Short Of VC Support, IPOptical Can’t Stay Alive

Unable to secure a lead investor for its Series B financing, IPOptical Inc. has decided to sell off all its assets and close up shop for good at the end of the month. The Dulles, Va.-based optical routing company originally needed $30 million to $40 million to stay alive, and had managed to garner verbal commitments for nearly half of its target. Without a lead investor, however, the soft circles soon vanished.

“Because of the market, I guess this was a risk [VCs] weren?t willing to take. They are probably fighting their own battles with their own portfolio companies,” said Jack Waters, IPOptical?s vice president of sales and marketing. “[Our soft investors] were waiting for a big-name lead investor. We looked and looked and a lead just wasn?t there. We talked to over 50 VCs face to face.”

Unwilling to give up, the company lowered its goal to $15 million, which would have been just enough to keep it above water while it sought more capital.

“About $30 million would have brought us to cash flow positive,” Waters said. “But a $15 million tranche would have worked. [In actuality], we knew we needed $80 million to get our products to market.”

Although the company had significantly lowered its expectations, there still weren?t any takers. In a last-ditch effort, it swallowed its pride and finally offered to drop its valuation to $20 million, a sizable departure from the $38 million post-money worth it received last December after closing its Series A round, which netted $8 million from AMP Capital Partners.

“We were almost giving the company away and we still didn?t attract anyone. [That] no one was lured by the significant opportunity at a low price told us the market didn?t want to do this,” Waters said.

Well, almost no one. Strategic investor Agilent Technologies had provided $6 million in bridge financing for IPOptical?s Series B deal, and was prepared to put up an additional $4 million if the company was able to attract a lead investor.

With a monthly burn rate of $1.2 million, IPOptical was forced to give 90 employees a temporary leave of absence last month with the promise that they could have their positions back if the company was able to close the Series B deal.

Since the financing never came to pass, Waters said IPOptical placed as many of its employees as possible with local competitor, Hyperchip Inc., and Caspian Networks, an Internet infrastructure company.

Employees weren?t the only ones who lost out, however.

“We have enough cash and assets to pay creditors. The bridge loan is our only debt so we didn?t have to file chapter 11. Unfortunately, AMP lost its investment,” Waters said.

He also suggested that IPOptical, like many other failed companies, could have survived if it had gone out to raise money in a less volatile market.

“More money sooner was something we should have done,” Waters said. “Only 12 to 18 months ago, investments were so plentiful. We should have taken more before the market locked up.”

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