Funding for startups

Kleiner Readies BBO's Rebirth

Kleiner Perkins Caufield & Byers's efforts to build a new carrier out of a challenged CLEC are coming to a head.

Several weeks ago, Light Reading reported that Kleiner Perkins was siphoning some of the engineering talent and other assets from BroadBand Office Inc. (BBO), a competitive local exchange carrier servicing office buildings it funded (see Kleiner Perkins Builds Backbone Carrier ). The venture firm's plan was to form a new carrier, code named Domino, that would sell IP-based services to corporations and other carriers.

Since then, Light Reading has learned that Domino has a new name, an old CEO, and a Website detailing some of the services it plans to offer. What isn't clear is what kind of future that leaves for BBO, whose business is in a category of companies that's fallen out of favor with public and private investors.

Sometime in the past few weeks, Domino shed its code name in favor of a new moniker, Zephion. It also hired former UUNet president Heidi Heiden out of retirement as its interim CEO. Heiden, 61, has enjoyed a telecom and networking career spanning four decades. His previous positions include serving as UUNet's senior vice president of operations and technology and as Salomon Brothers' senior operating officer.

UUNet's former top sales boss, Clint Heiden, has joined Zephion to lead its sales efforts in the U.S. Zephion's founder and president is another long-time UUNet exec, Johnson Agogbua.

Heiden's hire and Zephion's Website launch hint that the company may be close to announcing something soon. Indeed, Zephion might be about to use Heiden's reputation to help seek funding or, perhaps, make a publicity splash.

One source with knowledge of Zephion's plans suggests that Heiden won't be out of retirement for very long. "Heiden has joined [Zephion] but it's not a permanent gig. It's on an interim basis. He may have just joined as a favor for Johnson [Agogbua], taking the job while the company conducts a more exhaustive CEO search," says the source, speaking under the condition of anonymity.

Staying power is also an issue for Broadband Office, which was started by Kleiner Perkins along with several commercial real estate firms. Located less than a mile away from Zephion's Falls Church, Va., offices, BBO is becoming little more than a building-centric reseller for IP services offered by Zephion, sources say. One source, a venture capitalist, says Zephion was formed to "jettison the doomed BBO and try and salvage some of its value."

A BBO spokesperson, via email, had this to say about Zephion's birth: "Zephion's formation came as a desire to put some of BBO's assets into an independent vehicle to grow along its own trajectory and to better position it to acquire customers and further develop its team and capabilities."

In other words, BBO's building-centric business model was too confining and, given the economic woes of late, a hard sell to investors. A similarly styled CLEC, Dallas-based Allied Riser Communications Corp. (Nasdaq: ARCC), has seen its stock drop more than 90 percent in one year.

Another reason Kleiner Perkins formed Zephion, sources say, was so it could get revenue out of BBO's assets without sharing the wealth with BBO's commercial real-estate investors, which supposedly haven't lived up to their promise of providing BBO with a steady flow of customers.

Whatever the case, BBO stands a better chance of survival as a reseller of Zephion's services, rather than owning and running its own network.

But given the recent failure of AduroNet Ltd., which has a business model similar to Zephion's, Zephion is starting down a tough road, too (see AduroNet Goes Bust).

Its job will be to sell Internet access, virtual private networks, IP telephony, and other services to businesses and carriers. Zephion boasts having "the only national MPLS-enabled IP network," which, theoretically, will let Zephion have better control of the quality of the bits that traverse its network.

An employee at Zephion told Light Reading today that the firm now employs "less than 300 people."

Kleiner Perkins's Vinod Khosla, who serves on the boards of BBO and Zephion, has his work cut out for him as Zephion prepares to strut into the public spotlight. Along with keeping both providers funded, Khosla must make sure that BBO and Zephion are perceived as different animals, despite coming from the same litter.

"[Zephion] will have a challenge because they will be perceived as an [IP services] specialist with BLEC partners, which isn't terribly compelling," says one industry analyst. "[Zephion's] services are very compelling, I think, but the business may not succeed."

Kleiner's Khosla and Zephion's Heiden did not respond to requests for comment. A BBO spokeswoman, when contacted, had limited information and no way to reach the firm's executives.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com
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Peter Heywood 12/4/2012 | 8:53:47 PM
re: Kleiner Readies BBO's Rebirth From the little I know about Onfiber, another stealth mode Kleiner Perkins' backed service provider, there seems to be some overlap here. As I understand it, Onfiber isn't involved in Zephion in any way.

