Lights Out for Pluris

When word leaked last week that optical router company Pluris Inc. had called it quits, everyone tangentially associated with the company began asking questions. Some wanted to know if Pluris had targeted Worldcom for beta testing (it had), while others wondered if the company had been unable to find qualified executives to fill its open CEO position (it had three strong candidates in place). Most of all, people couldn’t figure out how a company could go out of business just five months after announcing that it had secured $53 million in fresh venture capital.

Part of the answer, of course, is that optical box companies have high burn rates. Also, the companies have little or no revenue because budgets have been slashed by carriers. Moreover, the recent spate of telecom accounting scandals reduced visibility on what was already a very murky rebound horizon.

“Going out of business was not part of the plan when I joined the company,” says Cynthia Ringo, the former CopperCom chief who has been serving as interim CEO at Pluris since May 16. “But the overall market just kept degrading.”

But, on the surface, Pluris should have had enough cash to weather the storm for at least a few more quarters. The problem was that Pluris never actually collected all the money it had claimed to raise back in February.

The deal in question was a $53 million Series E funding co-led by existing investors ComVentures, Crescendo Venture Management and JPMorgan Partners. The term sheets offered by the three firms gave Pluris a $75 million post-money valuation, which was a far cry from the $626.5 million it was tagged with after a $104 million fourth round deal in Q3 2000. Sources familiar with the deal say some early-stage investors were almost completely washed out, while even some remaining investors wrote down as much as 60% of their initial investments.

The E round was intended to be the first part of a larger offering that would remain open to outside investors for several months. Not only was the deal multi-layered, but even the initial $53 million commitment was structured to be pumped into Pluris between February and October of this year. For example, Crescendo sent a $3.5 million check at the end of April. By the end of June, Pluris had only collected $27 million of the $53 million that had been committed.

As the telecom market continued to sour, Pluris began a mad rush to secure additional capital. Not only did it keep pitching the second tranche of its Series E deal, but it also contacted market peers about a potential merger or acquisition.

“We tried just about everything,” Ringo says.

The final straw came just a few weeks ago when it became obvious that the money wasn’t going to come either from customers or from outside investors. It also wasn’t going to come from company insiders, who decided against fronting Pluris the $26 million remainder of the February deal.

“If the deal had been structured differently, then it would have been interesting to see what would have happened,” says a source close to the company. “If I look at other companies like Caspian Networks and Procket Networks, they have enough cash that they will be OK when the market stabilizes. Perhaps if they hadn’t raised so much money themselves, there would have been some more around for Pluris.”

None of the $27 million that Pluris did draw down from its VCs is being returned. Instead, remaining funds will be used to help wind down the company. Last week, Pluris signed over all of its assets to Sherwood Partners for the benefit of the company’s creditors. Ringo is also helping to wind things down, although after Labor Day she will become a partner at a venture capital firm she declined to name.

Overall, Pluris raised approximately $188 million over five rounds of funding. Investors included: ABS Capital, ABN Amro Private Equity, Bay Partners, DLJ Merchant Banking, Lightspeed Venture Partners, RWI Group, U.S. Bancorp Piper Jaffray, Vulcan Ventures and Worldview Technology Partners.

Contact Dan Primack

This is a free sample of content available to paid subscribers of Private Equity Week.
Click here for more information.