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Zenastra Zaps Employees

Light Reading
News Analysis
Light Reading
8/31/2001

Canadian startup Zenastra Photonics Inc., which is developing integrated optical components, appears to have run into trouble.

According to an article in yesterday's Ottawa Citizen, Zenastra has laid off 160 workers -- about 64 percent of its total staff -- in a bid to conserve cash. It has also cancelled plans to build a $40 million fabrication plant in Kanata, Ontario (see Zenastra Announces $40M Expansion).

Zenastra didn't dispute the story, but declined to go into details. All that executive VP and COO Peter Brownhill would say was that the company "had to restructure in order to remain viable."

In many ways, the news is not surprising. Zenastra's previous round of funding was way back in April 2000, when it scored $40 million -- believed at the time to be a record for an Ottawa company. Given that most startups set out with the intention of raising enough venture capital to last 12 to 18 months, it's likely that that slice of cash is running out.

In fact, in May 2001, Zenastra indicated to Light Reading that it was trying to close a second round -- a round that never materialized.

So, what went wrong?

On the one hand, Zenastra has unveiled a good few products -- a quick glance shows that it has the same sort of product mix as companies like Lightwave Microsystems Corp., with widgets based on a well-proven silica-on-silicon waveguide technology. Zenastra also claims to have received orders for those products (see Zenastra Ships First Products).

On the other hand, the startup is reportedly dabbling in some other, wacky technologies -- the kind of thing that was hugely exciting 12 months ago, but today is just a distraction from the more mundane work of shipping real products on time.

"There are promising new waveguide materials that we want to keep our eye on," Zenastra CEO Peter Scovell told Light Reading back in January. Scovell highlighted polymers and photonic crystals as two technologies his company is interested in -- although he didn't say to what degree it was pursuing them (see The Hole Thing).

Rumor has it that Zenastra likes polymers. But, although it's not the only startup that thinks so, polymers have yet to prove they are a suitable material for making optical components.

Tales from other startups highlight the dangers of trying to push a new material technology too far and too fast. Nanovation Technologies Inc., for example, started out with the intention of making integrated optical components entirely out of indium phosphide. But when this turned out to be a long-term research project (see Nanovation Comes Down to Earth) rather than a business proposition, the company switched horses -- to silica-on-silicon -- and has since run into further problems (see Nanovation in Crisis and Nanovation Up For Sale).

"I have the same feeling about Zenastra as I had about Nanovation," says one industry source, who didn't wish to be named. "I think people seriously underestimate the amount of work it takes to get a new material system right."

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

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Milano
Milano
12/4/2012 | 7:52:58 PM
re: Zenastra Zaps Employees
The clean up continues. JDS and Alcatel have finished their shopping, and Corning is not looking for acquisitions.

The only unknown left in the grand AWG drama is the fate of the jewel of the crown, Lightwave Microsystems. For the other independent AWG companies (Zenastra, Lumenon, etc.), the agony will be long but inevitable.

Once itGÇÖs over, the AWG market will be in the hands of a few integrated companies, with maybe one credible independent holding on.

M.
benson
benson
12/4/2012 | 7:52:57 PM
re: Zenastra Zaps Employees
Milano;

Your analysis of the AWG market is way off. Lightwave Microsystems is the jewel of the crown? Athermal AWG's are a marketing ploy? Integrated ompanies will rule this market. You've been reading too much marketing hype.

FACT: the LONG-established leaders in the AWG market are Hitachi Cable and NEL. Both companies have delivered THOUSANDS of AWG's over the past 5 years. In the case of Hitachi Cable, they have delivered over 9000 devices. Both companies keep a relatively low profile, however. Neither has a stock or IPO to sell in the US, so they don't participate in the marketing-hype which has overwhelmed this industry.

FACT: Neither company is a broad-based supplier. Both would be considered niche players.

FACT: Both companies will soon launch a commercial athermal AWG.

Benson

Multiplex
Multiplex
12/4/2012 | 7:52:56 PM
re: Zenastra Zaps Employees
Think we may be confusing several things here.

