Aug. 5–Infinera, a Sunnyvale optical networking equipment start-up in deep stealth mode, said it raised $53 million in investment from a slew of venture capital firms, one of the biggest fundings ofthe year for the telecommunications industry.
The bet is a risky one for the investors because the telecom market has been hit badly since the economic downturn began in late 2000. Dozens of telecom equipment start-ups have gone out of business. Many others are hanging on in hopes of competing once the market turns around.
What’s more, Infinera will have to deliver big for investors to make a decent return. Already, more than $130 million has been invested in the company. Vinod Khosla, venture capitalist at Kleiner Perkins Caufield & Byers — one of the company’s lead investors and board member — said recently that the company was valued $150 million prior to the investment, or about the same valuation as when it raised money during 2001.
Valuations are set during negotiations between investors and the company and determine how much of a stake a venture capitalist gets in exchange for their money invested. Most recent deals in the sector have seen valuations set much lower than previous rounds. While Infinera hasn’t shown any great progress in upping its valuation, at least it is not in distress.
The company is in deep stealth mode, keeping a low profile for competitive reasons. Almost nothing is known about it besides its aim to combine the functions of many components into a single optical chip in a cutting-edge technology. Optical chips in general are used for speeding up communications, and recent innovations have focused on making them more reliable and affordable.
Gary Rieschel, a venture capitalist at Mobius Venture Capital, which led the most recent round of investment, called it “disruptive technology.” Other new investors include Argonaut Private Equity, RWI Group and the Ontario Teachers Pension Plan.
Existing investors Accel, Benchmark, Applied Materials Ventures, Cypress Semiconductor, Juniper Networks, Kleiner Perkins, Sprout, Venrock, Worldview, Sutter Hill and Agilent Ventures also pumped in more money.
The company hasn’t even released its product for testing yet, suggesting it will take a year or more before it hits the market.
While growth in the telecom market remains anemic, Infinera and others say there are huge segments of the market that can be stolen from incumbents like Nortel or Lucent even if there is no strong recovery in the near-term. Nortel and Lucent alone each log about $2 billion in sales per quarter.
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