Funding for startups

Zepton Has an $86M War Chest

Zepton Networks Inc., the stealthy startup backed by a number of top-tier VCs, is quietly building up a healthy stash of cash. The company has bagged $86 million in venture capital funding since the beginning of this year.

In only two funding rounds -- a $50 million Series A round in April and a $36 million Series B some months later -- Zepton has amassed quite a war chest in a year when convincing venture capitalists to part with their money has been as difficult as teaching a mermaid to do the splits.

What's even more impressive are the names behind the company. Zepton's funding came from several investors, including Accel Partners, Applied Materials Ventures, Benchmark Capital, Juniper Networks Inc. (Nasdaq: JNPR), Kleiner Perkins Caufield & Byers, Sprout Group, Venrock Associates, and WorldView Technology Partners. CommVest LLC says it provided some debt financing for the company in June.

So, what is Zepton doing? Sources remain tight-lipped, and the company declined to return phone calls. But given the backgrounds of Zepton's managers, it stands to reason it would be a new kind of optical transport system with proprietary component-level technology.

It's clear that one reason the VCs involved are so giddy about the company is because of its management team. When times are tough, it's easier to bet on someone with past successes.

Jagdeep Singh, Zepton's founder and CEO, co-founded Lightera Networks (now a part of Ciena Corp. [Nasdaq: CIEN]). Later, he helped start a metropolitan area service provider company called OnFiber Communications Inc., which also attracted investments from KPCB (see Kleiner Perkins Scales Back).

The rest of the team is a combination of people that had worked with Singh on his two previous companies and others from large component and software companies. Drew Perkins, another Zepton founder, followed Singh from his two previous startups (see Zepton: Take Me to Your Leaders and OnFiber: Bottoms Up!).

"The majority of optical startups should not have been funded because they have no differentiating intellectual property to add to the industry," says Venrock's Tony Sun. "The problem is that there is too much capital available in the venture industry and every fund believes they are funding the winner. We believe Zepton is one of the few winners in the industry."

The company opted to close a second round partly because "they were being proactively contacted by interested investors and interested partners who wanted to invest," says Peter Wagner, a general partner at Accel. "Obviously, it's important to have the cash to fulfill your [business] plan and, given the interest that was there, it seemed sensible for the company to bring in some of these folks onto the team."

Founders Singh, Perkins, and David Welch; Benchmark's Alex Balkanski; KPCB's Vinod Khosla; Applied Materials' Dan Maydan; and Juniper's Pradeep Sindhu sit on Zepton's board.

- Phil Harvey, Senior Editor, Light Reading
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hogdog 12/4/2012 | 7:26:04 PM
re: Zepton Has an $86M War Chest All hogdog has to say is Drew Perkins is a major jamoke!

Good luck going to work for old Drew the great!

BadgerAlum 12/4/2012 | 7:26:03 PM
re: Zepton Has an $86M War Chest "major jamoke"


Crep 12/4/2012 | 7:26:00 PM
re: Zepton Has an $86M War Chest There's a fool born every day. I'm surprised people haven't learned from the recent investment mess that has taken place. Of course, far be it from me to suggest that people can't make a bundle from overhyping nothing. They haven't a snowball's chance in hell of penetrating the shrinking carrier market. The carriers will continue to buy from the established incumbents since they can't afford to let the incumbents die (they've got too much of their equipment in their networks to support). Zepton would have to have brainwave control or something like that to survive. (Talking of which look at www.neurosonics.com for some neat stuff on brainwave control ..I heard about them from a VC recently)
cinni 12/4/2012 | 7:26:00 PM
re: Zepton Has an $86M War Chest Jamoke eh?

They create a hardware company, sell it and the product to Ciena, and Ciena makes millions from the product. Some argue it becomes their core product (no pun intended).

Then they start a service provider and spend about two years finding out what every hardware company on the planet has in their roadmap. Who wouldn't want this KP darling on their customer list?

Not only do they find out what they are building today, but for the next 3 to 5 years. They also talk directly to the CTOs and Engineers at these companies to find out how they are going to do it, what IP they have, and how much they plan to sell it for.

Then poof...they are in the hardware business again. No wonder everyone is putting so much money into them.

I am not insinuating that they have or will do anything illegal or immoral. However, it sure helps to know what the competition is doing and then leapfrog that.

Doesn't sound very stupid to me.

friend 12/4/2012 | 7:25:57 PM
re: Zepton Has an $86M War Chest I heard that they are "doing a different type of transport at the physical layer".

Any guesses?
signmeup 12/4/2012 | 7:25:57 PM
re: Zepton Has an $86M War Chest How long until the market recovers? This is the primary question. With 86M in the bank (and assuming they got a good valuation on the second round of funding), good burn control, and strong product vision, these guys can outlast most other startups.
Eventually, carriers will want to deploy gear that allows them to bill for different service levels to increase their revenue. Only time will tell when and in what form this will take place. Either these guys will look like geniuses, or as previously put, "a bunch of jamokes".
flanker 12/4/2012 | 7:25:57 PM
re: Zepton Has an $86M War Chest Doesn't sound very stupid to me...

Your logic is impeccable but you would have thought that if KPKB actually knew what the carrier's intentions were with regard to capex, then they wouldn't have invested a dime in another vendor.

This is just an absolute joke. I heard JPMorgans' head of equity research talk about the massive over-supply and over-investment in the telecom sector carrying into 2003, something we are all too familiar with.

KPCB, inhaling the second hand smoke wafting over Stanford's undergrad dorms, is definitely NOT listening to carriers. They will need more than brainwave control to succeed in this market.
redface 12/4/2012 | 7:25:54 PM
re: Zepton Has an $86M War Chest "I heard that they are "doing a different type of transport at the physical layer".

Any guesses?"

Let's see: It is very unlikely that they are doing anything that people have not even mentioned before. Maybe coherent transmission using heterodyne detection?

One thing important is to know which market they are trying to play in. Is it long haul, metro, or local access? Given the current environment, most likely Zepton has something to solve the "last mile" bottleneck. Otherwise it is hard to imagine so many VCs being interested. So Zepton is probably a local access/metro company.
net_dude 12/4/2012 | 7:25:51 PM
re: Zepton Has an $86M War Chest Good observation...

They were sort of interested in doing some last mile access type networks with GE and Dark fiber etc in Onfiber (check on Onfiber web site). They would have learnt that no one has the product that they want and they decided to build it.

Since the Service provider (CLEC) business folded, they redid their business case to become a vendor again.

flanker 12/4/2012 | 7:25:51 PM
re: Zepton Has an $86M War Chest "I heard that they are "doing a different type of transport at the physical layer".

Do you think ATT and Verizon want to be told "We're doing a different type of transport at the physical layer!". you can hear the flatulence and groans from across the street.
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