Spinnaker Sheds Staffers

Spinnaker Networks Inc. has laid off eleven staffers as it seeks new funding. But the company denies rumors that the action resulted from pressure by its backers.

The Pittsburgh startup, founded in December 1999, is in the midst of securing its second funding round. It received $20.4 million in its first round from Menlo Ventures and Norwest Venture Partners -- which are expected to participate in the second round as well. Other VCs also appear to be involved in this round, but the company isn't revealing their identities.

According to a source who requested anonymity, Spinnaker was "forced" by its backers to lay off a certain percentage of staff. The outcome, according to the source, was that the entire team developing Spinnakers application-specific integrated circuit (ASIC) chips was axed.

“The VCs have mandated a layoff plus a complete [change] in the product direction -- scrapping the hardware and telling them to develop a software-only solution,” says the source, who adds, “Morale is very low.”

Fred Gohh, VP of ASIC engineering at Spinnaker and one of its founders, did not return phone calls and did not respond to email requesting comment.Jeff Hornung, Spinnaker’s VP of marketing, confirmed that the stealth company recently reduced its workforce by 11 -- leaving about 90 employees. But he says the move wasn't part of any change in strategy or direction.

Hornung says the company trimmed its staff because it needed to contain costs “to keep our expense structure in line with the general economic slowdown in the IT industry.” The cuts occurred November 27. He acknowledges some of the ASIC team members were laid off, but he refuses to say how many were cut or how many remain with the company.

Hornung also denies that the changes at the company are related to Spinnaker’s efforts to raise additional capital. “We are in the process of raising our series B round, [but] the VCs were not involved with our decision to reduce our expenses." He says Spinnaker’s strategy remains on track and that the company will release its initial product, a high-performance storage server, in the first half of 2002. “The product will have a hardware element to it."

Spinnaker CEO, Ron Bianchini told Byte and Switch after a panel at StorageNext2001 in New York Tuesday, that "it was too late to change the first product," but the second one [expected late 2002] will likely use third-party silicon. He said the VCs were not involved in this decision.

Bianchini was promptly approached by Millid Mittal, the founder and CTO of Optim Networks, a stealthmode startup building merchant silicon for the storage networking market. [Ed. note: at this point they spotted our ears pricking up and left the room.] Bianchini refused to give out any details on Spinnaker's products.— Todd Spangler, special to Byte and Switch, and Jo Maitland, Senior Editor, Byte and Switch
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