Down, not out

Start-up software application provider Sevis Systems, just beginning to make waves with its local number portability (LNP) caching and other SS7-based products, took one on the chin last week as it was knocked out of its second round of financing by the bear-market economy. But the privately held company is not throwing in the towel — yet.

As Sevis tries to stay in the fight, the company has taken some extreme actions to hedge its bets. On April 6, the company laid off about 40 people — more than 55% of its work force — to minimize operating expenses while pursuing additional financing.

“We got caught a little short-handed when it came to funds because, just when we were starting our funding drive for the second round, that's when the market tanked,” said Steve Samaniego, vice president of marketing for Sevis. “So, the rules changed with respect to getting funding from venture capitalists just as we were getting into the flow of it.” The Sevis staff now consists of core engineers, key management and customer-support personnel.

‘We got caught a little short-handed when it came to funds because, just when we were starting our funding drive for the second round, that's when the market tanked.’
— Steve Samaniego, Sevis

“The crew that we have on board now is able to meet all of our customer requirements, development requirements and short-term goals,” Samaniego said. “I wouldn't call that a skeleton crew, I would call that a lean, mean fighting machine.”

A Sevis spokeswoman was cautiously optimistic even though the company's current situation is dire. “I'm not sure how long they can stay afloat,” the spokeswoman said. “They are still trying to find funding from an angel somewhere. If they can get a half-million dollars somewhere, that could get them through a year, if there is only five or six of them.”

While Sevis tries to stay in the fight, the company has to grapple with possible partnerships, business investments and offers to purchase the company or intellectual property. To avoid a knockout, Sevis is focusing on the completion of the three trials currently taking place; closure of sales of the TurboCache (a cache system for LNP) and InteleGuard (a firewall/security application) products; financing to fund operations; and the growth of the company. Its firewall and cache products are in beta tests, and its signaling gateway product is being developed.

But Sevis has few options, according to David Fraley, principal analyst for SS7, AIN and next generation signaling at Gartner/Dataquest. It can fold and shelf the work completed; it can have someone purchase the intellectual property and hire Sevis employees in conjunction with that sale; or the company can receive additional funding, he said. Another analyst said that the company's potential demise could be because of its market strategy.

“I was surprised at their strategy of directly marketing these products to operators,” said Juan Fernandez, senior industry analyst for Gartner/Dataquest. “It seemed to me that, given their size, it would have been better to consider selling to other vendors [who could OEM the technology].”Sevis' best options are obtaining a second round of financing or getting bought out, Fernandez said.

“[But] given the current climate, this is not a very good time to be in the position that they are in,” he said. Yet the current market downturn does not to seem to have changed the optimism about next generation technology. “It's going to force people to take a more analytical approach to their growth, buildout and to their future,” Samaniego said. “That's a good byproduct of the pain that people are feeling at the moment.”

Both Gartner/Dataquest analysts agreed that many companies will fail, but that's just part of the game; the next generation will prevail. “There are lots of start-ups and not all of them will survive, but the concept of next generation networks and the new network will continue to evolve,” Fernandez said.

Sevis drops in Round 2

July 1999

Sevis established

Jan. 2000

Receives first round of financing of approximately $6.5 million

Sept. 2000

Raises several million dollars in bridge funding

Sept. 25, 2000

Introduces LNP caching applications, TurboCache Smart Query

March 19, 2001

Introduces signaling firewall product, InteleGuard

Late March 2001

Loses second round of financing

April 6, 2001

Sevis lays off about 40 people

Source: Sevis