "wavelength-on-demand" style of provisioning.

Innovance seems well on its way to rollout. Last week, it announced a procurement contract with Iolon Inc., which makes tunable lasers (see Iolon and Innovance Deal: Good Omen?). That's just one of many contracts, Innovance says.

The startup has also embarked on a manufacturing plan that incorporates a state-of-the-art testing arrangement with suppliers, which it says will eliminate the costly mistakes made by optical companies in the past. Specifically, Innovance has developed its own test equipment using third-party software that provides a direct link between outside manufacturers assembling Innovance's optical modules and the company's own printed circuit board (PCB) plant in Kanata, Ontario. In effect, it's a "just in time" setup for optical equipment.

"We worked up front with our suppliers to create standard interfaces between our PCB controls and their module control software," says Innovance COO James Frodsham. The result, he says, is that outside suppliers can automatically create wares that fit the exact specs of PCB's back in Kanata -- as they're needed. This eliminates waste by ensuring that components are assembled only as they're required. It also speeds up manufacturing and makes for a better fit between the kinds of modules required for specific products.

This kind of preparation seems to be one element that makes Innovance's value proposition believable. But hasn't there been talk that the core is the toughest market to be in right now?

Yes, say sources. But Innovance's claim to fame, like heavily funded rivals Ceyba Inc. and PhotonEx Corp., is that it's not just making a core product, but will furnish gear for the edge. The whole package is being billed as a considerable savings for carriers.

Innovance's big purse is a tipoff that the idea has found favor in at least one high place. "Generally, when startups repeatedly get lots of money, it's a sign that they've got the go-ahead from some large customer," says one Wall Street analyst, who asked not to be named.

So far, there's no word on which customer that may be, although one rumor has it that Qwest Communications International Inc. (NYSE: Q) has expressed interest. This could not be verified, however.

It's a sign of the times that Innovance is being applauded for having got this far on its way to market. But much remains to be proven. Nothing's guaranteed these days, not even a carrier contract that's been signed and announced (see Corvis: How Low Can It Go?).

Innovance execs are careful to express their awareness of this. "We're feeling confident, but cautious," Frodsham says.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com Want to learn more about the impact of testing and measurement on the manufacture of optical equipment? Tune in to Light Reading’s upcoming Webinar: "Optical Test Equipment in Manufacturing: Automation is Key," set for February 28. Click the following link to register: http://www.lightreading.com/webinars.asp#11506
LightMan 12/4/2012 | 10:53:01 PM
re: Innovance Scores $55M Sure I did. It is right here.

http://www.lightreading.com/bo...

Intelliden

LightMan
//www.thesoftwareprompt.com
optical_man 12/4/2012 | 10:53:03 PM
re: Innovance Scores $55M Hey lightman,
yesterday you posted a question to the effect "whadya think of the ex cisco guys new startup? pretty nice huh?".

I asked you 'what is it called'. You never answered.
Any answer on this one yet?
thx
layer3 12/4/2012 | 10:53:03 PM
re: Innovance Scores $55M Congrats to Innovance- well done.

Any way you look at this, it's good news for our industry- period. The good companies will get funded because VCs are sitting on billions in cash. Productive emnployees will keep their jobs at good companies- or they'll find work elsewhere. Hopefully, we've turned a corner-

Good luck to all-

L3
Petabit 12/4/2012 | 10:53:05 PM
re: Innovance Scores $55M "Where are the Petabits of the world gone?"

Oh, we're still around.

Just getting on with the day job, lurking around the boards, and not finding anything interesting enough to comment on.

I like Innovance, I have worked with many of the team there - good people. If the current climate is conducive to any startup surviving, then Innovance will be one of the survivors. New angle on the core network.

P.
LightMan 12/4/2012 | 10:53:06 PM
re: Innovance Scores $55M Can the person who is employed by Innovance clarify which company they are using to develop their wavelength provisioning system? Once upon a time they were looking at companies like AdventNet, Dorado, and Lumos. Anything selected? How is it working?

LightMan
//www.thesoftwareprompt.com
BigBrother 12/4/2012 | 10:53:18 PM
re: Innovance Scores $55M Do you always believe what management told you? From what I heard just before the Christmas break, Innovance announced to their employees that there would be no layoff until after the management found out how many % of employees would voluntee salary cut before they would decide how many would be layoff. But what did you see?

I think a lot of people were afraid of the job cut right after the layoff, so they participate on the salary cut in order to keep their jobs, the stock incentive is just to make it look better.

Is that really true? Did you forget something magnet44?

Aside from that, I believe $55 million is not a big number when Innovance have to finish a product, it is so expensive to build a long haul product when components are still very expensive and unstable. How many revisions before it will become a stable product.
BigHead 12/4/2012 | 10:53:19 PM
re: Innovance Scores $55M Why would you harbour such bitterness and
hostility towards a company that you have no
affiliation with or interest towards ?

