Technology Start-Up Firm Closes Shop Capillary Networks Pulls Plug On Valley Firm

A California-based technology start-up firm quietly opened a Spokane office in March, hired a dozen engineers and began building a cutting-edge computer network product.

But last week, as quietly as it came into the Spokane area, the parent company, Capillary Networks, closed its doors in San Jose and also dissolved the local operation.

Company officials in San Jose confirmed the closure of Capillary, a privately funded firm planning to create high-speed network devices.

The 13 Capillary employees in Spokane worked in an office building on North Argonne near Interstate 90.

Capillary Networks’ primary funding was $15 million raised by Sequoia Capital, a Bay area venture capital firm. Sequoia has invested in other technology start-ups, including the popular computer search engine Googol.com.

By Friday, only two Spokane workers remained on Capillary’s payroll. They were liquidating assets and removing office equipment.

A half-dozen of Capillary’s engineers here had previously worked for Packet Engines, a network hardware company started in Spokane four years ago.

Two of those workers, Sundara Ganesh and Amitava Guha, were key players in contacting the founders of Capillary Networks. Both Ganesh and Guha had worked in the Silicon Valley before moving to Packet.

After Alcatel bought Packet Engines, Ganesh and Guha decided to leave Alcatel to work for a new company, said a former Capillary worker who asked not to be identified.

“They felt that Alcatel, a large French company, could not give them a start-up feeling. That’s what they came to Spokane for in the first place,” he said.

Capillary directors in the Bay area had agreed to form two offices - a San Jose branch to devlop software and a Spokane base for hardware. The product was generally believed to be a network-caching network device, designed to speed transmission of Internet data. The product reportedly was 12 to 18 months away from its market release.

The decision to close the company occurred last week during a Capillary board meeting, according to Internet tech magazine Light Reading.

The magazine cited “management trouble” and difficulty recruiting hardware engineers to Eastern Washington.

None of the former employees of Capillary would elaborate on the reasons for the firm’s demise.

The former Capillary worker, requesting anonymity, said the reluctance to talk reflected the continuing effort by Guha and Ganesh to transfer the project to another start-up.

Daines, however, wonders about the reported difficulty in recruiting tech staff to Spokane.

“We’re hiring people left and right,” said Daines, whose new firm, World Wide Packets, is developing fiber-optic networks for broadband data delivery to homes and business.

The former Capillary worker said another six hardware engineers had given verbal agreements to start work in Spokane in the next several weeks, just before the company was closed.

Daines and others said they’d heard reports of disagreements between Ganesh and Capillary’s chief executive, Gnanaprakasam Pandian. Neither could be reached for comment.

“This is not all that uncommon, for a startup to go under. It’s the nature of the business,” said Jeff Miller, head of human resources at Alcatel.

Daines also said he’s contacted some former Capillary engineers to discuss joining World Wide Packets.

Miller said Alcatel also might be interested in hiring at some of the former Capillary engineers.

“We are taking a low-key approach right now on that question,” he said.