FlexLight Networks: Financed up to milestone, with a waiting-list

Everyone says it is hard to find investors and difficult to raise $4 million in the first capital raising round. However, FlexLight Networks will tell you that it is easy to raise $8 million at seed. This start-up raised the money from Concord Fund IV ($5 million) and US Coral Ventures Fund I-V ($3 million).

Like Chromatis and other Israeli companies in the field, FlexLight Networks was founded by graduates of the ECI school of optics: Yossi Arol, VP Marketing, Oren Marmur, CTO, and ECI subsidiary Innowave manager Hezi Lapid, advisor. In other words, a very good start which interested a considerable number of Israeli and overseas funds.

FlexLight Networks says that $4 million was pushed into their hands, which they politely refused. “We understood that we require an investor with added value, not one offering money only,” Arol says, “We wanted to get it right and today we can see that we accomplished this. I think we chose the best Israeli fund. Concord made the connection with Coral Ventures of the US. They are very similar in their way of thinking.”

After leaving ECI, Arol, Marmur and Lapid talked about setting up an optic project. “We had a very strong principle – we would not compete with ECI,” Arol continues, “We would choose a different segment, since ECI is an excellent company, and it is worth our while cooperating with it, not competing.” After shaking hands, Lapid was recalled to ECI in order to save Innowave. He is therefore not an active manager in FlexLight. “Nevertheless, Lapid gives us the right connections, which is sometimes much more valuable than other things,” Arol adds.

”Globes”: Do you have a policy of headhunting within ECI?

Arol: ”No. I’m very grateful to ECI. There may have been some differences of opinion, but I should thank it for what I have accomplished to date. I believe we can cooperate in the future, using its excellent marketing. We’re developing something ECI isn’t, so there is no need for conflict.

“Let’s say that if I receive a CV from a recruitment agency showing someone from ECI, I will immediately invite him for an interview, since I don’t want to miss the chance.”

Marmur: ”We’ve created a situation whereby most of our employees did not come to us from ECI. They passed through other companies on the way and we stayed in touch.”

Dealing with the lower layer

The optic network operates on wave lengths. Installation of the fiber costs $100,000 per kilometer and the possibility of exploiting the same fiber to transmit a higher volume of communications volume is therefore more worthwhile.

FlexLight is developing its technology for the access environment, which connects subscribers to the central urban offices, from there to the regional layer and ultimately to the backbone. At the access layer there are copper wires, as opposed to the optic fibers with higher connectivity capacity. FlexLight is interested in building a sort of backbone within the access layer, thereby opening up the bottleneck at this level.

The problem is that the amount of information transmitted on these small pipes is too large, and the higher layers are therefore not fully exploited. Replacing the copper wires with optic fibers will enable deployment of a wave length capable of transmitting information at 10 Gbps. Ordinary domestic users don’t require more than 30 Mbps but FlexLight claims that it will bring about a breakthrough when it transmits information from several sources on the same wave length, leading to maximum exploitation of the expensive resource. Arol: “FlexLight knows how to exploit the wave length in such a way as to facilitate using the same wave length from several places.”

”Everyone invested heavily in solutions for the higher layers, which can’t be fully utilized, since the lower layers experience bottlenecks,” Marmur says. “Data transmission at corporate internal networks is up to 100 Mbps, but the moment it needs to sent out to exchanges etc., the data can sometimes be transmitted at only 28.8 Kbps.”

Marmur talks about a $5 billion market in 2003, based on an initial report, although later reports indicate double that figure. Half this market is in the US and the other half is spread out worldwide. FlexLight will invest most of its efforts in laying fibers to business and residential users. “The residential subscriber will receive 20-30 Mbps, while in commercial areas we will reach 100 Mbps,” Arol says.

Competition is good

FlexLight has three major competitors: Quantum Bridge Communications, which has an advantageous starting off point and is close to presenting a finished product; Terrawave Systems, which has also been around longer and is on the way to a finished product; and Fujitsu, which has not yet reached the product stage.

How did Cisco, Nortel, Lucent and others manage to ignore the access layer?

Arol: ”I also asked myself the same question. These companies focused on the optic networks at the higher layers because they were more urgent. They assume that someone else will take care of the lower layers. They’re concentrating more on finding solutions for high volume layers, which is where most of the competition lies.”

Published by Israel's Business Arena on 8 January, 2001