Switch Startups Seek Funding

VCs asked to dig deep as wireless LAN switch vendors start to ramp up commercial operations

May 30, 2003

4 Min Read
Switch Startups Seek Funding

Enthusiasm for wireless LAN switches may be at an all-time high (and rising), but startups targeting this potentially lucrative market will soon need a fresh injection of funds to compete against the big names like Extreme Networks Inc. (Nasdaq: EXTR), Nortel Networks Corp. (NYSE/Toronto: NT), and Symbol Technologies Inc. (NYSE: SBL).

At issue is how the startups actually market, sell, and support their equipment now that they have demonstrated, and in some cases actually shipped, production quality equipment -- especially when the more established competitors already have experienced teams working in these fields.

According to "Wireless LAN Switches: The Market Makers," the latest report from Unstrung Insider -- Light Reading Inc.'s subscription research service devoted to analysis of the wireless economy -- venture capitalists have so far invested $116 million in eight switch startups, a figure that looks wholly inadequate, given the size of the task facing these vendors. The startups themselves certainly agree, and at least four of them -- Aruba Networks Inc., Bandspeed Inc., Chantry Networks Inc., and Trapeze Networks Inc. -- are set to announce new funding in the next few months.

Table 1: Wireless LAN Switch Startup Funding






$15.5 million



AirFlow Networks

$8 million

Expected 3Q 2003

Not known

Aruba Networks

$10 million




$15 million

Expected 3Q 2003


Chantry Networks

$12 million

June 2003


Legra Systems

$8.5 million

3Q 2003


Trapeze Networks

$16 million

June 2003



$29 million



Aruba says it is at the tail-end of closing its $20 million Series B, and Chantry says it's currently seeking a Series B of around $10 million to $15 million. Bandspeed and Trapeze are more circumspect and are not yet ready to disclose specifics, but they’ll have to talk cold, hard cash sooner rather than later, if only to win the confidence of customers and business partners.

George Prodan, senior VP of marketing at Trapeze, believes all of the wireless switch startups will need more than one round of funding to carry off their plans and make it to profitability. “A second round of funding has always been a part of our plan,” he says.

Rod Randall, a general partner at St. Paul Venture Capitaland an investor in Bluesocket Inc. (a company that competes in broadly the same market) says he thinks wireless LAN switch plays are “probably in the less-than-$50-million category,” in terms of what they’ll need to reach profitability.

Not to put too fine a point on it, but the startups are now at the point where they need to ramp up headcount in sales, marketing, and, crucially, product support. Without this, the risk is that they won’t grow fast enough to establish themselves before the big-name vendors smother the market.

David Callisch, communications director at Aruba, says it can be tricky to strike a balance between prudence and ambition. “We’ve maybe focused too much on the engineering side and don’t have enough sales guys,” he concedes. “We need to ramp faster, and we’ll do that once we close the second round.”

But Callisch also warns that hiring too many sales personnel can make it difficult to properly support your customers. Typically, he says, many customers want to evaluate a single box before going on to a wider rollout, and if the vendor doesn’t have sufficient support engineers to smooth the first installation, it’s harder to up-sell later on. “In this market you only get one shot,” he says.

Paul DeBeasi, VP of product management at Legra Systems,says they’ll be seeking funding in the second half of this year, while explaining that they have so far spent just $3 million of the $8.5 million they raised in Series A to develop a working product.

Airespace Inc. says it will be “raising money sometime in the future.”

— Gabriel Brown, Research Analyst, Unstrung

The full report -- Wireless LAN Switches: The Market Makers -- costs $400. An annual subscription to the Insider is ordinarily $1,250, but is currently available at the special introductory price of $899. For more information, including subscription information and research examples, go to: Unstrung Insider.

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