WaveSmith lands Ciena for funding

ACTON, MASS. – Multiservice edge switch maker WaveSmith Networks has landed $30 million in new funding, including $5 million from a major vendor – Ciena – that will help bring the start-up’s switches to market.

Lead investors in WaveSmith’s $30 million third round include first- and second-round participants Atlas Venture, Bessemer Venture Partners, Commonwealth Capital and Fidelity Ventures. Argonaut Private Equity joins Ciena as a new investor in WaveSmith.

The third round makes WaveSmith cash-flow positive and would take the company into 2004 even without revenue. But WaveSmith already is taking revenue and three of its customers are Vanion, Ben Lomand Telephone and Global NAPs.

WaveSmith has raised $84.5 million since its founding in March 2000.

Ciena will sell, service and support WaveSmith’s Distributed Node switches on a worldwide basis to Tier 1 carriers. The deal is significant to WaveSmith because it provides a global channel into large carrier accounts – customers who are reluctant to deal with start-ups because of their lack of revenue, unproven technology and lack of service and support infrastructure.

But it’s perhaps equally significant for Ciena. It gives the vendor of metropolitan and long-haul optical gear a new revenue stream when sales of optical transport and switching systems are taking the brunt of the downturn on carrier capital spending.

Ciena signed a similar agreement, underscored with a $5 million investment, with multiservice core switch start-up Equipe Communications earlier this year. Ciena now can sell Layer 2 multiservice edge and core switches – of which there are now lucrative requests for proposal out – to Tier 1 carriers as adjuncts to its optical systems.

Ciena evaluated multiservice edge switches from Gotham Networks earlier this year. What put WaveSmith over the top, sources say, was its strong showing in regional Bell operating company trials at SBC Communications and Verizon. Sources say WaveSmith is close to receiving a contract from SBC for a multiservice edge buildout valued in the tens of millions of dollars. WaveSmith declined to comment; SBC did not respond by press time.

At Verizon, WaveSmith is a finalist for the RBOC’s $100-million-plus Fast Packet CAS frame relay buildout, sources say. The contract announcement date is unknown (see story).

WaveSmith and Verizon declined comment about that possibility.