1. Zenastra was one of many optical companies that bet that funding for optics would be easy to get and then found out it wasn't. Its (apparent)failure isn't directly a reflection on the integration or PLC businesses. Zenastra always appeared underfunded to me.

2. It is true that NEL and Hitachi -- along with JDSU -- rule the roost in terms of AWGs delivered. But it is the start-ups that are really placing the emphasis on integration an entirely different proposition. (In most cases, also North American companies are reluctant to buy from Japanese suppliers.)

Real revenues from integrated products are a few years off. You need big bucks to be a player in this space, but integration is a different game to AWGs and we will have new leaders here. My money is on Alcatel, JDS-U and maybe even Lightwave Micro and Agere.

bosshog
bosshog
12/4/2012 | 7:52:52 PM
re: Zenastra Zaps Employees
With a name derivation like this (from their own web site, I might add) they were in trouble from the start...

"1. What does "Zenastra" mean?

The definition of Zenastra: The strategy of light, the fascination with light, movement, the way to the stars, thinking, Intellectual destination, excellence.

Zen for the classic Greek language, "Zenith", reaching the highest point, the apex, also from the notion of Zen, intuition, trained thought.

From the Greek base "Zephyrus", the Greek god of the West Wind, the most welcome of the winds, brings with it the clearest light, accurate vision, clarity and speed. Astra, from the Greek "Astral", from the stars, the source of light, of reflected light, light travels long distance from the stars, "As-tra" "as" and "tra", "as it travels", "the path of light". "

BH

OK
OK
12/4/2012 | 7:52:51 PM
re: Zenastra Zaps Employees
When Zenastra was incorporated in 1999, it had a name Nu-Wave -- Yes, people may think it is a name in business such as hair designing or pool cleanning as the CEO Peter Scovel pointed out. The name change has been a big marketing compaign. They wanted to find a name without Opto-, Light- as prefix, simply different and unique. However, those marketing guys didn't know too much on the market at that time -- there is a Korean company called ZenPhotonics making the waveguide components (switches and VOAs) before Zenastra name change; there is also an internationally famous names in other sector, i.e., AstraZeneca. Third... anyway, the name-based marketing compaign failed at the very beginning.

It was simply crazy that company like Zenastra got funded -- almost nobody in this well-packaged startup had any knowledge in planar lightwave circuits. The only well-know technology guy in this company is fiber grating pioneer Dr. Ken Hill and a CTO appointed just a couple of weeks ago. There were no technology experts at the executive level, nor at director level...at the beginning they simply have no idea at all...

As indicated in CIR report, they are proud of being not a "technology showcase", since they use only silica-on silicon (PECVD process) to make only AWG now -- nothing new, just me-too. How could it be a optical player without solid technology?

OK
uncle_optics@yahoo.com
[email protected]
12/4/2012 | 7:52:47 PM
re: Zenastra Zaps Employees
This company was full of big dreams with no real business strategy that was going to work. Perhaps another example of the Optical hangover. The marketing people up there are completely full of shit with what they have promised. They claimed that they had raised enough money but guess that was another factual distortion.

It's probably a good thing that they are running out of money before they swindle someone else.....wonder what they are going to tell the people they owe money to???

One thing that no one seems to mention here is that some people have long memories. Can't wait til you see some of these wankers who have been doing nothing but BSing the market showing up other companies.

Hey LR: Maybe you should start a "Hall of Shame" list.



Multiplex
Multiplex
12/4/2012 | 7:52:46 PM
re: Zenastra Zaps Employees
1. If LR is going to have a hall of shame, it should include not so much the management of Zenastra, but its VCs, which I noted included a couple of Canadian banks, who perhaps had no idea of what they were getting themselves into. Whatever the merits of Zenastra's plan, there was really no chance ever that Zenastra could generate significant revenues from integrated components for another couple of years and the company needed a lot more money than it ever got to support.

Zenastra should have got this money or none at all. Unfortunately, this is true of a lot of other companies in this space, not just Zenastra.

2. In fact Zenastra is or was a long way from being the worse company in this space. The CIR report mentioned in one of the other messages here is not completely critical of Zenastra's plans themselves and even has a few kind words about the management. However, it does point out that (1) Zenastra's plans doomed it to producing me-too products in the short term at least and (2)the complete mismatch between the plans and the funding for the plans.

