Photonics Firm Hits Big in New Venture Capital Round

By MICHAEL STREMFEL

Staff Reporter

Talk about a nice problem to have.

Sabeus Photonics Inc. had planned to announce this week the closing of its third round of venture funding, having raised $18.75 million. But the closing now has been extended to the first quarter of next year to allow additional investors to join in.

The manufacturer of optical networking components, which is in the process of moving its operations from Long Beach to a new plant in Chatsworth, originally had planned to raise just $15 million in the round. But Sabeus Chief Executive Andre de Fusco last week estimated that the round now is expected to grow another 20 percent or so, putting it at $22.5 million.

In addition, the new funding is an “up” round, meaning its valuation is higher than that of the previous round. “You just pick up momentum when you’re out raising money,” said de Fusco.

That hasn’t been the case for most cash-seeking L.A. entrepreneurs in recent months. The amount of venture funding going to L.A.-based companies has been steadily dropping, which makes investors’ enthusiasm for Sabeus particularly impressive.

“Most companies are experiencing ‘down’ rounds or not getting funding at all,” said Corey Lavinsky, market research director at Growthink, a Los Angeles-based venture research firm.

Optical networking companies like Sabeus have been the hottest destination for venture money in recent months. Of the $8.3 billion in total venture capital invested nationwide during the third quarter, more than $1 billion went to such businesses, according to Growthink.

The additional investors looking to invest in Sabeus’ third round are domestic and European venture firms, some of which are connected to Sabeus’ customers, de Fusco said.

Sabeus officials and its venture investors refused to disclose potential investors, but current customers include European telecom giants Marconi Corp. plc of London and Alcatel of Paris.

While the company declined to reveal annual revenues, Massoud Entekhabi, managing director of TL Ventures of Santa Monica, lead investor in the third round, said “we expect revenues to increase seven- to tenfold next year.”

Driving that growth is the steady stream of new products being developed, as well as new applications being developed for its existing product lines.

During the past year, the company has been focused on components that enhance the performance of optical amplifiers, which boost digital signals as they travel along fiber-optic cables. But the company is now expanding its products beyond telecom to include energy, structural engineering, seismic and military applications.

“If you put a fiber strand across the Golden Gate Bridge, we could model all the changes in the structure how it’s moving, the speed of the wind, the temperature in the middle of the bay, and so forth,” said de Fusco. “Down an oil well, we could monitor the integrity of the perforation all the way down, the reliability of the drill bit all that.”

Sabeus received its seed money and was founded in 1998. Last year, it received a second round of funding, $5 million, from Redpoint Ventures.

The current, third round is being led by a $7.5 million investment from TL Ventures. Also participating in the round are Redpoint, Digital Coast Ventures and CSFB Ventures.

Sabeus’ relocation to Chatsworth is expected to be largely complete by January, but it plans to maintain some research and development activities and manufacturing capacity in Long Beach for a few months after that, to guard against disruptions to output.