At 11th Hour, IPOptical Still Looking For Lead Investor

The typical venture capital deal begins with a lead investor being selected and then a syndicate of other players tagging along for the ride. Such is not the case, however, for next-generation optical routing company IPOptical Inc., which has received soft circles for nearly half of its Series B funding target, but has yet to find a lead investor.

IPOptical?s first round netted $8 million from AMP Capital Partners at a post-money valuation of $38 million last December. A few months later Agilent Technologies provided $6 million in bridge financing to go toward the Dulles, Va.-based issuer?s Series B financing, plus an additional $4 million once the syndicate is actually set up. The company has also received soft commitments of approximately $10 million from individual investors.

“We need $30 million to $40 million to keep going. The equipment is expensive,” said Jack Waters, IPOptical?s vice president of sales and marketing, who joined the company just last April from CoManage Corp.

Securing additional capital is vital for IPOptical, which is facing a monthly burn rate of $1.2 million and the very real possibility of shutting its doors or being forced into a merger if it can?t make the VC cut. The company will eventually need a total of $80 million in funding to bring its first product to market.

“Most [VCs] are recovering from bad investments,” Waters said. “We are roughly a year away from shipment and some VCs are not comfortable with that given today?s atmosphere.”

He added that he believes there is a 50% chance IPOptical will find its lead investor, as a prominent West Coast VC and a Mid-Atlantic investment house have both shown some interest in the deal. In the meantime, the company?s 90 employees are being kept apprised of the situation.

If completed, proceeds from the new financing would be used to expand the company?s engineering staff and sales and marketing departments, and to build and finish its prototype or field trial units.

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