As in the fable of the hare and the tortoise, it's not always the fastest who wins the race. That seems to be the case with two startups that spun out of the the National Research Council of Canada to commercialise the technology of echelle gratings -- planar waveguide devices for wavelength multiplexing (see Echelle Gratings Make a Comeback).

The hare in the race, Optenia Inc., ceased operations earlier this month, while the tortoise, MetroPhotonics Inc., appears to be progressing steadily and could end up even stronger because of the collapse of its opponent.

Optenia had announced products; MetroPhotonics is still in stealth mode.

The closure puts 44 employees out of work. Although not actually bankrupt, Optenia said in a statement that it has appointed an administrator, which in the majority of cases means that it will be wound up.

Stories about Optenia's failure abound in the Canadian Press. According to one story in the Ottawa Citizen, the crunch came on February 25 when JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) backed out of its promised investment, immediately following its own gloomy financial results (see JDSU Reports Q2 Losses ).

But the startup's fundraising problems had started a lot earlier than that. "It was unable to raise any money beyond its seed round," one source familiar with the situation told Light Reading.

Optenia was founded in January 2001 as a joint venture between the NRC and Mitel Semiconductor -- now Zarlink Semiconductor Inc. (NYSE/Toronto: ZL). Mitel got the show on the road with a contribution of approximately Can$7.6 million (US$4.8 million), equipment with a carrying value of approximately Can$1 million (US$630,000), and skilled personnel, according to SEC filings.

The Ottawa Citizen puts some flesh on this story. At the time of its seed funding, Optenia also got an offer from a "major Canadian bank," which was prepared to put in up to US$10 million. But in February 2001, the bank pulled out, following the recommendations of its U.S. unit, which was discouraging new investments in optical startups. Other VCs had been given the same advice, it seems -- none was prepared to invest in an optical networking startup, however good the technology.

JDSU was the first investor to show real interest, with an offer of $2.5 million to $3 million in May 2001. It offered more if other investors came on board. To cut a long story short, the plan was to raise $5 million from JDSU, and an equivalent amount from Canadian investors, which weren't so badly hit by the technology downturn. Several big investors seemed keen but placed too many conditions on their investments. And when JDSU pulled out, the whole pack of cards fell down, according to the paper, which says that it got this version of events from Moris Simson, Optenia's CEO.

Simson himself pulled the plug, deciding to wind down operations in an orderly fashion before the money ran out completely, the paper adds. The technology will be sold to the highest bidder.

However, other versions of the story differ slightly. Sources close to the company say that some of Optenia's problems stemmed from its management, which had riled investors. Zarlink didn't wish to comment, and Optenia executives could not be reached.

Meanwhile, MetroPhotonics has already managed to gain some advantage from Optenia's demise. Last week, it appointed ex-Optenia executive and Nortel Networks Corp. (NYSE/Toronto: NT) veteran David Clarke as its new VP of finance and business development, filling some key holes in its executive lineup (see MetroPhotonics Names Finance VP).

Optenia's departure also puts to rest any perceived conflict between the two companies in the area of patents licensing from the NRC. Indeed, it leaves MetroPhotonics free to negotiate further licenses from the NRC without competition.

Although the last year has not been a smooth one for MetroPhotonics, either, it appears to be better funded than was Optenia. In October 2000, it raised Can$62.5 million, or approximately US$40 million, one of the largest rounds ever for a components company in Canada (see MetroPhotonics Raises $62.5M CDN).

— Pauline Rigby, Senior Editor, Light Reading
http://www.lightreading.com