I do not work for Innovance though I do know
a number of people working there. Evidently
they are not the same ones that you know since
the people I talk to feel quite positive (though
cautious) about their future prospects.

I am however sick of reading meaningless attacks on other companies with no factual basis. This
industry has enough troubles as it is and frankly
any start-up getting funding should be treated as
good news. Creating rumours and making useless
remarks is simply unnecessary.


-------------
lite guide:

In order for me to work for a competitor, Innovance would need to actually have a product AND a customer. Fortunately, my company already has a product and several customers.

I am also NOT one of the poor souls laid off earlier this year (although I believe the correct term would be tune-up).

My information and opinions (this is a free country and open forum is it not?) stem from close ties to the organization through friends and former co-workers.

You OBVIOUSLY work for Innovance. Perhaps the impressively high IQ that accompanies your BigHead will make the unemployment process that much easier. Good luck, Big Head!
sgamble 12/4/2012 | 10:53:19 PM
re: Innovance Scores $55M I know a couple of people over at Innovance and was happy to hear that the B round went through.

On your point #2... that is a huge head-count for 18 months. I would have to think there would be some extras at that rate that wouldnt work out no matter what the hiring process is.

As for point #3 I agree. I work at an Ottawa optics company as well and I think it's a good sign.

You look in the last couple of months there have some huge B/C rounds. Pluris, Atrica, AcceLight to name a few. Although not a lot of details on the their valuations at that point...

Good job Innovance. Good luck.


SG.
magnet44 12/4/2012 | 10:53:19 PM
re: Innovance Scores $55M First off, I work for Innovance and IGÇÖd like to clarify a few points:

1)Innovance employees were asked if they wanted to participate in a stock-purchase plan, similar to most publically traded companies except that the investment is not liquid. Some employees did not participate; most did; some wanted more than the company could give as the share pool for this program was oversubscribed and the company had to limit the amount employees could take. The team believes in what they are doing.

2)When a company ramps employment from 0 to 340 in 18 months not every hire works out as expected. The less than 7% reduction had to do with employee fit, not funding.

3)This funding is good news for the optical sector in what has been a dismal year. ItGÇÖs unfortunate that the dialogue on lightreading is so bitter.
William F. Letcher 12/4/2012 | 10:53:20 PM
re: Innovance Scores $55M
Totally dedicated to POT and voice?

Like the magazine High Times?

Wow...cool...


no, you're confusing that with the other future LR publication that's going to cover the hip-hop, DJ and trance music scene: Light Headed. the next one, Bell Headed, is strictly dedicated to the trends and technology of the POTS voice industry. you know... plain old telephone service, SS7, DMS250s, voicemail, caller ID, etc...



Ramona_ThePest 12/4/2012 | 10:53:20 PM
re: Innovance Scores $55M Totally dedicated to POT and voice?

Like the magazine High Times?

Wow...cool...
William F. Letcher 12/4/2012 | 10:53:21 PM
re: Innovance Scores $55M
LR got some kick backs from Innovance. Nothing happens without money at LR. Just kidding!

May LR don't have a whole lot of news these days. May be they should expand their area from optical to others. Agree LR?


actually they already have: storage (www.byteandswitch.com), now wireless (they just bought www.unstrung.com). I hear next they're going to launch a site dedicated totally to POTS and voice.

lite guide 12/4/2012 | 10:53:21 PM
re: Innovance Scores $55M Not sure why you're asking but...

Yes.

Great beer selection! Perhaps that's why my intelligence is in question, too much alcohol.
lite guide 12/4/2012 | 10:53:21 PM
re: Innovance Scores $55M BigHead,

In order for me to work for a competitor, Innovance would need to actually have a product AND a customer. Fortunately, my company already has a product and several customers.

I am also NOT one of the poor souls laid off earlier this year (although I believe the correct term would be tune-up).

My information and opinions (this is a free country and open forum is it not?) stem from close ties to the organization through friends and former co-workers.

You OBVIOUSLY work for Innovance. Perhaps the impressively high IQ that accompanies your BigHead will make the unemployment process that much easier. Good luck, Big Head!
Ramona_ThePest 12/4/2012 | 10:53:22 PM
re: Innovance Scores $55M I take exception to this, fellow poster from Northern Italy!

These discussion boards are a great outlet for me since I was laid off by my author, Beverly Cleary, and had to move in with Henry Huggins.

People on the boards take me seriously, not as if I were some flimsy children's book character!

But back to Innovance - have they stabilised since their last round of lay-offs?

What's their headcount?
BigHead 12/4/2012 | 10:53:22 PM
re: Innovance Scores $55M lite guide, are you basing your comments on
something intelligent ? Or do you work for
Innovance's competitor ? Or perhaps you are
a former Innovance employee who was let go
earlier this year ??


