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Funding for startups

Startup Trouble: Curse of the V?

In the optical world, startups sporting a "V" aren't ending up victorious. Instead, "volatile" and "vulnerable" come to mind when describing companies such as Vivace Networks, Village Networks Inc., and VIPswitch Inc..

All of these startups have run into significant troubles. VIPswitch, in fact, has run out of money and has been shut down.

Here's the rundown:

  • VIPswitch has closed its doors, Light Reading has learned. The company was making a terabit edge switch for Ethernet service providers. It was a competitor to Force10 Networks Inc., Lantern Communications Inc., Extreme Networks Inc. (Nasdaq: EXTR), and Riverstone Networks Inc. (Nasdaq: RSTN), according to information from its main investor, Technocap (see Optical Ethernet Angst).

    VIPswitch apparently was not able to secure any significant funding since the $15 million round it announced in April 2000. The company's investors included Technocap, Innovatech Grand Montreal, and Davenport Ventures. The company employed 80 people (see Don Gibbs).

    Officials from VIPswitch did not return calls for this article.

  • Village Networks, makers of an MPLS-based optical edge system, went through "significant downsizing" last week, and may need some quick deals before it's forced to close up shop.

    A spokesperson confirmed the layoff, but wouldn't say exactly how many took leave. Kai Eng, founder, president, and CEO, declined to comment for this article. He sent this message through a spokesperson, via email: "Village Networks is involved in ongoing discussions with major service providers in Asia. We are hoping that these discussions will help fuel the company and its future success." Translation: If customers don't bite soon, it is all over.

    Eng founded Village in 1998 (see Village Networks and Village Unveils "Optical Packet Node"). Later, it ran into some trouble (see Village Stung by Employee Arrest and Atoga, Village Networks Scale Back). The company had raised $50 million in venture capital funding to date, plus a couple of bridge loans. Spectrum Equity Investors, Geocapital Partners, Acappella Ventures, Capital Associates, Global Crossing Ventures, The Goldman Sachs & Co., Intel Capital, and PCG Ventures helped fund the company.

  • Vivace Networks looks to be running low on funds. The MPLS switch maker launched in July 1999. Sometime late last year, according to several sources, it began to run low on funds and fired between 20 percent and 30 percent of its staff (see Looking Glass Sees $275M Round). The company employed 140 people in December 2001, according to information it supplied to Dun & Bradstreet.

    The company announced its most recent funding round of $83 million in October 2000 (see Vivace Raises $83M Third Round). At that time, the company had raised a total of $118 million from several investors including Sutter Hill Ventures, Foundation Capital, Brentwood Venture Capital, Institutional Venture Partners, Redpoint Ventures, Meritech Capital Partners, Putnam Investment Management Inc., and J.P. Morgan & Co.

    Now Vivace has mysteriously declared itself to be in "stealth mode" and has taken down all information about itself from its Website. It's also employing a professional PR agency to return reporters' calls and initially declined to comment for publication.

    Vivace CEO Ken Koenig, however, finally emailed to say that the rumors about Vivace's troubles are groundless: "Vivace is in a healthy cash position. We still have more cash in the bank than some of our peers have recently raised." The company will divulge more details at Supercomm, he says.

Of course, the "V" stigma doesn't apply to all startups. After all, Vertical Networks looks to still be quite viable, and Versatile Optical Networks cashed out when it was acquired by Vitesse Semiconductor Corp. (Nasdaq: VTSS) (see Vitesse Enters Optical).

Valiant Networks, however, didn't fare so well. That startup raised some $21 million from Kleiner Perkins Caufield & Byers, and other investors (see Valiant Tests Its Power). It also brought in $5 million in revenue during its first 12 months of business. However, sales to other startups, such as BrightLink Networks Inc., fizzled in late 2001, and Valiant shut its doors sometime between December 2001 and early 2002 (see Valiant Networks Regroups).

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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layer3 12/4/2012 | 10:39:41 PM
re: Startup Trouble: Curse of the V? Great investigative reporting, LR. With telecom start-ups dropping like flies, you've uncovered a common thread, the mystery is unsolved...the companies all have names the start with the letter "V"...Great work, the cookie monster would be proud!

Kudos for Vivace for the best spin attempt- I can see the last board meeting now: lets see, we've blown $100M in 3 years, haven't sold a thing, don't have a product, what do we do now? I know- let's go into stealth mode!!

Wow- scary stuff...

L3
wbe 12/4/2012 | 10:39:40 PM
re: Startup Trouble: Curse of the V? Unfortunately, majority of those who got laid off is looking towards a long wait before getting a suitable job.
zipple 12/4/2012 | 10:39:40 PM
re: Startup Trouble: Curse of the V? Looking forward to the complete survey of the alphabet.
optical_man 12/4/2012 | 10:39:38 PM
re: Startup Trouble: Curse of the V? Personally, I've noticed it's a North v. South thing. Any company with a letter after M (that's the alphabet's Mason Dixon line) is in trouble, while those starting with A-L are crusing along just fine......

Someone should call in a famous preacher to stop this "Alphabet Digital Divide" and demand justice to all the poor 'southern' letters.
cuckoo 12/4/2012 | 10:39:38 PM
re: Startup Trouble: Curse of the V? What about Enron?
In Telecom, what about Lucent?
PhotonGolf 12/4/2012 | 10:39:36 PM
re: Startup Trouble: Curse of the V?
Hey ... it was a joke!
BBBoa 12/4/2012 | 10:39:36 PM
re: Startup Trouble: Curse of the V? Using Lightreading logic:

Verizon will be shutting it's doors soon, along with all Venture capital firms.

What's next? Curse of the L? Look out LuxN, Luminous, Lucent and Lightreading!
APS_ST 12/4/2012 | 10:39:36 PM
re: Startup Trouble: Curse of the V? How about Polaris Networks?
dwdm2 12/4/2012 | 10:39:34 PM
re: Startup Trouble: Curse of the V? I have two suggestions for Lightreading or for Phil Harvey:

1. A survey report of the companies that are not widely discussed in the optical realm yet they have significant market share.

2. How about a report describing a "model" optical company? Something similar to the "Long-Haul WDM: RFI Exercise" we saw before.
It could be an exercise for the "startup wanabees" or the companies who learned the hard way. Given the termoil of last year and this year, how would one go about managing/running a company with a reasonable VC to make it a succes?

AR
dwdm2 12/4/2012 | 10:39:34 PM
re: Startup Trouble: Curse of the V? Phil Harvey wanted to point out a pattern with "V" companies, and I think he has a point. As another poster pointed out, patterns - one kind or another, could be found in perhaps other alphabets such as L or C.

Inthemeantime, many companies who are not known for their optical business, are doing pretty well in the optics arena.

These companies albeit unknown, are integral part of the optical market, and therefore, need to be discussed for a complete picture.

AR
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