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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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Rockford 12/4/2012 | 8:53:34 PM
re: Zaffire Gets Zapped It's not even the destructive tone of this article that troubles me most, it's the fact that Zaffire was the target...when Fiber-street went out of business. Most certainly they should have been mentioned, but the menacing spirit with which LR attacked Zaffire is odd at best, and vindictive at worst.

People at Zaffire have told me that they belive Lightreading is targeting them, and until now, I thought it was just good-old fashioned LR tabloid journalism. Many recent posts are claiming that Steve Saunders and company are singling out non-advertisers and those backed by certain VCs.

Lightreading is damaging the indstry it claims to be a part of.
aa 12/4/2012 | 8:53:33 PM
re: Zaffire Gets Zapped
I dont see anything wrong with the article
or title. The way I read it is that Zaffire
is able to attract only marginal customers.

Good customers with any chance of survival
are going elsewhere for equipment. The only
customers they have are questionable (1 went out
of business - the other comes from the same
VC group - questioning the motivation).

If this was the only stumble by Z, thats one
thing. But put together with past events, the
title and article have the right tone.
jtmrvc 12/4/2012 | 8:53:32 PM
re: Zaffire Gets Zapped Lightreading couldn't take Zaffire being rated as one of the ten best private companies at Optix 2001. The "Investors' Choice" awards highlight the top private optical communications companies "deemed most likely to SUCCEED, conference officials said." Everybody else in the industry totally believes in their solution and management Lightreading just wants some atention for being diffrent.
Mitch Komstein 12/4/2012 | 8:53:31 PM
re: Zaffire Gets Zapped Nothing wrong with the title or headline? AA, are you sniffing old bottles of Johnnie Walker again? You might want to hop back on the wagon or attend a weekly meeting every now and then.

There are multitudes of optical vendors well behind Zaffire. When a CEO comes in, breaks down the staff, and rebuilds it again, it most always translates into postive results.

FS closes. Zaffire gets their testicles yanked out by Lightreading in an attempt to bring Zaffire down once again. This article is horsesh*t. Anyone in the know sees it.

Small start-ups beware: Advertise in Lightreading, make monthly payments to Steve Saunders and his hacks, or make sure you stay the hell off their radar screens.
dw 12/4/2012 | 8:53:30 PM
re: Zaffire Gets Zapped Not only does BroadBand Office have the same VC, they are also an investor of Zaffire. LightReading is only reporting the facts: Zaffire has had 3 CEOs in less than a year, they had a large lay-off, and their only announced customer is also an investor. This is objective reporting in my mind.
Jimi 12/4/2012 | 8:53:29 PM
re: Zaffire Gets Zapped Margalit was a stand in CEO. He was trying to lead his company like any founder would. The new guy cleaned house, that much is true. Did you get the axe like little Nickie? Are you bitter? Cause we're hiring over here....
Jimi 12/4/2012 | 8:53:29 PM
re: Zaffire Gets Zapped You sound a little bitter there Nickie. Did you used to work at Zaffire? It's hard to hide emotions when you get the axe. My company is hiring but I couldn't recommend you because you are way too negative. You should be careful with your words. You might hurt someone's feelings.

IDIOT!
ZafFooled 12/4/2012 | 8:53:28 PM
re: Zaffire Gets Zapped The ongoing thread of news from Zaffire is nothing short of amazing. I think we should keep Zaffire, their alleged customers and LR around for as long as possible; the entertainment value alone is worth everyone's effort, especially those of us with nothing better to do than post messages about a company that won't around much past June 2001.

The fact is this: Zaffire has had its ass kicked and handed back to it by either ONI or Nortel in every account they've approached. I could name them all but won't bother. If you don't beleive me, just ask ONI where they have been winning business. And to make matters worse for Z, ONI is probably going top be picking up steam real fast.

To those of you left at Zaffire: sorry, but ONI's products, people, market position, traction and focus are far superior to anything Zaffire has to offer. I've talked to the people at ONI; beleive me, you guys at Z don't have a prayer. Therefore, you should quit torturing yourselves, leave on your own terms, not Zaffire's and find a place to better apply your many talents.
Person 12/4/2012 | 8:53:28 PM
re: Zaffire Gets Zapped Thanks for the input Steve, I mean Maggie, I mean Scott...

> The article was credible and on the money.
I think you ladies need to loosen the girdle a bit and do some research on your own.

You'll see what LR has been reporting for a long, long time and FINALLY figure out who's got $$ to spend- It's not the BLEC's and CLEC's you fools.

And for those who complain about LR- It is a garbage tabloid. In fact, LR is sooooooo crappy that you spend all day reading it and posting on these message boards. Here is some advice: If you don't like it, don't read it! Maybe you should get back to work and start marketing your products better or if you are an engineer, get back in the damn lab and get that HW to work!

Seems like LR is the only rag getting it right these days. Write on dudes!
realdeal 12/4/2012 | 8:53:28 PM
re: Zaffire Gets Zapped The article was credible and on the money.
I think you ladies need to loosen the girdle a bit and do some research on your own.

You'll see what LR has been reporting for a long, long time and FINALLY figure out who's got $$ to spend- It's not the BLEC's and CLEC's you fools.

And for those who complain about LR- It is a garbage tabloid. In fact, LR is sooooooo crappy that you spend all day reading it and posting on these message boards. Here is some advice: If you don't like it, don't read it! Maybe you should get back to work and start marketing your products better or if you are an engineer, get back in the damn lab and get that HW to work!

Seems like LR is the only rag getting it right these days. Write on dudes!
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