Investors Stand By Santera

Santera Systems Inc. today announced that it has closed a third round of debt and equity financing totaling about $110 million (see Santera Scores Huge Round 3).

The size of the round suggests that Santera has managed to convince investors that there’s still plenty of potential in its switch, which aims to do double duty: as the equivalent of a “big hummer” Class 5 telephone exchange in addition to providing all of the paraphernalia necessary to also offer users Internet access out of the same box.

On the face of it, that seems surprising, because “God boxes” like this haven't just lost their appeal -- they've become the butt of jokes around here (see God is Dead).

Santera’s original target market, CLECs (competitive local exchange carriers), has gone sour, with some operators going bust and others having to tighten their belts. And at least one other developer of a similar sort of switch -- Tachion Networks -- has already gone belly up after promising the world and delivering very little.

Santera's success in raising its third round (in spite of having a name that calls to mind the ritual slaughter of chickens) suggests that Tachion’s troubles may have cast a disproportionate shadow over this market, which is potentially very large and in which at least one startup -- Sonus Networks Inc. (Nasdaq: SONS) -- has already prospered. Sonus now counts some large carriers as customers and is a public company worth more than Tellium Inc. (Nasdaq: TELM) and Redback Networks Inc. (Nasdaq: RBAK) combined.

Another startup in this field, Convergent Networks Inc., also appears to be gathering momentum. It’s raised $139.8 million to date and says its gear is installed in 11 working networks.

With its new round of financing, Santera could be heading in the same direction. It’s raised even more money than Convergent -- more than $200 million altogether -- and has already got six customers for its gear. Some major carriers are evaluating Santera’s box, according to CEO David Heard. It’s a fair bet that these include the unidentified “international and domestic service providers” that participated in Santera’s latest round of funding, according to the company’s press release today.

Heard acknowledges that he faces a “huge task” in convincing incumbent operators to buy his gear. "The switching network only changes out every 20 to 25 years," he says. Initially, Santera will aim to win business handling some point solutions, such as Internet and Tandem offload applications, while attempting to replace big, legacy boxes.

On that note, Santera says its box is NEBS (Network Equipment-Building System) certified and is well along in its OSMINE (Operations Systems Modification of Intelligent Network Elements) compliance testing. Both NEBS and OSMINE tests are generally required before an incumbent carrier will let a piece of gear into its central office.

What still isn't clear is the price Santera paid for its most recent funding round. Its managers brush off questions about its valuation, saying such matters aren't important in the private company universe. "We weren't too harmed by the [ownership] dilution factor," says Heard.

Santera was founded by Wu-Fu Chen and San-qi Li and is backed by Austin Ventures, Institutional Venture Partners, Meritech Capital Partners, Redpoint Ventures, Sequoia Capital, and others. - Phil Harvey, Senior Editor, Light Reading
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skey 12/4/2012 | 7:56:03 PM
re: Investors Stand By Santera To mention Tachion and Santera in the same article is heresy.
kenyon 12/4/2012 | 7:56:02 PM
re: Investors Stand By Santera heresy or prophesy?
dietaryfiber 12/4/2012 | 7:56:02 PM
re: Investors Stand By Santera It seems to me that when I first wrote code, embedded sw was all written in assembly language. I also wrote code for Minicomputers that was done in Fortran, Algol, and PL-1. I think over time I was able to migrate to C programming without a huge problem. I have done some C++ and some OOD (not a huge amount, since I no longer code for a living).

This required education on my part, but did not constitute a miracle. It is quite possible that people who code on older platforms can learn new techniques and languages. The fundamentals of good software design have not changed to such a huge extent that this is an impossible shift. There has existed layered designs for many years. Some were poorly done (as some are still poorly done today), and some were well done.

Now, onto OSMINE. For all of its flaws, OSMINE has proven to take on a large scale production network and actually continue to model new products and work. It is bursting at the seams, as any software of its age and extension would be. Telcordia has the advantage of charging both sides: Carriers to buy and maintain SW and Equipment Vendors to model their products into the Software. The expertise that is required here consists of knowledge of the carriers and their needs, as well as some idea of how the OSMINE process works. This simplifies the job of modifying the product to meet the needs of the RBOC (who is unlikely to change its ways to meet the needs of your product).

exphoton 12/4/2012 | 7:55:58 PM
re: Investors Stand By Santera any idea what their post-money valuation is ? given the large amounts of money they have raised, and assuming they have not given up more than 40% of the company, their post-money must be in the $200+M range.

any data ?

who is john galt? 12/4/2012 | 7:54:35 PM
re: Investors Stand By Santera Harvey Mudd,

Cascade sold out to Ascend, then Ascend to Lucent. Mr. Chen was long gone when the second transaction transpired. Get your chronology (and facts) correct before you make personal comments about people.

VC's will fund 8 busts for every 2 winners. It's the law of averages. That is why it's termed "risk capital".
HarveyMudd 12/4/2012 | 7:54:35 PM
re: Investors Stand By Santera The survival of a company does not depend on the VCs that funded a particular company. Ever since Wu-Fu Chen and others managed to fool Lucent Technologies in acquiring Ascend Communications for about 24 Billion dollars, Wu-Fu Chen came to false prominence.

It is very unlikely that Santer,s product would be deployed by ILECs. The features of Ck\laas 5 switches are so complex and overwhelming that only vendors like Lucent and Nortel have full understanding of the functionality and these are only two vendors who can implement Softswitches that can replace Class 5 switches.

It is very unlikely that any softswitch vendors will be to clear even a subset of standards established by Telcordia/Bell Communications Research.

I hope some sanity prevails among VCs as they fund new companies. Because large influx of someone else's company, the VC community has becopme insane in funding new companies.
santeralost 12/4/2012 | 7:54:34 PM
re: Investors Stand By Santera Santera = Tachion

No revenue.
Lots of promises
No live customers.
No fault tolerance or redundancy.
Customers with worthless warrants.
Inoperative third party softswitch and partnership.
santeralost 12/4/2012 | 7:53:26 PM
re: Investors Stand By Santera No denial or support in almost four days.

Santera = Tachion

No revenue.
Lots of promises
No live customers.
No fault tolerance or redundancy.
Customers with worthless warrants.
Inoperative third party softswitch and partnership.
santeralost 12/4/2012 | 7:53:14 PM
re: Investors Stand By Santera So far, Santera has been DOA in its friendly option rich accounts. Santera better be banking on African magic to recover VC money that is quickly being sacrificed at Santera.

Santera is derived from the Spanish word santo and means the worship of saints.

Interesting that ancient religious beliefs of slaves brought to the Caribbean islands from the Yorubas of West Africa originated Santera to appease Catholic missionaries and continue worship of Orishas or divine energies of nature. Obatala, now Our Lady of Mercy, Yemaya, now Our Lady of Regla, or Chango, now Santa Barbara.

Santera will need all the prayers and magic it can conjure up to survive.
santeralost 12/4/2012 | 7:50:09 PM
re: Investors Stand By Santera Posted a message yesterday stating that this article should read investors raped by Santera. Apparently this message post was deleted. My apologies for violating LightReading's message board protocol. Let me know if the following is more acceptable.

Investors and employees ripped off by Santera. Check out the following message.

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