Celox Closes Its Doors, $155M Later

Having burned through $155 million in venture funding without securing any customers, Celox Networks Inc. last week told its 125 employees that it was time to call the whole thing off. The advanced Internet switch developer’s final day of business came last Friday. A six-person team will stay on to wind down the failed operation.

“The fundamental problem is that carrier capital spending is down and will continue to be down next year,” says Hugh Kelly, senior vice president of marketing with Celox. “We think that big telephone companies will begin designing new systems next year and then the [buying] market will come back in 2004, but we just couldn’t sustain our product for that long without revenue.”

Kelly adds that the closure decision came suddenly, but most of Celox’s venture capital investors seem to have seen the handwriting on the wall months ago. According to SEC filings dated Sept. 24 and Nov. 27, the vast majority of Celox investors passed on a $45 million convertible offering that would likely have kept the company afloat into 2003. Instead, the company settled for $10 million and the promise of an additional $10 million from investors if it could reach certain fiscal milestones.

Firms involved on the final Celox funding included Apax Partners, Bay Partners, DB Investor and Pilot House Ventures. None of those firms returned calls requesting comment for this story. Other Celox investors since the company’s 1999 founding include ABS Ventures (board representation), Apex Venture Partners (board representation), Dain Rauscher Corp., First Chicago Venture Capital, Firsthand Capital Management (board representation), Goldman Sachs, JPMorgan Partners, Putnam Investments (board representation), Raza Foundries, Rosewood Capital, SB Cowen, Storm Ventures, Texas Pacific Group and Thomas Weisel Partners.

Prior to its $45 million deal, Celox raised $80 million in a Series C round. At the time, Celox CEO Kent Mathy, expected the $80 million to leave it fully funded. Additionally, AT&T was testing its product. Celox hoped to log its first sale in Q4 2001 and expected to achieve positive cash flow by the second half of 2002.

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