PhotonEx Generates $90 Million Deal

With less than two months left until it begins shipping the telecom industry’s first 40 Gb/s optical transport system, PhotonEx Corp. today is expected to fuel the pre-launch buzz by announcing that it recently secured $90 million in third round funding.

The Series C deal ranks within the 20 largest venture capital grabs of the year, and follows up on an $80 million offering that the Maynard, Mass.-based issuer closed in July 2000 and an $8 million first round from November 1999.

“We have raised $178 million all together, and feel it will take us through to the middle or end of 2003,” said Patrick Scannell, chief financial officer with PhotonEx. He added that there are no current plans to raise additional funds, but investors contacted for this story said a public or private fund-raising event in 2003 will likely be needed.

The Waltham, Mass.-based office of 3i Technology led the most recent transaction alongside new investors Axxon Capital, Boston Millennia Partners, Castile Ventures and JP Morgan Direct Venture. Existing backers included Matrix Partners, North Bridge Venture Partners, Oak Investment Partners, Essex Investment Management, Silicon Valley Ventures, Intel Capital and The Photonics Fund.

The transaction was considered a down round from the Series B offering, although both the company and its investors remained tight-lipped regarding specific valuation figures.

“We’ve been following this company and its management team for a couple of years, and they’ve been extremely impressive when it comes to hitting the milestones they set for themselves,” said Jean-Yves Lagarde, a partner with Boston Millennia and a former manager at Corning Inc. “They’re clearly the first 40 Gb player, and we think they have a nine- to 12- month lead on both the incumbent and the start-up competition.”

That first-mover advantage is expected to play a critical role in that it gives the PhotonEx sales a team a bit of breathing room while trying to convince major carriers to rework their existing core networking structure. Although major capital expenditures are not high on carriers’ wish lists these days, the PhotonEx system could still prove enticing because it claims to solve the endemic capacity versus distance trade-off. In other words, long haul and ultra long haul networks will now need dramatically fewer regeneration points that, in turn, lead to cheaper and faster service.

Moreover, the PhotonEx solution works with existing off-the-shelf components and is considered a “smart” system that can sense and adjust to varying amounts of data traffic.

“For certain customers, it’s very important because they’re suffering bandwidth capacity issues,” said Catherine Lego, managing partner of The Photonics Fund. “The problem isn’t overall capacity, but that some of it is in the wrong places because… Internet traffic didn’t end up moving as homogeneously as expected.”

As for why PhotonEx has been able to hit the 40 Gb/s mark while much of the competition seems stuck at 10 Gb/s, investors give most of the credit to a focused business model and years of research at MIT’s Lincoln Laboratory by industry veterans like PhotonEx CEO Kristin Rauschenbach.

“They’re totally dedicated to 40 Gb/s, have a strong management team, a deep research bench and significant financial resources,” Boston Millennia’s Lagarde said. “We really believe what they’re offering will become a key parameter for service providers.”

Dan Primack can be contacted at