Venture capitalists turn tail rather than compete against Cisco

Seven venture capitalists lost $110 million on the seven-year-old start-up Hammerhead and I fear that this will be the death of VC funding for young companies with products that could compete against Cisco. According to a report in VentureBeat, here are the seven venture capital firms that funded Hammerhead Systems, which closed its doors last week: Apex Venture Partners Enterprise Partners Venture Capital Foundation Capital Lighthouse Capital Mayfield Fund Pequot Ventures Silver Creek Ventures The Mercury News reported that Hammerhead CEO and Founder - Rob Keil - a former Cisco alum who launched the Cisco MGX 8800 Series Switches, tried to fish for buyers of Hammerhead's Layer 2.5 Aggregation, Interworking and Migration technology, but he only got nibbles and no bites. However, yours truly found it most curious that the Mercury News noted:

Cisco, known for its acquisitive ways, may have seemed an obvious buyer. But some observers point out that Cisco's business strategy is evolving to include servers and consumer electronics, as illustrated by its announced plans to acquire Flip camera maker Pure Digital.

A source close to Hammerhead told yours truly, "Hammerhead had great venture capitalists across the board, but Foundation Capital was a real standout having also incubated the company. Rob Keil was the founder and visionary behind Hammerhead Systems and he ran the company for the first 16 months and the last 9 months. He raised the initial funding from veteran telecom venture capitalists: Foundation Capital (Calix, Vivace), Mayfield (Crescendo and RedBack) and Enterprise Partners (Juniper). These veteran VCs understood the need for a highly differentiated box that delivered the performance of a router and the flexibility, manageability and price performance of a switch. They also understood that the telecom infrastructure was outdated and desperately needed to be replaced. Keil started and finished the book, though a lot happened in the middle when two other CEOs burned through 90% of the money raised...this is one case where the VCs should have let the entrepreneur stay at the helm..." The source continued, "The carriers are like the outdated U.S. infractructure-folks don't want to think about it and they hope everything will be OK and then one day a bridge in Minneapolis collapses and folks realize they waited too long. Reality is that large incumbent vendors don't have to do what's best for their customers...they don't have to buy from a company that has innovated and delivered unique technology that customers want like bandwidth pooling and performance in one box vs. 4 Cisco boxes... and guess who loses when innovative startups like Hammerhead go away? Carriers...their only choice now will be to buy from large incumbents who are more than happy to sell them multiple boxes and who won't worry about customer integration or price performance." An Overview of the Technology Developed by Hammerhead Systems: According to the Hammerhead website, its HSX 6000 is the first in a new category of Layer 2.5 edge platforms enabling aggregation, interworking and migration of the full breadth of access protocols across any core infrastructure. Hammerhead’s Layer 2.5 aggregation approach combines the best of Layer 3 application awareness and MPLS connectivity with the best of Layer 2 economics, operations and interworking. The HSX 6000 scales from 2.5G to 120G in I/O capacity (full duplex) in a compact 1/4-rack footprint, offering Service Providers long-awaited innovations in Edge Switch technology, a 10X improvement in density of service interfaces, and dramatic reductions in overall system costs. Addressing the service provider’s needs of simultaneously performing service aggregation, service interworking, and network migration, the HSX 6000 incorporates Pseudowire Emulation Edge-to-Edge (PWE3) and Dry Martini implementations; extensive Ethernet support (native GigE and EoS); support for a wide range of services from EVPL (E-LINE) and VPLS (E-LAN) to IP Leased Line Aggregation (PPP/MLPPP/HDLC), Frame Relay/MLFR, and ATM/IMA; and complete Any-to-Any Service Interworking. The following is a list of Hammerhead HSX 6000 solutions: Business Services Multiservice Edge Aggregation and Switching IP Leased Line Aggregation Ethernet Virtual Private Line (E-LINE) Ethernet Virtual Private LAN Services (E-LAN) Residential Broadband Aggregation Triple Play and IPTV/VOD Service Interworking Gateway PBB-TE Service Gateway Wireless Backhaul Carrier Ethernet Multicast Framework

Do you agree with yours truly, that venture capitalists will no longer fund networking startups that compete against Cisco, unless they know they can later sell it to Cisco? BradReese.Com Cisco Refurbished - Services that protect, maintain and optimize Cisco hardware Contact: Brad Reese Twitter: Call Toll Free 866-864-0506 or International 850-364-4115 Where's Cisco CEO John Chambers today? - Updated Daily

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