Rumors Rampant as Startup Woes Mount

The current economic slowdown is taking a further toll on optical startups. Not a week goes by without news of more once-promising companies hitting hard times or going out of business. Recent examples include the demise of Zenastra Photonics (see Zenastra Photonics: RIP) as well as losses in the startup stables of Wu-Fu Chen and The Iris Group (see Wu-Fu Chen Startups Hit the Skids and Iris Group Wilts; Metera Next to Shutter).

This week's barely begun, but at least two companies are showing up on the startup distress list. This afternoon, Caspian Networks (see Caspian Networks), the terabit switch startup founded by Internet luminary Larry Roberts, laid off 30 people, roughly 10 percent of its workforce.

"This move won't affect our product delivery schedule," says spokesman Dallas Kachan. "We've taken some modest reductions to increase our efficiency and cut our burn rate." While Kachan acknowledges that most of the cuts are coming from engineering, he says the company still plans product availability for mid-2002.

Meanwhile, rumors are circulating that Jasmine Networks also has hit hard times. Founded in November 1999, the ASIC-based multiprotocol switch startup already has been through substantial layoffs and management changes.

Sources say most of Jasmine's $72 million in venture capital was spent on a project for Nortel Networks Corp. (NYSE/Toronto: NT). Now Nortel seems to have cut back its orders, leaving Jasmine in the lurch (see Is the Bloom off Jasmine?).

But just what's going on is tough to determine. Contacts didn't return calls at press time, and the phones appear to be in automated attendant mode.

Analysts say stories like these will no doubt be repeated, as companies struggle with the present cutbacks in venture spending and capital buildouts.

"A year ago, I would have said a startup with problems was a sign that a company's product wasn't working or that the market wasn't there. Now I think it's a sign of the times," says Christopher Nicoll, director at Current Analysis.

Nicoll says layoffs and worse will continue in this environment because spending is depressed. Still, it's important to keep a perspective. Layoffs aren't necessarily a sign of pending demise. Much has to do with the size of the layoff. "If a firm's laying off 10 to 30 percent of staff, I'd say it's probably a sign they're trying to cut expenses to bridge the time until the next funding round," he notes. More than that, however, may indicate something is fundamentally awry with the business.

In contrast, startups that don't lay off, even in this environment, can be commended. Nicoll says those are the ones that have made the best choices about building their companies.

In the current atmosphere, it's not surprising layoff rumors abound, some of them apparently groundless. Today, for instance, sources at LuxN Inc. and Yafo Networks denied rumors that are circulating that there have been layoffs at the companies.

LuxN spokesman Rich Farana says there have been no recent layoffs, although he acknowledges there was a "minor layoff" of an undisclosed number of employees at the company six months ago. He says the company's been hiring and continues to develop its enterprise and metro DWDM gear (see LuxN Goes Metro).

Yafo has a similar response: "I can't comment on funding plans, but there have been no layoffs here," says Yafo spokesman Jeff Ferry. He suggests that rumors may have been planted by folk jealous of Yafo's recent praise from market researchers. Yafo makes polarization mode dispersion compensators that bolt onto existing DWDM equipment (see Can Yafo Lift Speed Limits?).

— Mary Jander, Senior Editor, Light Reading
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workerbee 12/4/2012 | 7:44:58 PM
re: Rumors Rampant as Startup Woes Mount Has anybody heard anything new about Nanovation Technologies??
tulip 12/4/2012 | 7:44:53 PM
re: Rumors Rampant as Startup Woes Mount From a friend who used to work there, there were indeed layoffs in May and June, even though the company denied it! People in engineering, marketing, human resources, finance, etc. were affected.
noitall 12/4/2012 | 7:44:53 PM
re: Rumors Rampant as Startup Woes Mount not easy, huh?

getalight2001 12/4/2012 | 7:44:52 PM
re: Rumors Rampant as Startup Woes Mount Am I the only one who thinks LightReading 'shouts with glee' everytime an optical company takes a dive? I can just see them grinning and chuckling to themselves, "Hey, there goes another start-up in the toilet!"

Of course, if we are all out of work, who will care what's on the LR web-site?

Steve, Scott, Peter: Stop biting the hands that feed you...your readership.
StartUpGuy1 12/4/2012 | 7:44:52 PM
re: Rumors Rampant as Startup Woes Mount Luxn has laid off field sales personnel in the last 3 weeks. This is from the people who got laid off....
nbwaite 12/4/2012 | 7:44:50 PM
re: Rumors Rampant as Startup Woes Mount Explanation:

As C. P. Snow, explained, there are two cultures in
the world: (1) science and (2) humanities. And,
they are different in their approaches. The
approach of science is objective truth external to
humans over emotions internal to humans, and the
humanities is the opposite, along with emphasis on
passion, pathos, poignancy -- concentrate on how
people feel but ignore doing anything effective
about it.

LR is very much from the traditional center of the
'media' which is very much part of Snow's humanities
culture. Although LR is writing about optical
technology and business, their approaches are still
the traditional ones from the humanities culture.

