Funding for startups

Zaffire Gets Zapped

It’s only February and already it looks like Zaffire Inc. is not having a good year. A month after the metropolitan area DWDM startup announced a $20 million contract with FiberStreet Inc., the service provider has gone out of business (see Zaffire Scores $20M Contract).

Last Friday FiberStreet, an IP/Ethernet service provider, shut its doors for good and dismantled its Website after it was unable to find investors for its second round of funding. Crescendo Ventures and Morgenthaler Ventures had both contributed $2.5 million to the company’s $6 million first round about nine months ago. But the firms were unwilling to continue pouring money into the project.

“It was more a matter of timing than anything else,” says Jeff Hink, general partner with Crescendo. “With the markets the way they are now, we were unable to get a large syndicate to participate in the round.

“Service providers require hundreds of millions in capital before they even break even. And we couldn’t do it on our own."

For Zaffire, FiberStreet’s collapse is a serious blow as the company struggles to carve out a legitimate niche in the metro area market. While the startup boasts that it has 15 deployments in 11 service provider networks, it has only announced two: FiberStreet and BroadBand Office Inc., which is also rumored to be in financial trouble (see Kleiner Readies BBO's Rebirth).

But this is not the only bad news to come out of Zaffire lately. Recent shuffles in upper management spurred a wave of negative grumblings throughout the industry (see Zaffire: 'We're not for Sale'). And the day before the company announced its $20 million contract with FiberStreet, it was in the midst of a PR crisis. The company had just laid off 20 percent of its sales team (see Zaffire Fires 20% of Sales Team). The announcement seemed like an attempt to quell worries and reassure investors that the company was still on track.

Now with FiberStreet out of the picture, the company seems to be back where it started.

The FiberStreet/Zaffire situation is not unique. New service providers tend to be some of the first customer wins that startups announce. And while revenue isn’t always realized right away, it gives investors something to look forward to in the future. But as more and more of these service providers go out of business due to a lack of funding, system startups are hard pressed to show real customers to investors.

CoSine Communications Inc., which makes an IP service delivery platform, found itself in a similar situation to Zaffire when U.K.-based AduroNet Ltd. started winding down its business last week (see AduroNet Goes Bust). Like FiberStreet, AduroNet agreed to buy $20 million worth of CoSine equipment and then went out of business.

Other startups have complained that service provider instability has caused them to waste valuable time and resources in setting up deals with companies that end up crashing. For example, Ellacoya Networks Inc., a service provisioning startup based in New Hampshire, had been in talks with Digital Broadband Communications when the Boston-based data CLEC went bust earlier this year, according to Michael Welts, Ellacoya's VP of marketing. (see Digital Broadband Fades Away)

Dan Gatti, president and CEO of Mayan Networks Inc., a next-generation Sonet startup, says that the current market conditions have resulted in several setbacks for his company. And after a year of marketing hype, Mayan still hasn’t announced a customer win.

“There are a number of CLECs in trouble now,” he says. “And we’ve worked with a couple of them. Sure, it impacts us, because you have to spend a lot of effort and time to get the sales traction with customers. It just makes your product ramp that much slower. ”

As for Zaffire, it’s still up in the air how the company will survive this latest bout of bad news. For now, the company has refused to comment on the FiberStreet situation.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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light_on_dude 12/4/2012 | 8:52:36 PM
re: Zaffire Gets Zapped I don't get it? why did you include me in your post?
birdieking 12/4/2012 | 8:52:36 PM
re: Zaffire Gets Zapped Hey lux, do you work for Luxn...sounds like it by your handle....when are they going to call it a day with their architecture.
gig5 12/4/2012 | 8:52:36 PM
re: Zaffire Gets Zapped Lux-
Your logic is worse than your grammar.
No new job yet? ouch.
lux 12/4/2012 | 8:52:37 PM
re: Zaffire Gets Zapped You guys keep talking about Zaffire's good product architecture. What good architecture? The only adventage of their architecture is that it provides a cheap solution for those companies who do not have enough funding yet want to some business in telecommunication industry. Nothing else. Period. FiberStreet is a good example.
Dr. Freud 12/4/2012 | 8:52:39 PM
re: Zaffire Gets Zapped <title>If you spent anytime at all doing any type of research, you would realize that Zaffire is one of the most prominent and successful company's in the country.</title>

<meta content="WHAT A TOTAL CROCK. EAT SOME GRANOLA.&gt;&lt;br&gt;&lt;br&gt;" name="description">
Dr. Freud 12/4/2012 | 8:52:40 PM
re: Zaffire Gets Zapped <font size="-1">

<<if all="" and="" any="" anytime="" at="" company's="" country="" doing="" in="" is="" most="" of="" one="" prominent="" realize="" research,="" spent="" successful="" that="" the="" type="" would="" you="" zaffire="">>

<meta a="" content="WHAT" crock="" eat="" granola="" name="description" of="" shit.="" some="" total=""></if></font>
scsurfer 12/4/2012 | 8:52:49 PM
re: Zaffire Gets Zapped I here that ONI, Sorrento and AstralPoint no longer consider Zaffire as even a remote competitive threat. Instead, they're focused on strategies designed to win business away from real optical competitors like Ciena, Nortel and Lucent. I think it boils down to something like this: with customers like FS, who needs enemies.
scsurfer 12/4/2012 | 8:52:49 PM
re: Zaffire Gets Zapped Brother, you're in wrong business, you need to give up answering the phones over at Zaffire and become a writer of fiction. You've got a real future when it comes to making up stories, maybe Near can proofread them for you.
Qeyton 12/4/2012 | 8:52:50 PM
re: Zaffire Gets Zapped I think it was on LR that I read just recently the Staff their was divided 50/50 on whether to add Zaffire to the top 10 list and in the end Zaffire didn't make it, but it did not mean that they would not be added in the future.

If 90% of all current star-ups are going to fail (as previously mentioned by VK of KP) then I still think that Zaffire will find a much softer landing than the majority of others. Just too many things going for this company...product architecture, market opportunity, financial support

enough already 12/4/2012 | 8:52:50 PM
re: Zaffire Gets Zapped
This sums up what's wrong with these boards. Half the people in here don't have a vested interest, and are just trying to get information and have a nice, pleasant discussion about optical networking issues.

The other half either work for the companies that are being written about, or own options/tock in them.

While the first half are trying to talk, the other half but in with these BLAH BLAH BLAH messages. I mean, who do you think you're convincing? This message (below) is classic drivel. BLAH BLAH BLAH.

Have you READ what's going on at Zaffire? One screw up after another.

You work there. We don't. We don't CARE what you think. Do us all a favor and stop wasting our time.

"Light reading!
Are you all a bunch of highschool drop-outs? If you spent anytime at all doing any type of research, you would realize that Zaffire is one of the most prominent and successful company's in the country. The future of Zaffire is nothing less than superb,the leadership and engineers at Zaffire are amongst the best. The only thing that I can figure out is that you tried to get a job at Zaffire and they said,"sorry, you are too stupid to work here" so now you must feel revenge and can only do it through email.

Maybe someday, you will spend some time researching what you write and possibly are able to get a job somewhere that you like. But for now, while you are moonlighting at McDonald's, I will take a biggy fry with my hamburger or instead, while you and your entire family are cleaning my toilet bowls I will let you read articles on how successful Zaffire is."
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