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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
http://www.lightreading.com
Bill Johnson 12/4/2012 | 7:23:55 PM
re: Zepton Has an $86M War Chest "Bill -- which competitors would you say are a head of them in the same field. ---------------------------------------------
abouttofoldnetworks.com"

Hey everybody! HarveyMudd has competition. Someone as ignorant but wait, this one can spell. 8point, I apologize if you were being humorous. If you were merely trying to be clever, than I stick to my HarveyMudd comment.

8point 12/4/2012 | 7:24:07 PM
re: Zepton Has an $86M War Chest ---------------------------------------------
Bill -- which competitors would you say are a head of them in the same field.
---------------------------------------------

abouttofoldnetworks.com
Scott Raynovich 12/4/2012 | 7:24:09 PM
re: Zepton Has an $86M War Chest >Wish that I could reveal their names; however, I >have signed an NDA and respect their choice to >remain in stealth mode at this point.

Bill--okay. Do you have any distant cousins with Hotmail accounts? If so, tell them to pass the news on to me at [email protected]
Bill Johnson 12/4/2012 | 7:24:11 PM
re: Zepton Has an $86M War Chest Scott,

Wish that I could reveal their names; however, I have signed an NDA and respect their choice to remain in stealth mode at this point.
Jahnun 12/4/2012 | 7:24:16 PM
re: Zepton Has an $86M War Chest They are doing Indium phosphide stuff- late in the game - oh-hum
boson3 12/4/2012 | 7:24:45 PM
re: Zepton Has an $86M War Chest They are going to try and build smaller optically based (light switched) systems such as ADM and Routers. They plan to play in Metro Space and CO enviroments

So what's wrong with pink flamingos?
Scott Raynovich 12/4/2012 | 7:24:50 PM
re: Zepton Has an $86M War Chest Bill -- which competitors would you say are a head of them in the same field.
theanswer 12/4/2012 | 7:24:51 PM
re: Zepton Has an $86M War Chest They are going to try and build smaller optically based (light switched) systems such as ADM and Routers. They plan to play in Metro Space and CO enviroments.
photons-r-us 12/4/2012 | 7:24:54 PM
re: Zepton Has an $86M War Chest Zeptons has a a very powerful and distinguished management team and financial backers. They understand the nature of the current downturn. They would not start and/or fund anything that is incremental. Look for a powerful company with new ideas and products in the future.
hogdog 12/4/2012 | 7:24:59 PM
re: Zepton Has an $86M War Chest Very well thought out 8point.

Do you want to go visit our boy Harvey Mudd at the new Dell Taco today?

I'm very pleased to say, Mudd was hired as a an assistant manager. Store 509 in San Jose.

Have you checked out that new Usher CD?
boson3 12/4/2012 | 7:25:03 PM
re: Zepton Has an $86M War Chest I would point out that founder Jagdeep Singh is incredibly sharp.
_____________________________________
Lightera worked out well for Ciena, and I 'm sure JS and CC had everything to do with it. It's tough to see Zepton having a seat at the table if and when the market "turnaround" happens...

And what is this turnaround anyway?

-60% of the publicly traded firms fold or are acquired next year.

-stablized, zero growth revenues for humbled vendors like Alcatel, Nortel, Fujitsu Cisco, Ciena and Marconi.

-outrageously low valuations for acquiring in-process technology that every school kid with a home IC foundry can crank out for the price of a few twinkies.

-ADM nodes being sold on eBay as lawn ornaments.





Bill Johnson 12/4/2012 | 7:25:06 PM
re: Zepton Has an $86M War Chest One word....microphotonics. InP will be turning some heads; however, there are a couple of other pre-IPOs that are way ahead of them.
redface 12/4/2012 | 7:25:08 PM
re: Zepton Has an $86M War Chest VCs like to act in herds. Are we seeing it here? The large number of VC investors seem to suggest that. On the other hand, Zepton's board of directors is literally a "who is who" in silicon valley, with KPCB's Vinod Khosla; Applied Materials' Dan Maydan; Cypress Semiconductor's TJ Rogers (he is listed on Zepton's website), and Juniper's Pradeep Sindhu. The quality of this group of people means it is unlikely that Zepton only has hot air.

