Telecom Startup IronBridge Cuts Back

Its venture backers scared off by plunging infrastructure stocks, a Lexington, Mass., company prepares to lay off 170 of 190 workers and sell its award-winning product at a flea-market price.

by Gavin McCormick of boston.internet.com [January 31, 2001]

Like a lot of startups developing core pieces of the new Internet and telecommunications infrastructure, IronBridge Networks seemed to have the Midas touch.

The 2-year-old Lexington, Mass., company had received $85 million to build its first product, a terabit router designed to manage 25 times the data capacity of existing gigabit routers, while allowing telecom and Internet carriers to sell voice, video and data services on a single network.

Since its September introduction the router has been well received, both by beta testing customers (two large Net service providers) and industry analysts (Internet Telephony Magazine named it a "product of the year"). And the market for new-generation routers remains red-hot. Just last month Ironbridge held a term sheet for a funding round worth another $100 million.

But IronBridge's golden touch has turned to ash. Potential venture backers have been scared by the plunging prices of telecom infrastructure firms -- notably Avici Systems Inc. (NASDAQ:AVCI), a North Billerica, Mass., router maker whose share price fell from $170 in August to $17 a share in December. (It's since recovered some, closing Tuesday at $32.25.)

The $100 million term sheet was withdrawn. Now, just six weeks later, unable to secure additional funding, IronBridge has told 170 of its 190 employees to pack up.

Unless a miracle occurs and a last-second backer appears, those 170 workers will get their last paychecks on Friday, and IronBridge will be forced to sell its award-winning technology for a flea-market price.

"It's a shame," said Doug Antaya, the company's vice president of marketing. "We built a great team. The product has performed well. The market is there. But we've been caught in the ripple effect of the stock market, and now we're a casualty."

While dot-com demises have become old hat in the last 10 months, telecom infrastructure firms have largely steered clear of the backwash. For starters, many of their products remain in development, and, with a market for broadband gear that's certain to grow, most of their v.c. investors have stayed fast in hopes of cashing in.

But as with e-tailers, online marketplaces, Web consultancies and digital subscriber line carriers, too many venture dollars have poured into a sector in which only a few firms will emerge victorious.

IronBridge is likely in the vanguard of telecom gear makers soon to be hanging "For Sale" signs on businesses that, given several months' lead time or a stronger investor climate, could have survived.

When the value of companies like Avici plunged, Antaya said, venture investors realized that any IronBridge investment was unlikely soon to skyrocket 10 to 20 times during a red-hot IPO, such as Avici enjoyed in July.

IronBridge has also suffered through rapid executive turnover. Chief executive officer Paul Lazay left earlier this month.

IronBridge still hopes to hold on with its skeleton crew until a backer or buyer emerges.

"Obviously we'd like to get the company back on track, but that isn't very likely," Antaya said. "More realistically we'll be selling the product. There's been a fair amount of interest, but we've been disappointed that to this point we haven't been able to close a deal."

The vice president said employees have been kept informed of the funding situation during regular biweekly company meetings. He said workers have been offered severance packages "typical" for a failed startup.

Venture backers hold 80 percent of IronBridge shares. Those include Alcatel (NYSE:ALA), the Paris-based maker of phone equipment that in May bought IronBridge's largest investor, Newbridge Networks; Celtic House International, an Ontario venture firm; and two other institutional investors.

IronBridge has halted beta testing of its routers at Energis, England's largest carrier of Internet traffic, and another Net service provider based in the western United States that it declined to name.

"Hopefully we can get a buyer to get those tests back on track," Antaya said.

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