In the midst of the fiber optic market meltdown, Luna Technologies managed to raise a $3.5 million Series B round. The Blacksburg, Va.-based company, which makes fiber optic testing equipment, will use the funds to expand and enhance its product line.
Luna launched its flagship product, the Optical Vector Analyzer (OVA), in August 2002. Yet converting the technological breakthrough into hard currency might prove difficult. Luna’s closest competitors – Quebec-based EXFO, (NASDAQ: EXFO)and Palto Alto, Calif.-based Agilent Technologies -(NYSE: A) – have endured steep declines in sales since 2001. In its last annual report, EXFO showed a 53.2% decline in sales from 2001 to 2002. Agilent, a former division of Hewlett Packard, posted a 28.4% decline for the same period.
However, some venture firms surmise that a superior technology can get through even a stagnant market. After leading Luna’s $10 million Series A round a little more than two years ago, Columbia Capital reiterated its commitment to the company by leading its Series B round. Other returning investors in this round include ENVEST Ventures I, Soundview, Novak Biddle Venture Partners, Southwest One (which is managed by Gryphon Capital Partners) and Virginia Tech. This was a down round for Luna, which was given a post-money valuation between $7 million and $8 million.
Even though Luna has not hit the milestones it intended to, investors agreed that it deserves more time to market its technology. “The company has definitely been hammered,” says Leigh Huff, a principal with Gryphon Capital. “They had a great product and there were absolutely no buyers.” Having used up the proceeds of its Series A, Luna had to return to its investors. “Would we have done [the investment] if we weren’t already in it?” wonders Huff. “I don’t know. We might have.”
Luna’s silver lining resides in its NASA-licensed technology. Although fiber optic cable easily outperforms its copper cousin, it requires a much more careful production and installation process. Fiber optic equipment makers and service providers need to closely monitor the properties of their fiber optic cable. Luna’s OVA does just that. Where most previous testing equipment measured one or a few physical properties, OVA captures the whole gamut, known to engineers as the Jone’s Matrix, in a few seconds -20 times faster than competitors’ devices, says Sailaja Tennati, an industry analyst with Frost & Sullivan.
So far, Luna has sold its products to just under 20 customers, mainly research centers and optical component makers. Two of its customers have moved from using OVA in their R&D departments to using it in the manufacturing process.
The company made its first sales in 2001, doubled its revenue in 2002, and it expects to double it again this year. By the end of 2003, Luna should break even, says Kent Murphy, Luna’s CEO and founder.