Aug. 17–In the two years since the noisy collapse of the telecom and networking industries, little to nothing has been heard from the 10 giant Silicon Valley telecom and networking start-ups thathad been funded with hundreds of millions of dollars during the Internet bubble.
They are the companies — like Zhone Technologies, Yipes Enterprise Services and Calient Networks — that received the most venture capital funding between the frothy years of 1999 and 2001. Each of them received $150 million or more, but almost all of them have stumbled and fallen in one way or another.
Most of them became known as the “living dead,” hoarding enough capital to survive for years but not having a viable business plan to earn profits.
Some have died. Others have rejiggered their business plans and hope to make a comeback soon.
Sure, some spectacular dot-com flame-outs received widespread attention. Foster City’s Webvan, the online grocer, was the most notorious — eating through $1.2 billion in private and public financing before going bankrupt. Pets.com was another dot-bomber.
But Webvan and Pets.com were rare. They were consumer Internet companies, widely considered to require less money.
The mammoth telecom and networking companies were lesser known and required more capital. Venture capitalists loaded them with money to help them build and sell the next generation of complex routers, switches and networks expected to serve the exploding infrastructure of the modern economy.
When things turned sour in 2001, so did the fortunes of the members of this $150-million-each Bubble Club.
During the first half of 2000, venture capitalists pumped $4.31 billion into networking and telecom investments locally, according to the MoneyTree Survey, published by PricewaterhouseCoopers, Venture Economics and the National Venture Capital Association.
For the first half of this year, venture capitalists only invested $834 million into the sector, or 81 percent less than three years ago.
In the Bay Area, Zhone Technologies raised more venture capital than any other company during the 1999-2001 period: nearly $640 million, according to PricewaterhouseCoopers. That’s far more than Webvan, which raised $395 million during the same time.
Zhone, a provider of telecommunications infrastructure products for the local access network, at first said it planned to go public. But it has struggled along, burning through its vast cash hoard as it goes. Last year, the Oakland company laid off 100 of its 590 employees in its third round of job cuts in a year.
Last month, Zhone entered into an agreement to merge with the publicly traded New Jersey company Tellium. It remains to be seen whether Zhone will find its footing. According to one report, Zhone had a net loss for the quarter of $4.7 million, or 32 cents a share, on sales of $20.5 million, compared to a loss of $14.9 million on sales of $30.5 million a year ago. Tellium has also been bleeding red ink.
Santa Rosa’s Advanced Telcom Group, a provider of local, long distance and Internet communications, was the second-largest telecom-networking recipient of venture capital during the period: nearly $367 million. In May 2002, it announced it had filed for bankruptcy under Chapter 11. This May, ATG emerged from bankruptcy with reduced debt and is a unit of GE Vendor Financial Services.
San Francisco’s Yipes was in third place. The provider of telecommunications services to business customers in urban areas obtained nearly $291 million. Yipes also filed for bankruptcy and re-emerged. Investors Norwest Venture Partners, New Enterprise Associates and JP Morgan Partners have invested $40 million in the company.
“We’re still here,” said Scott Boyer, Yipes’ vice president of marketing. He said the company has chosen to lie low for the moment.
Calient Networks, a San Jose optical company, was fifth in total money raised, at $251 million. Calient merged with Kionix in 2001 and is still alive.
Rounding out the Top 10 recipients of venture capital:
— Colo.com, formerly known as Colomotion.com, a San Francisco Web-hosting firm, received $212 million in backing from 1999 to 2001. It filed for bankruptcy protection in May 2001.
— E2Open of Redwood City raised $198 million. The company, which helps companies connect their business processes with those of their partners, is still alive. “And well,” says spokeswoman Lorin Kennedy. “We’re on plan.” She would not comment on how much cash the company has left or on other financial details.
— Centerpoint Broadband Technologies of San Jose closed shop in December. It had raised $196 million and had hoped to develop wireless technologies and an optical technology called frequency division multiplexing. In July 2001 it acquired Zaffire, which was developing similar technology, but struggling.
— Kestrel Solutions, a Mountain View maker of 10-Gbit/s optical-transport tools, raised $163 million. Late last year, it filed for Chapter 11 bankruptcy protection.
— CoSine Communications, a Redwood City producer of switches and software used by telecommunications network service providers, raised $157 million during the bubble years. Cosine was the only one of the 10 that managed to go public, but it’s still struggling.
By last year, it had laid off nearly half its workforce — a total of 190 workers. Its sales figures have been stagnating, and it has been forced to fend off takeover proposals. Last year it rejected a bid from Wyndcrest Holdings, calling the offer an attempt to liquidate the company. This year, an investor, Mellon HBV Alternative Strategies, said it had hired a financial adviser to look for a potential buyer for the company.
— Lastly, Sunnyvale’s LuxN, which made optical networking equipment, raised nearly $153 million. The company employed more than 400 people in 2001, but had reduced its head count to about 100 by last year. Aug. 14, Sorrento Networks, a public company, acquired LuxN.
—–
To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.
(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.