With such a unprecedented star cast, Zepton should better be a huge success. Let's wait and see what Zepton has up its sleeve.
8point 12/4/2012 | 7:25:12 PM
re: Zepton Has an $86M War Chest Jagdeep and Drew were at Onfiber (ds3 -oc3 conversion) providing high speed access. Maybe they came up with an idea (pitched through their vc) to provide the service (compoonent based) in a cheaper fashion, stole the idea and created a new venture. They are in the same building, have the same core investors, etc....

w 12/4/2012 | 7:25:13 PM
re: Zepton Has an $86M War Chest In addition to the applied materials and cypress investments, I think that the other technologists in the company Fred Kish (ex of Agilent) and David Welch (ex of SDL) suggest that zepton might be pursuing a III-V semiconductor materials based component technology. With $84M, maybe they are building their own system using this component or maybe they are just doing a sub-system. However, this is all guesswork. Is there anyone who really knows what they are doing?
hogdog 12/4/2012 | 7:25:14 PM
re: Zepton Has an $86M War Chest Harvey Mudd worked at Pioneer Chicken for three days but continued to mess up everyone's Spicy Rice orders.

Keep your head up Mudd. Del Taco is expanding. They need managers working their Graveyard shift at the new San Jose shop.
hogdog 12/4/2012 | 7:25:15 PM
re: Zepton Has an $86M War Chest Hogdog's in the house.

Harvey Mudd, please give it a rest! You are driving everyone nuts with your ignorant comments.

Anyone have that new Usher CD?
lambdaman 12/4/2012 | 7:25:16 PM
re: Zepton Has an $86M War Chest > The Applied Materials and Cypress Semiconductor
> investments provide an interesting clue as to
> what Zepton is up to.

I don't mean to infer that I know anything more than the rest of us about Zepton. I just think it's an interesting thing to take note of.

LambdaMan
lambdaman 12/4/2012 | 7:25:16 PM
re: Zepton Has an $86M War Chest What is Zepton really up to, and why have they been able to raise all this cash in the current fiscal climate????? I don't think spinning a great story will fly anymore, so there must be some innovative technology behind the company.

Any insights?
___________________________

I would point out that founder Jagdeep Singh is incredibly sharp. Say what you will about Drew but I'd work for Jagdeep anytime. I wouldn't bet against him. The Applied Materials and Cypress Semiconductor investments provide an interesting clue as to what Zepton is up to.

Cheers,
LambdaMan
rjmcmahon 12/4/2012 | 7:25:17 PM
re: Zepton Has an $86M War Chest What is Zepton really up to, and why have they been able to raise all this cash in the current fiscal climate????? I don't think spinning a great story will fly anymore, so there must be some innovative technology behind the company.

Any insights?
___________________________

I'd be interested to any insigts as well.

The article suggests proprietary components and optical transport but says nothing more. The founders have access experience which seems like an important piece to any next generation network technology. The investors seem reputable. Could there be something here or is this a pets.com?
optigirl 12/4/2012 | 7:25:17 PM
re: Zepton Has an $86M War Chest I think that Harvey Mudd has the perfect qualifications to be an industry analyst, perhaps at Pioneer or RHK ;)

Well, Harvey has the "not knowing what he is talking about" requirement down cold but to be able to work at one of those companies means you have to be able to say nice things about everyone.

manoflalambda 12/4/2012 | 7:25:18 PM
re: Zepton Has an $86M War Chest I think that Harvey Mudd has the perfect qualifications to be an industry analyst, perhaps at Pioneer or RHK ;)

Next Lucent CEO? :)

Salute,
Manoflalambda
jblightwave 12/4/2012 | 7:25:19 PM
re: Zepton Has an $86M War Chest OK, OK,
Now that we've shredded poor Harvey and dragged his name through the Mudd, let's get back to the essence of the story.