NOKIA 12/4/2012 | 8:53:41 PM
re: Kleiner Readies BBO's Rebirth Hi, Clint is Heidi's son... I know the trying to get everything correct in a story is difficult... but do make a sincere effor...
light_on_dude 12/4/2012 | 8:53:40 PM
re: Kleiner Readies BBO's Rebirth Does this mean that we will be seeing lots of press releases from KP backed start ups claiming these new companies will be buying billions and billions of dollars worth of their gear?
heavyreading 12/4/2012 | 8:53:40 PM
re: Kleiner Readies BBO's Rebirth ALso note that BBO and Allied Risers competitor Urban Media just went out of business. THey closed doors and laid off all of their 170 emplyees. Urban Media was founded by founders of KP funded company @Home.
NOKIA 12/4/2012 | 8:53:36 PM
re: Kleiner Readies BBO's Rebirth Hi Phil,

Do you think KPCB or any KPCB company would ever want to talk to you and your fellow writer's given the recent anti-KP bias and Lightreading's penchant for dramatics. Therefore, as always you will remain dependent on less than valid sources...

But nonetheless, it's great to have a tabloid for this industry! Though in the process you may ruin livelihoods of many good folks and their families - but hey! Since when is that important.

Keep it up.
nick p 12/4/2012 | 8:53:35 PM
re: Kleiner Readies BBO's Rebirth if they don't talk to him that's their choice, isn't it? He's just doing his job.

If you don't like journalism, why come to LightReading.com at all? You can get all the unfiltered sewage you want from vendor's Web sites.

Poor Kleiner Perkins! Pity the optical networking millionaires! My heart bleeds for them!

It's about time someone started taking refusing to tow the VC/vendor party line.

And since when did these boards fill up with so many whiny people?
mudd 12/4/2012 | 8:53:24 PM
re: Kleiner Readies BBO's Rebirth Kleiner Perkins, since it made Cisco pay 7.2 Billion dollars for the acquisition has started working like a God. It is prepared to do anything to make money. The means does not matter. I hope no one looks to Kleiner as a model VC
bear 12/4/2012 | 8:52:52 PM
re: Kleiner Readies BBO's Rebirth you guys sound like a bunch of jealous sour grapes. how is kleiner any different than any other vc trying to make money? get real.
jekyll 12/4/2012 | 8:52:40 PM
re: Kleiner Readies BBO's Rebirth I think the code name, Domino Networks was merely a euphemism for how badly the company is run. Once the dominos started falling, (layoffs in late January, 2001) they were quick to change their name to Zephion. The new name is particularly code-ish, too! ZEPHION, formed from a combination of the word ZEPHYR; the west wind, or any soft, gentle breeze, and the suffix -ION; a result or condition of..., is a company that is most probably just another passing thing, soon to be forgotten, a gentle breeze in the often stormy competitive world of technology they are struggling in. After all, what type of corporation changes names three times in three months; BroadBand Office, Domino Networks, and now Zephion? Maybe it was the West Wind that started those dominos a falling! Sincerely, Mr. Hyde
letdownatbbo 12/4/2012 | 8:52:38 PM
re: Kleiner Readies BBO's Rebirth Journalists get paid to write and to write something interesting. Hence this articale.

This time it is true, but they are not telling the reader the whole story.

BBO just secured a sizeable chunk of funding and they are about to implement some drastic restructuring that will give them a very good fighting chance. Don't count them out just yet.

Hopefully, the people left at BBO after next weeks first round of lay offs will not continue the mistakes that turned BBO from one of the strongest start ups into a company making hard decisions to survive.

BBO started over a year ago with the ingredients for corporate disaster

1. Weak, self centered, & factionalized leadership
2. Lots of funding made available for throwing around and putting up as a prize in the unending internal turf wars.

BBO hired the best tech people and some of the best managers in the field. However, the leadership was factionalized, each with its own *competeing* vision. This was made worse by middle management more concerned with getting their hunk of the pie up for grabs then actively managing their products and employees. Throw in some orgiastic spending and overhiring and you get the picture.

Imagine trying to drive a car pool to a destination , when everyone in the car pool takes a turn driving only to move the car in a differnt direction. You end up stranded in the middle of nowhere after having drained all of your gas.

BBO ended up being top heavy with managers. Now,t hey are going to cut their tech departments in the favor of out souring whatever they can. They are going to make themselves into a company of managers.

I know there are some managers there who have seen this. Hopefully they will get in power and pull the companies head out of its ass.

It would be a shame if they don't because BBO truly has a second, strong chance.
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