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Equity Notes: Continuum bides its time to
shine in optical space
|07/22/2002 08:24 AM |
What are Prism Venture Partners
and Flagship Ventures thinking?
Along with Harris &
Harris, these firms recently invested $14 million in a Billerica
optical switching startup called Continuum Photonics.
“Believe me,” said
Robert Fleming, a founding general partner at Prism, “the last thing
I was thinking at the beginning of this year was, ‘Boy, I’d sure
like to find a great optical switch team.’ But I couldn’t find a
reason to turn them down. They just answered all my
“Optical telecom” is to 2002 what “dot-com” was
to 2001 — a real door-slammer of a phrase for VCs. The optical
companies that aren’t going out of business entirely are cutting
their workforces to the bone, leaving just a skeleton crew to steer
the company through the maelstrom.
Sycamore Networks, for
example, cut one-third of its workforce last month (about 235
people), eliminated two product lines and, in a recent analyst call,
said that sales for the current quarter may amount to as little as
With $900 million in the bank, Sycamore hopes it
can hang on until carriers begin buying optical equipment again. But
when will that day come? Most analysts say not until 2004 at the
earliest, though a few optimists peg buying to begin in late
That’s a long time to wait for revenue, especially for
companies not as well funded as Sycamore.
But the brains
behind Continuum Photonics believe
that their timing is right. By the time their product is ready to
ship in the second half of 2003, Continuum believes, big equipment makers will
be buying subsystems to manufacture gear for the returning
And if they’re wrong? They’ll tough it out.
Continuum has already proved it can do
a lot with the equivalent of venture capital pocket
Before it started making optical switch subsystems,
Continuum designed an electric tennis
racket and licensed its technology to military and aerospace
Unsurprisingly, high tech tennis didn’t get many
VCs excited. Except, that is, for the Massachusetts Technology
Development Corp. (MTDC), a quasi-public investment company with a
reputation for finding gems in companies that none of the big
private VC firms would touch.
MTDC, along with Gainesborough
LLC and individual investors, supplied $1.7 million in late 2000
(the prior investors came back for more in the second
With both equity cash and licensing revenue from
earlier products, the company was able to build a working prototype
of its subsystem.
Now that Continuum has an extra $14 million on hand, the
35-employee company can build larger prototypes, get them in the
hands of potential customers and — cross your fingers — close a
couple of sales.
“This is the first (optical switch) company
we’ve seen to hit the loss numbers and the price point at which
people want to see to make optical switching cost effective,”
Fleming said. “So we took the plunge.”
Continuum won’t sell directly to carriers but
instead plans to go after incumbent equipment manufacturers such as
Nortel Networks or Lucent Technologies, who would use Continuum’s subsystems in their own
Continuum isn’t revealing
details of its tech. But chief executive Jeffrey Farmer was willing
to give a broad-brush version.
The company is using a ceramic
material made of lead zirconate titanate that shrinks and expands
when an electric charge is applied. Add in silicon micromachines and
the result is an inexpensive optical subsystem with very low data
Nevertheless, the depressing state of
telecommunications has deep-sixed plenty of whiz-bang technology
companies. Indeed, the market was the biggest hurdle for Flagship,
said managing director Stephen Ricci.
After watching the
company for a number of months, however, he decided that its
technology is flexible enough to survive by selling it into niche
markets until the broader telecom market recovers.
this recent funding, both Fleming and Ricci say they’re unlikely to
make any more optical investments in the near-term.
hurdle is very high,” Ricci said. “It takes a combination of
dramatic cost and performance impact on the end-customer to even get
much consideration at this point.”
Jeff Miller reports on
telecommunications, finance and venture capital. He can be reached