What is Zepton really up to, and why have they been able to raise all this cash in the current fiscal climate????? I don't think spinning a great story will fly anymore, so there must be some innovative technology behind the company.

Any insights?

jblightwave
lightmaster 12/4/2012 | 7:25:21 PM
re: Zepton Has an $86M War Chest I think that Harvey Mudd has the perfect qualifications to be an industry analyst, perhaps at Pioneer or RHK ;)
switchrus 12/4/2012 | 7:25:24 PM
re: Zepton Has an $86M War Chest Come on guys..... You're gonna give ol' Harvey Mudd a complex.

Not sure this won't get TOS'd, but I think it's time for a Harvey Mudd employment thread, Wink Wink.

Harvey seems to be a person of many talents, I think we should all pitch in and find him a postion where his talents can be used.

So suggestions for employment opertunities for Harvey Mudd, post them here.
flybylite 12/4/2012 | 7:25:25 PM
re: Zepton Has an $86M War Chest Come on guys..... You're gonna give ol' Harvey Mudd a complex.

I think Harvey is somewhat useful... As long as my view is WAY OPPOSITE of Harvey's, then I must still be viewing things in an appropriate light.

F-B-L

P.S. Scott, I'd also like to know who would pay Harvey for ANYTHING....
poster 12/4/2012 | 7:25:26 PM
re: Zepton Has an $86M War Chest is it possible to vote someone off the message board?

what I would give to know who actually pays HarveyMudd for anything. a few of us have tossed around the conspiracy theory that it's actually someone on the staff at LR trying to generate traffic on the site...
rjmcmahon 12/4/2012 | 7:25:31 PM
re: Zepton Has an $86M War Chest The other related question is - how does the VC get his money back with a decent return if all the company is doing is sitting on cash and burning overhead until the equipment market comes back?
________________________

He has to slow the burn rate and hope the cash doesn't run out before the market comes back.

Scott Raynovich 12/4/2012 | 7:25:33 PM
re: Zepton Has an $86M War Chest Mudd, in general I've stayed away from your comments. But at this point I'd like to ask:
What are you talking about?

VC money is private money, not public money.

what exactly do you do for a living, anyway?
HarveyMudd 12/4/2012 | 7:25:33 PM
re: Zepton Has an $86M War Chest A lot of things need so be said and investigated regarding ZEPTON. It is wrong to waste public company by giving $86 million to serial enterprenuers.

There has been a lot of adventures in company fundings. This specially occured in the dot com and optical netqwoking areas.

Quite a large number of dot com, optical networking and storage company were funded by the VCs without conducting due diligence. Many recipients of these funds were companies with overseas connections that formed a very weak technical and management team assempbled hastly for the purposes of getting funding.

Immitation products and technologies contiue to be a big problem in most market segments.
flanker 12/4/2012 | 7:25:34 PM
re: Zepton Has an $86M War Chest
I think the vc backed publicly traded firms (JNPR, SONS, CORV, TELM, SCMR) will have trouble surviving 2002 without getting hitched, and they have a lot of cash. I think its even tougher if you are private.

The other related question is - how does the VC get his money back with a decent return if all the company is doing is sitting on cash and burning overhead until the equipment market comes back?


fk 12/4/2012 | 7:25:36 PM
re: Zepton Has an $86M War Chest Ancient history. Vendors wont be signing contracts > $25mln with anyone without a credit rating, public float, an order book, deployed product and $200mln in cash on hand in 2002.

This sounds like you don't think that any startups will sell to large accounts. I doubt this is the case. It sounds as though the pendulum is now all the way the other direction from where it was two years ago. Back then, every startup was going to make it. Now, none are? The answer, as it so often does, lies somewhere in the middle.


flanker 12/4/2012 | 7:25:38 PM
re: Zepton Has an $86M War Chest How many companies, private or public bought product from Cerent before the Cisco buyout or from Juniper?


