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PhotonGolf
PhotonGolf
12/4/2012 | 10:52:35 PM
re: Caspian Closes With $120M

Drew,

Congrats and good luck! I hope you and Caspian succeed.

I think these boards often struggle to see the forest from the trees, so a macro view always helps.

Perhaps most are too young to recognize a correction from a meltdown. There is no internet meltdown. There is too much *real* productivity to be gained from such connectivity. Productivity is the key to the macro economy. The pull might not be this quarter or next, but it will be strong and last a long, long time.

Those that make investments now, when things seem uncertain, are those that reap the reward when things turn. Cheers to VCs like you that have the sack!

P
Drew Lanza
Drew Lanza
12/4/2012 | 10:52:35 PM
re: Caspian Closes With $120M
Hi!

As one of the VC's who helped to put $120M into Caspian I'd love to jump in and address a number of these questions. Unfortunately, the company has asked us to "run silent, run deep" about the company and the product for the time being and I have to respect their decision.

At a higher level, however, I don't think anybody will mind if I make the following observations:

1. Internet growth and demand continues unabated. Is it 1.5x per year? 2x? 2.5x? 3x? It depends on how you measure it and where in the network you're looking. It's still big.

2. When we did diligence on the investment, we heard the same three things over and over again from the carriers we spoke with. Scalability, reliability, and cost. As one of the people we talked to said (and somebody who has built a core network from scratch and is one of the best known people in the industry), "I have to rip out and replace my core boxes every two years. How come I can't just buy more of what I just ran out of?"

3. Every market has push and pull. In this market, the carriers 'pull' and the systems vendors 'push'. It works best when push and pull are synced up. Before we can get Internet to the masses we need to have the folks who push and the folks who pull sync up on a much lower cost model for delivering Internet bits. Larry Roberts, the founder and Chairman of Caspian is doing his darndest to grease the pipe. Go Larry, go!

There are a lot of good companies out there trying hard to lower the cost of providing Internet service. The economic engine that fuels the Internet appears to have 'seized' up. We're doing everything we can to get it moving again.

Keep your fingers crossed.

Drew
skeptic
skeptic
12/4/2012 | 10:52:34 PM
re: Caspian Closes With $120M
1) Market: The core router market is in decline. The Terabit router market (very high end) is small anyway, and years away. Customers are in trouble; Enron/GX/Willians/360Networks ...
-----------

Some customers are in trouble, but they were not
the best customers in the first place. Anyone
who dealt with three of the four you mentioned
(Enron/Williams/360networks) knew that there
things wrong on the networking side long before
they went bankrupt.

There are other companies that while having
high debt burdens for the moment, will still
come out in the end looking to grow their
networks.

As far as the core router market being in
decline, it depends on how you measure the
core router market. The biggest thing depressing
the market now seems often to be a glut of used
equipment flooding into the market. Its certainly
not growing roubustly right now as a market, but
the traffic trends are going to force more
capacity to be deployed. Its only a matter
of the timing.



2) Competition: Cisco and Juniper rule the market. They are the best companies in the game. Competing with them in this space is like competing MSFT in OS.
---------

Only this isn't the same game as computers. There
is nothing beyond time and knowledge that prevents
other companies from building the same products
as cisco and juniper. Cisco doesn't have MSFT's
key advantage which is leveraging the OS by
the applications. And when they try, the market
rejects them (EIGRP long ago is a case in point).

And there are people, who while they deal with
cisco, don't like cisco and might push them out
the door if something better came along.

As far as juniper goes, their hold on the market
isn't as strong as it seems. They get a certain
natural advantage by being the only game in town
for people who don't want to deal with cisco,
but thats bread its own culture of arrogance.
There is certainly frustration among some people
with what the delivered as "gibson".




3) Barrier to enter is very high. Core router is not just about product itself; there is a question of trust. If things go wrong, you bring down the whole network.

---------------

Very true. But that a matter of time, money
and the attitude of the company toward customers.
Juniper proved that it can be done.




4) First to market. Juniper and cisco have 10G for 2-3 years. Their higher end is in trial. They have not rolled out because they cannot find a damn customer (who wants to buy a $6m box, please raise your hand:-)
-------------

That just not true. Cisco's new high-end system
is not in trial as far as I know. As far as
Juniper, gibson showed up late. And juniper
certainly didn't do that intentionally.





