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Is Silkroad Saved?

Light Reading
News Analysis
Light Reading
3/31/2000

What could turn out to be part of a rescue plan for Silkroad Inc., an ailing startup developing breakthrough transmission technology, turned up today in a filing of an annual report to the Securities and Exchange Commission.

In its report, Atlantic Technology Ventures Inc., a New York investment firm, says that it's aiming to take a 35 percent ownership stake in "a privately-held company that is currently developing next-generation high-speed fiber optic communications technologies."

It doesn't name the company, but it goes on to say that the startup is developing "what Atlantic believes would be the world's fastest fiber optic transceiver." The transceiver will send and receive traffic at speeds in excess of a terabit - more than 25 times faster than the 40 Gbit/s transmission systems planned by other vendors. "This technology is protected by two issued U.S. patents, and several pending U.S. patents," it adds.

Under the terms of a letter of intent dated March 17, Atlantic will pay $5 million plus 200,000 shares, equivalent to a total of $6.795 million, for its 35 percent stake. The deal is subject to due diligence and scheduled to close in May 2000, with the cash being released in quarterly installments of $1 million. Atlantic does not have the full $5 million in cash at present and may have to reduce its stake if it cannot raise all of it in time, it adds.

There is a strong likelihood that the company in question is Silkroad, for the following reasons:

First, Silkroad is developing breakthrough transmission technology that matches this description, which it has patented. In the past few months, there have been rumors of staff quitting Silkroad and setting up a rival startup, but it's unlikely that they've got as far as patenting their developments.

Second, Silkroad is in desperate need of money. The company went through a crisis last autumn, probably because it had failed to secure financing. At that time, new management was brought in and the company effectively went into hiding. In early February, the new CEO, Chris Rader, told Light Reading that he expected to re-launch the company "within a few weeks" (see Silkroad Twists and Turns ). But it hasn't happened and Rader hasn't been responding to messages this week. Silkroad's offices are still open, however. "There's a lot going on here," a member of staff told Light Reading before clamming up and referring all questions to Rader.

Third, although Silkroad won't talk to Light Reading, it recently updated existing shareholders. Silkroad told them that two "institutional investors" had agreed to provide finance, first products would be rolled out in Autumn 2000, and an IPO was being planned. It looks as though one of these "institutional investors" is Atlantic Technology.

So, who is Atlantic Technology Ventures Inc.? Until recently, it invested in pharmaceutical developments under a different name - Atlantic Pharmaceuticals, Inc. However, revenues took a big tumble last year, which led to the current diversification strategy.

Is buying a stake in Silkroad -assuming that is the plan - a good move? It's certainly very risky. Silkroad is attempting to do in telecom what developers of cold fusion are trying to do in electric power. In other words, it's attempting to translate something that's feasible according to physics into something that's commercially viable.

If Silkroad succeeds, it would be an enormous breakthrough that would probably render DWDM (dense wave division multiplexing) redundant. But that's a big "if". The fact that Silkroad wasn't able to raise money from usual sources of venture capital - when they've got money coming out of their ears - speaks volumes .

by Peter Heywood, international editor, and Mary Jander, senior editor, Light Reading http://www.lightreading.com

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