Ancient history. Vendors wont be signing contracts > $25mln with anyone without a credit rating, public float, an order book, deployed product and $200mln in cash on hand in 2002.



rjmcmahon 12/4/2012 | 7:25:45 PM
re: Zepton Has an $86M War Chest So the question would have to be at what point is a company no longer a start-up?
_____________________________

My answer would be when the company could meet its payroll and its debt obligations via its revenues. Others may say its no longer a startup when the control investors exit and company stock trades on a public market.

The point that RBOCs won't buy equipment (beyond trials) from a startup seems valid. RBOCs will need to see long term viability amongst other things before writing any big checks to an equipment vendor.
sonet49er 12/4/2012 | 7:25:45 PM
re: Zepton Has an $86M War Chest Harvey,

How many companies, private or public bought product from Cerent before the Cisco buyout or from Juniper?

I believe the answer is greater than 0.

So the question would have to be at what point is a company no longer a start-up?

Dr. Freud 12/4/2012 | 7:25:46 PM
re: Zepton Has an $86M War Chest "If ZEPTON has any new idea, it should file a patent because the usual trick of bing in stealth mode simply does not work."

Fine, but let's address whether demand exists. I dont think it does. Carriers dont want to hear about any new technology: they already have 10 vendors pounding down the door to address solutions for virtually every segment in their network.

The market for optical equipment is SHRINKING. Even the edge is beginning to slow. Haven't you seen Lucent, Nortel and Ciena's latest filings? Next quarter is exprected to come in lower than the previous in terms of sales.



rjmcmahon 12/4/2012 | 7:25:47 PM
re: Zepton Has an $86M War Chest Of course, VCs can give any amount of money, but it is not their money.
_____________________________

My understanding is that VCs get compensated via a 2% management fee and 20-30% of the carry, where carry is the ROI from the capital raised. In otherwords, the upside *is* the motivator while losing money doesn't help them.

Many VCs are going to close their doors due to poor investments (and the herd mentality). I was told that only 6 of 1000 consistently out perform the NASDAQ, while they all claim to be in the top 25% among their peers. (I find this kinda funny)

Anybody investing their time with a startup should understand whose behind the money and how an ROI will be generated, if ever. If the management doesn't give a satisfactory answer, their probably not worth trusting. Any indication of mistrust should raise a red flag because the management interests are not always aligned with the employees interests as they should be.

Paying the investors first does seem fair. It is their money. They could choose to buy RBOC stock with it which would strengthen the status quo and limit the future of our children and our grandchildren. (A brief review of the history of the Gutenberg press reveals how the 16th century status quo limited societal progress, in my opinion)

As an aside, the three tech spaces which need to be developed are:

1) Last mile fiber - 1.5Mbs at $1000+ per month limits the potential of an information society. It's worse than dirt roads and horses, in my opinion.

2) Unicast video with democratized access, where fees for access and fees for content are decoupled, allowing a small independent producer to make a living.

3) Consumer digital electronics devices where the device itself was the revenue generating consumable.
HarveyMudd 12/4/2012 | 7:25:49 PM
re: Zepton Has an $86M War Chest ZEPTON funding is rather strange in that the company received a funding in the amount of $86 million without any product.

The ZEPTON's founders are serial company fonders with no long experience in technology, management or product development.

Of course, VCs can give any amount of money, but it is not their money.

No company public or private would buy products from start-ups. It is reasonable to assume that ZEPTON would not be in business for any length of time but would like acquired before it has completed the testing of its products.

It is not very clear how ZEPTON would introduce a new technology at the optical networking layer. It would not fly very well ZEPTON presents its technology for evaluation.

Any kind of integration of layer 1 and layer 2 integration would be considered a new product. Few copanies (e.g., Jasmine Networks) have trued this kind of approach. ut this approach did not bring any value to the product.

If ZEPTON has any new idea, it should file a patent because the usual trick of bing in stealth mode simply does not work.
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.
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.
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.
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.

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

http://www.m-w.com/mw/textonly...

BA
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!

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