The main goal of the media is to get attention.
They are essentially the smelly bait for the
advertising hook.

Their approach to getting attention is to grab
people, by the heart, the gut, or lower still.
Above the shoulders or between the ears is not part
of the tradition.

The Greeks discovered that a sure-fire way to get
and hold attention is what we now call 'formula
fiction'. So, there are actors we are interested in
and dramatic things happen to them.

People that write about business, especially about
start-ups, have just two basic stories: (1) the
market is going up, up, up; (2) the market is going
down, down, down. The first story is what helped
blow the bubbles. Once the bubbles wouldn't inflate
further, the second story takes over. Two years
ago, you saw the first story; now you are seeing the

Both stories are just to grab people well below the
shoulders. Neither story has much to do with
reality in the technology or the business.

You may notice that the VCs were mostly not the best
students in the classes in advanced calculus and
Maxwell's equations. Really, the VCs look carefully
at what the media is pushing since the VCs believe
that it the media that creates the real market for
the stock, the 'exit', once the lock-up period is

This system has done well pulling down the 401(K)
accounts of gullible individual investors.

So far, fleecing individual investors has been
sooooooo much more attractive than building valuable
real businesses.

Or, for any real business opportunity with
technology, it is sooooooo much easier to construct
hollow paper mache imitations and sell those off
as the real things.

Fundamentally entrepreneurs and VCs are trying to
create paper they can sell for cash that they can
then invest in something less risky, e.g., an index
fund -- it is all very much about selling. It is
'caveat emptor', and as long as people are willing
to let the media grab them below the shoulders and
buy junk, there will be plenty of people selling

We do very clearly realize that the media is
supposed to inform us so that we will have the
knowledge as citizens, in business, and as
individuals to make good decisions. That the media
just pushes out Greek formula fiction as such
information and that people continue to receive it
is one of the larger constraints on the Ascent of

But, in the media, the culture is deeply ingrained:
They have their traditions, and the people from
Snow's science culture will less welcome than a
quantum mechanics lecture in a Shakespeare play.

That fiction didn't mean much when the bubble was
ascending, and it doesn't mean much now that it is
descending. Instead, one of the larger events in
these decades in our civilization is the rise of
optical digital communications. The event is based
on some really solid fundamentals, is unstoppable,
has a very long way to go, and will continue rapidly
for some years yet. The media might fill in this
picture, but the media's highly sensitive humanities
culture emotions detect that this picture would be
low on passion, pathos, and poignancy and, thus,
ignores it.

But, this whole system still has next to nothing to
do with using technology to get revenue, earnings,
and a solid valuable business, and the fact that the
whole system is ignoring such things is a business
opportunity. One wise investor said that he was
very accommodating: When everyone wanted to buy, he
sold; when everyone wanted to sell, be bought.

When our serious work is done, one reaction is just
to listen to some Bach: Of course, the music
doesn't mean anything, but it is not confused by
meaningless words, and the artistic content is much
richer than in the media or literature.

Next is to do really well with technology in
business and have the wives take their daughters
shopping at Miss Pym's and then to a Ravel-Debussy
concert and then to a dinner with Meursault,
Chambertin, Chiberta, Sauce Chasseur, etc.

For the media, it fills a much needed gap in our
culture and would be illuminating if ignited.

For the VCs, they can look back on what they have
wrought, what good businesses they have helped start
and guide, and what contributions to economic
productivity, our civilization, and the Ascent of
Man they have accomplished. Indeed, we can all
Peter Heywood 12/4/2012 | 7:44:50 PM
re: Rumors Rampant as Startup Woes Mount Don't kill the messenger, please. We don't enjoy writing about companies in trouble and folk being laid off. However, it is something that folk want to know about - and even need to know about. It would be very strange if we didn't cover it, seeing as it's really the main issue right now.

We are aware that the headline layoff totals disguise the fact that a lot of people that get laid off have got families who depend on them, and that there is a very personal side to all of this.
HarveyMudd 12/4/2012 | 7:44:49 PM
re: Rumors Rampant as Startup Woes Mount You are definitely wrong. A start-up takes a dive because it should not have in the business it started. In this procees it took the Vc money for two or three years. The company cheated the VCs, its employees, and other investors.

Most of these guys would get hold of another Vc and start another venture and do the same thing. When a start-upgoes down so does the character of the management.

There are over 800 optical companies? Many of these compaqnies have obtained funding throgh dishonest means. A simple profile of these companies would lead us to that conclusion.
dc_optics 12/4/2012 | 7:44:49 PM
re: Rumors Rampant as Startup Woes Mount Heard that Cogent cut 25% of their staff. Looks as if they are following the Pathnet formula.
MKTG_Hack 12/4/2012 | 7:44:48 PM
re: Rumors Rampant as Startup Woes Mount Most of these companies were started for the sole purpose of selling out quickly to LU, CSCO, or NT for big profits. Few of these "leaders" wanted an ongoing business but now that it looks as though that's the only option, they're closing up shop.
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