------------------
lite guide:

Announce several customers???? Hmmm.

More than likely, they will annnounce another layoff.
The_Holy_Grail 12/4/2012 | 10:53:22 PM
re: Innovance Scores $55M >>Why does it matter?<<
It helps from keeping mgt brainwashing the employees
>>Isn't the only other option to close the doors?<
I know of many that should. Knowing the valuations is just another metric for assessing the company
>>This economy and market demands down rounds - get used to it.<<
Jeez, glad to see you finally wokeup. However, downrounds in this market is a relative statement. the question is "how bad is the pain"?
>>I think you would be happy that you have funding and can see the product through to maturation.<<
Your statement is true if the employees benefit from their hard work, one reason many chose to join a startup. I have first hand knowledge of many companies becoming so diluted that the employees dreams have been shattered. The question isn't so much can i raise money, but rather at what cost can I raise money.

I believe there are lots of money on the table right now and VCs will do what ever is necessary to protect their investment. They have an added advantage that they receive preferred shares, something employees have no insight into.

Again, I think it would be nice for LR to dig a little deeper to educate the community rather than just repost finacial excerps.

Good luck to all.
Milano 12/4/2012 | 10:53:22 PM
re: Innovance Scores $55M I used to like reading the threads on the LR site. I'd say that back in March of last year a good proportion were really good, thoughtful contributions. I'm sure many of us remember the time where we could pick brains on this site, get some competitive information and engage in good debates.

What a difference a few months can make! Just look at the recent threads. The bitter one-liners are king. Where are the Petabits of the world gone? Replaced by HarveyMudd and others who don't know how to run a spellcheck, let alone design a system.

LR used to be like a virtual panel, now itGÇÖs more like a virtual bar at 3.00 am. The editors don't even bother anymore to pick the best posts on the weekly e-mail.

I suppose that the good stuff will come back at the same time as the market picks up. By 2004. Maybe we should do like Yogi Bear and hibernate for the next couple of years.

M.
self 12/4/2012 | 10:53:22 PM
re: Innovance Scores $55M I just noticed that Transparent Networks has announced a 2nd round. Does anyone know what is going on with them?
The Gurg 12/4/2012 | 10:53:23 PM
re: Innovance Scores $55M ummmmmmmmmmmm...no...i don't think so...
William F. Letcher 12/4/2012 | 10:53:23 PM
re: Innovance Scores $55M isn't that a gay bar?
The Gurg 12/4/2012 | 10:53:24 PM
re: Innovance Scores $55M On Haight?
lite guide 12/4/2012 | 10:53:24 PM
re: Innovance Scores $55M Announce several customers???? Hmmm.

More than likely, they will annnounce another layoff.
arthur pewty 12/4/2012 | 10:53:24 PM
re: Innovance Scores $55M I doubt it, they're probably about to announce another supply agreement!
The Gurg 12/4/2012 | 10:53:24 PM
re: Innovance Scores $55M I know Innovance is a long-term advertiser with LR but there must be another reason...is Innovance about to announce tons of new customers?
modern_man 12/4/2012 | 10:53:24 PM
re: Innovance Scores $55M LR got some kick backs from Innovance. Nothing happens without money at LR. Just kidding!

May LR don't have a whole lot of news these days. May be they should expand their area from optical to others. Agree LR?
The Gurg 12/4/2012 | 10:53:25 PM
re: Innovance Scores $55M Two on-the-whole very positive articles in a week on a company that has no customers...can someone explain why Light Reading is so up on this company? LR began (for good reason) writing off alot of the other Long Haul and Regional guys, even the biggies, months ago.

Do they know something we don't know about this company?
indsavvy 12/4/2012 | 10:53:25 PM
re: Innovance Scores $55M It would be nice to not only hear about the financing, but also thevaluations of these companies
----------------------

Why does it matter? Isn't the only other option to close the doors? That wouldn't be good for the employees either. This economy and market demands down rounds - get used to it. Why would you want to have the dirty laundry out for all to see? If you worked at Innovance would you be publishing your valuation? I think you would be happy that you have funding and can see the product through to maturation.
The_Holy_Grail 12/4/2012 | 10:53:26 PM
re: Innovance Scores $55M It would be nice to not only hear about the financing, but also the valuations of these companies. Although most companies won't reveal it, it can be obtained through other channels.

I get the scoops regarding most financing deals from VC sources anyways.

It would help the readers if they new what the rounds were looking like in this environment. Are most taking 50% down rounds? Who has or is getting same valuations as in their previous rounds?
arthur pewty 12/4/2012 | 10:53:28 PM
re: Innovance Scores $55M Does anyone know what valuation they got, it must have been a massive down round...
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