Start-up Internet Photonics bucks the trend

Internet Photonics Inc. last week announced the closing of its third round of venture financing to the value of US$31 million from two new investors as well as existing participants.

The new investors include ComVentures, which led the round, and TeleSoft Partners. Previous investors participating in the third round include Sprout Group and New Venture Partners.

As a result of the financing, Cliff Higgerson, general partner and co-founder of ComVentures, will join Internet Photonics' board.

To date, Internet Photonics has raised $63 million since its October 2000 inception. The new funding will be used for increased sales, marketing and customer support activities. The company is gearing up for near-term customer shipments of its LightStack and LightHandler optical Ethernet multiplexers to ILECs and multiple system operators (MSOs).

Internet Photonics is already taking revenue from one MSO, and has trials underway with six of the top seven ILECs and IXCs, says Gary Southwell, vice president of marketing. Three of those carriers have LightStack and LightHandler in certification trails, which amounts to the "home stretch" in eventual purchase and deployment.

The company expects to become cash flow positive in 2003.

Internet Photonics is an anomaly among start-up companies. Many are going out of business because they can't generate revenue from service provider customers that have sharply curtailed capital spending, can take as long as two years to trial a product and are skittish about purchasing from start-ups anyway.

As a result, start-ups can't generate additional funding from investors because they can't generate a return, so they end up belly-up.

Not only did Internet Photonics raise an impressive sum on the third round, they attracted two new investors and raised more than the $20 million to $25 million they were seeking. Southwell attributes the newfound wealth to a revenue generating customer and positive feedback from those trialing the LightStack and LightHandler products.

LightStack and LightHandler multiplex multiple Gigabit Ethernet steams into a 10G bit/sec wavelength. It combines Ethernet multiplexing with DWDM transport capabilities of 80km to hundreds of kilometers with amplifiers, Southwell says.

For MSOs, LightStack and LightHandler enables them to centralize video servers, which means they can decrease the number of cable headend devices needed to connect subscribers to content. With the resultant reduction in operational cost, MSOs can invest in additional content which should generate additional revenue, Southwell says.

Citing research from Morgan Stanley Dean Witter & Co., Internet Photonics says Gigabit Ethernet is already making significant inroads into the metro market as an access technology. All four ILECs currently have metro Ethernet initiatives and are projected to make significant investment in this area over the next five years.

By 2004, all service providers will support Ethernet in the metro, and by 2005 nearly 40 percent of high-speed WAN data services will run over Gigabit Ethernet services, the company says, again citing Morgan Stanley data.

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