LightCross Connects on $30M

LightCross Inc. on Tuesday says it closed a second round of financing for $30 million. The company's backers, which include UMC Capital, ComVentures, Arch Venture Partners, J.P. Morgan & Co. (Nasdaq: JPM), and several individuals, have invested $41.3 million in the optical networking components maker to date (see LightCross Bags $30M).

In addition to its equity investments, LightCross has received $7 million worth of equipment lease financing from Comdisco Inc. (NYSE: CDO).

LightCross is starting to gather momentum. Recently, as reported by Light Reading, the company nabbed Bob Barron, who was the former CEO at Chromatis Networks and then head of metro optical networking at Lucent Technologies Inc. (NYSE: LU) after Lucent acquired Chromatis (see LightCross Taps Former Chromatis CEO). Barron has now started his job as CEO, company officials confirmed. Robert Tsao, UMC's chairman, and Barron have joined LightCross's board of directors.

UMC Capital is noteworthy as the venture capital arm of Taiwan's United Microelectronics Corp. (UMC) (NYSE: UMC), the world's second largest semiconductor contract manufacturer. UMC will manufacture the components that LightCross plans to sell to systems vendors like ONI Systems Inc. (Nasdaq: ONIS) and Nortel Networks Corp. (NYSE/Toronto: NT).

LightCross will first design passive components, such as arrayed waveguides (AWGs), add/drop muxes, and tunable filters. Then it will make active components and, later, subsystems.

The relationship with the foundry is key because one of the biggest problems in the optical business is ramping production of components to high volume. The company says it has a twofold advantage over competitors such as JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) and Corning Inc. (NYSE: GLW). First, it can make components more cheaply because it has developed a "recipe" for using older semiconductor equipment. LightCross CFO John LaValle says the company can cut costs by "monolithic integration" -- that is, cutting down the number of components required in a system by adding or combining features. LaValle also sees LightCross's component designers as a competitive advantage, noting that the company has filed 57 patent applications to protect its ideas.

If LightCross can do as promised, it will aid in bringing down the cost of optical networking systems, which will help ailing systems makers boost their profits. The company might also prompt other components makers to step up their automation efforts and eliminate a lot of the hand assembly that is required to make components today.

The company claims it closed its second funding round at a higher valuation than its first round, which had a $36 million post-money valuation, according to company officials. LaValle says the second-round valuation was "materially higher" but wouldn't say much more. If true, this would be an accomplishment, since many a startup these days is having to settle for a "down round" -- getting funded at a lower valuation than that of its previous rounds -- which requires a company to give up more equity to its investors.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com