Stephen’s Posterous

Big customers, a top-flight engineering staff and $110 million in venture backing was not enough to save Hammerhead Systems Inc., a data-switching company that closed its doors on March 19, 2009.

“We were in a Catch-22 situation, and we are a casualty of the economy,” said Rob Keil, the Mountain View, Calif.-based company’s chief executive.

Hammerhead planned to sell its Ethernet aggregation switches to major telecom carriers and had inked major deals with two of them, Keil said. But to continue, the company needed to enlist more carriers as customers, something that proved tricky in the current economic climate.

“We had them excited about our technology,” Keil said, “but they wanted to get the financial viability issue off the table. The carriers liked the product and the team, but they needed us to have a partner…for financial stability. It just wasn’t possible to get the carriers comfortable.”

Partnering with a name-brand networking hardware company might have catapulted Hammerhead to success, he said. “But as the economy melted down, the prospective partners became risk-averse,” Keil said. Keil could not disclose which hardware companies Hammerhead approached, or which two carriers had agreed to buy the company’s switches.

Hammerhead made a data switch that routs information for carriers. The switches collect data circuits from the carriers’ customers, aggregate them, and rout them back to the operators’ core networks. This process, said company spokeswoman Mari Mineta Clapp, enables carriers to use much of their aging equipment to keep up with the demands of today’s smart phone traffic, including backhaul and Ethernet functionality needs.

“Nobody believed they could deliver on this, but they did,” she said. The technology “had the performance of a router, but the price, flexibility and management of a switch.” Clapp’s enthusiasm for the company was shared by top-flight venture capital firms.

Founded in 2002, Hammerhead raised more than $110 million over several rounds from Apex Venture Partners, Enterprise Partners Venture Capital, Foundation Capital, Lighthouse Capital Partners, Mayfield Fund, Pequot Capital Management and Silver Creek Ventures. It last raised an $18 million round in 2007.

Below is a list of other venture capital-backed companies in alphabetical order that have gone belly up this year, as reported by VentureWire.

Allux Medical Inc., Menlo Park, Calif. - For the past four years, it had been developing devices for treating upper airway and dermatological inflammatory diseases. But the company shut down after raising at least $13 million from Prospect Venture Partners, Three Arch Partners and Venrock, according to our records.

Autonomic Networks Inc., Mountain View, Calif. - The company decided to shut its doors after failing to secure a new round of venture capital. Formerly known as Vernier Networks, the company started out in 2001 as a provider of network access control products that use computer equipment to manage the people and programs that have access to corporate networks. Under the new name the company made equipment that enables organizations to remain compliant with network security protocols. Investors included Allegis Capital, DCM, Foundation Capital, Masthead Venture Partners, Utah Ventures (now UV Partners), Venrock and Weber Capital.

Cogentus Pharmaceuticals Inc., Menlo Park, Calif. - The pharma filed for Chapter 7 bankruptcy after raising more than $80 million, including a $62.5 million round just over a year ago, from investors such as Apothecary Capital, Keffi Group, Prospect Venture Partners, Pinnacle Ventures and Ridgeback Capital. Cogent intended to conduct Phase III trials for a pill designed to provide protective cardiovascular benefits while reducing gastrointestinal side effects associated with anti-platelet therapy.

Coghead Inc., Redwood City, Calif. - With dwindling financial resources and an outstanding loan from Western Technology Investment, the Web application company shut down its operations and sold its intellectual property to one of its investors, SAP AG.  American Capital Strategies Ltd. and El Dorado Ventures had also invested in Coghead.

Dynogen Pharmaceuticals Inc., Waltham, Mass. - A planned merger with a special purpose acquisition company sputtered last year, and its lead drug candidate later failed in clinical trials, leading to a Chapter 7 bankruptcy. Dynogen raised about $67 million from a group that included Atlas Venture, Abingworth Management, HealthCare Ventures, Oxford Bioscience Partners, Pappas Ventures and SV Life Sciences

Elephant Pharmacy Inc., Berkeley, Calif. - “Burdened with obligations” too big for the company to carry on, the operator of health and wellness stores shut its doors and is liquidating under Chapter 7 bankruptcy. The company had raised at least $49 million from Tudor Investment’s Rapter Global fund, JPMorgan Chase’s Bay Area Equity Fund., CVS Corp., David Hadley of D.F. Hadley & Co., and Arthur Rubinfield, former executive vice president of Starbucks Corp.

Innovative Spinal Technologies Inc., Mansfield, Mass. - The spinal-surgery device maker reportedly shut its doors and filed for bankruptcy after seven years in operation. It had raised nearly $75 million in funding from investors including GE Healthcare, JPMorgan Partners, MPM Capital, OrbiMed Advisors and Oxford Finance.

nTag Interactive Corp., Boston - After seven years of trying to modernize the corporate conference industry with digital name tags that can communicate with each other wirelessly, nTag filed for Chapter 7 bankruptcy. Pilot House Ventures and Sevin Rosen Funds had invested more than $20 million in the company starting in 2004.

Ortega InfoSystems Inc., Fremont, Calif. - The security software company filed for Chapter 7 bankruptcy. Previous investors included Harbinger Venture Management and Sycamore Ventures.

SafePage Corp., Menlo Park, Calif. - Backed by Canaan Partners and founded in early 2008, SafePage was looking to build a “secure personal portal” that would give people quick access to their private Web sites. It went straight from stealth mode to the start-up graveyard.

Silicon Navigator Corp., Cupertino, Calif. - Venture investors decided to pull the plug on this company, founded in 2003 as a provider of electronic design automation software for chipmakers. Investors included Cadence Design Systems Inc., Intel Capital and ITU Ventures.

Sotto Wireless Inc., Bellevue, Wash. - The stealthy wireless service provider, whose executives and investors are linked to pioneering telecom company McCaw Cellular Communications Inc., failed to make enough traction and shut down operations. It raised roughly $14 million from Ignition Partners and VantagePoint Venture Partners.

TallyGenicom LP, Chantilly, Va. - Printing products company Printronix Inc. tapped its owner Vector Capital for about $10 million in additional equity as part of a deal to buy competitor TallyGenicom assets out of bankruptcy. TallyGenicom, which was backed by Arsenal Capital Partners and founded in 2003, filed for Chapter 11 in Delaware.

TeachFirst Inc., Seattle - After a promising beginning, the educational training company fell on hard times and filed for Chapter 7 bankruptcy, effectively putting an end to an eight-year-old company backed by several small funds and angel investors.

Ultreo Inc., Redmond, Wash. - The company, which made a battery-powered toothbrush that used ultrasound waveguide and sonic bristles, has shut down after failing to find an interested investor or buyer. Ultreo raised a total of $28.1 million in venture capital, including an $11.3 million round in May 2007, VentureWire records show. Its venture investors included Polaris Venture Partners.

Yoomba Inc., Menlo Park, Calif. - The latest VoIP technology maker to shut down. Yoomba, originally from Israel, was backed by Global Catalyst Partners and U.S. Venture Partners.

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