Perhaps too much is being made by one of the Article Talk messages about the lack of technical knowledge at Zenastra. After all, in the integrated optics business there seems to be lots of little companies with lots of PhDs and no earthly idea about marketing. These stand far less chance of success than Zenastra ever did. Maybe a few more marketing skills in our industry would be helpful?

3. BTW: What Zenastra has been telling people to whom they owe money for a few weeks now, is that they are working on getting additional funding. This was probably true, but the layoffs suggest that the money never arrived. Perhaps a fire sale is in Zenastra's future?







The CIR report
LightBeating
LightBeating
12/4/2012 | 7:52:45 PM
re: Zenastra Zaps Employees
Multiplex,

I don't agree that they didn't have enough money. They did raise $40M and, come to think of it, that is a reasonable amount.

The real problem with most of these high-flying startups is that their products are not ready for commercialization, yet they go ahead and build costly plants and infrastructures before they've even got only one customer, or even demonstrated that their product is working. In that regard, Zenastra is very similar to others like Nanovation, or Lumenon.

The second problem is management: being often managed by scientists-turned-entrepreneurs, and having such large amounts of money to spend, they spend it as if they were all suddenly rich and famous. Just look at the buildings that some of these companies build for themselves! No executive office is luxurious enough for these guys!

In the old days of starting your own company, you would start with some angel funding (often your very own money), then have a first round of funding of a few millions to get you to commercialization, and once you got customers that are really interested, you can go out and raise the money you need, according to a sensible business plan. All those failing startups have simply omitted steps one and two. Sure the VC's are to blame, but that is no excuse for poor management.

LB
Multiplex
Multiplex
12/4/2012 | 7:52:45 PM
re: Zenastra Zaps Employees
LB:

We may agree more than you think. Your point about "scientists-turned-entrepreneurs" is an excellent one, and is one of the consequences of the point I tried to make -- that the ratio of business people to technologists in many of these companies is often far too low. I'm not sure that Zenastra was the worst offender here, although I am certainly NOT defending its management.

You are also correct in thinking that much about the way these companies were funded stunk. I also tried to make this point. The taste for luxury used to be kept under control by investors who would usually balk if the first thing that entrepenuers did with money was to build pretty offices and buy the best European furniture. Like all bubbles the optical bubble brought to the fore lots of investors with more money than sense.

My point about Zenastra not having enough money was simply that, if Zenastra was going to follow the business plan it set for itself, it needed more money than it had. I think its management knew that, but thought that money would be easy to get for some time to come -- that wasn't uncreasonable to expect at the time, although (reading between the lines) Zenastra's management seems to have waited for far too long before even considering that they might have had a problem.

The reason why Zenastra and others in this space have been looking for so much capital is that they believed that they needed their own manufacturing facilities, since they claimed -- wrongly I suspect -- that good outsourcers were hard to find and they believed that some of their competitive advantage lay in the manufacturing process itself.

Such claims may or may not be true. But the other reason for companies like Zenastra building such a huge infrastructure so quickly was apparently the belief that they would be shipping integrated optics products in volume within a year or so. This never made much sense -- at best equipment vendors are just beginning to design integrated optics products into their next generation of systems. But creating the belief that volume shipments would occur soon may have been necessary to attract capital that was looking for a quick return. Again, this is not excuse management, but rather to explain what has been going on.

I couldn't agree with you more that the old way of funding start-ups is better and it would be nice to think that in these harder times there are a few managers that are beginning to think that way again. I get to look at business plans of early stage companies on a regular basis and I would be thrilled to see one that looking at building their businesses the way you suggest.

ownstock
ownstock
12/4/2012 | 7:52:41 PM
re: Zenastra Zaps Employees
Scientist turned business person is much better than business person turned CEO. Take Fiona...please! $90 Billion down the tank to date! She, all by herself, wiped out more capital than all the failed start-ups combined. Now she is going to drop how much on Compaq? Was that $29 Billion? And throw away how many lives? Was that another 15,000? Dave and Bill must be rolling over in their graves. Fiona = LUser!
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