ARBoy
ARBoy
12/4/2012 | 10:52:34 PM
re: Caspian Closes With $120M
Find it hard to believe that Drew Lanza of Morgenthaler would be posting on a LR message thread related to a company that had just been funded. That doesn't seem very professional?? Also, it's doubtful that same would be saying things like "keep your fingers crossed" on the board. Don't see too many VC's on the threads and certainly not identifying themselves.

This funding of Caspian hasn't been fully analyzed yet - there's a hefty price that has to be paid for $120M and we just don't know what it is yet.
Drew Lanza
Drew Lanza
12/4/2012 | 10:52:33 PM
re: Caspian Closes With $120M
ARBoy:

It really is me, Drew Lanza. I'm a General Partner at Morgenthaler and worked with a team of folks to lead the Caspian investment.

I've been enjoying LightReading since its inception and wanted to get in on the discussion here. I have to respect the company's wishes to stay quiet, but that doesn't mean I can't comment on the industry in general. The press release went out this morning, so our involvement with Caspian is no longer a secret.

As for the "Keep your fingers crossed", it can't hurt. Success or failure is as much a function of things that are outside of our control as it is of things that are the direct result of our hard work and vision. As Branch Rickey said, "Luck is the residue of design."

I like Caspian's design. A lot. A return to a more robust economy wouldn't hurt either

Drew
flanker
flanker
12/4/2012 | 10:52:33 PM
re: Caspian Closes With $120M
How does a VC decide to invest or not?

Based on what I've seen, it's either tarot cards or palm readings.
xoip
xoip
12/4/2012 | 10:52:33 PM
re: Caspian Closes With $120M
Could somebody explain this amazing feat

What is the magic
- Investors
- CTO/CEO
- viable product development plan
- On going Trials
- Internet traffic projection
- Others

XoIP

ARBoy
ARBoy
12/4/2012 | 10:52:32 PM
re: Caspian Closes With $120M
Well, I do admire you for your honesty Drew. Just didn't seem like it would be the appropriate thing to do.

Certainly agree with you on the luck quotient these days. I am interested in how you decided to fund Caspian given that their market is not growing, they're at fourth round, they must have a high burn rate with so many employees and the competition is fierce? At last count, there were many, many players in the core router market and two of those, Cisco and Juniper, are not going to give up their spoils easily. Someone posted earlier that Caspian could now buy Avici with the $120M because Avici's cap is less than $100M. What will make Caspian different to Avici and I'm not just talking about technology because that's not the only deciding element in a carrier purchase. Why will Caspian be able to sell to AT&T, SBC, Verizon, Bell South, Worldcom and others where Avici couldn't?

I'm sure the terms of the deal were vastly in favor of you and the other investors given that the chance of real return on this is extremely low given the market. Do you see employee fallout now that their options are more than likely worthless after four rounds of funding?

I know that you won't/can't answer some of the above but thought I'd ask. Many of us on these boards work for large and small companies alike and we're curious how these types of decisions are made. To the majority of us on this board, Caspian was nowhere (still could be nowhere) so to see them getting any funding was a major surprise.
xxxx1455
xxxx1455
12/4/2012 | 10:52:32 PM
re: Caspian Closes With $120M
The results are in for this years survivors. Most of the layoffs are done (I hope), and the money is in. Every company is in lab/field trials already, or supposed to be by the end of the year. Unfortunetly the market isnGÇÖt big enough for everyone. This is high stakes gambling at its finest!

ThereGÇÖs hundreds of millions of dollars at stake.
Nearly a billion options at stake.
3-5 thousand man-years of effort.

Caspian is in the lead with the biggest round. Chiaro is probably in the lead with the highest valuation (since they claim to have not washed out).

Caspian $120 million
Chiaro $80 million
Pluris $50 million
Hyperchip $43 million

Will there be another Juniper? Or will they all bite the dust? The only thing for sure, is that it will be an exciting year.
dave@dwdmr.com
[email protected]
12/4/2012 | 10:52:32 PM
re: Caspian Closes With $120M
Hi Drew

Brave man to own up to being a VC on Lightreading's boards. I figure the lynch mob is probably just at the end of your street as we speak.

Everybody talks about Cost. No one talks about Revenue or Profit.

As a VC that has decided to invest (reinvest) in this space could you provide a 30,000 ft view of the applications / suppliers that will drive demand and explain how you see the various participants make a profit.

Content provider
Infrastructer provider
etc.

Best wishes

Dave
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