KeyEye shuts down, lays off 20

One of the region's most promising startups, KeyEye Communications Inc., has shut its doors, letting go its 20 Sacramento employees.

Last August, the semiconductor maker had as many as 40 employees. At that time, company officials said they were recruiting for departing chief executive officer Chuck Fox's replacement. KeyEye's executive team has served that office in the interim.

"The environment was not conducive to hiring a top-quality person," Bob Pepper, chairman of the company's board of directors, said Tuesday, adding that the company did not have enough cash in the bank to get a quality CEO on board.

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KeyEye had exhausted its available funds and failed to convince venture capital firms to put more money into the company. At the same time, KeyEye needed a strong CEO to help raise more money, Pepper said.

KeyEye had "great promise," he said. "It was a very very good team of guys."

The startup was banking on demand from companies to move data more cheaply and efficiently. It was designing a chip to move data over standard copper wire at 10 gigabits per second, the typical speed for fiber-optic cable in data centers. Copper runs about one-tenth the cost of fiber.

Venture capitals firms might have been wary in light of the troubled economy and of the complexity of the technology, Pepper said.

"When you get turned down you never really know the reasons exactly," Pepper said. He quoted a friend who told him that venture capital firms invest "when greed overcomes fear."

"It's a very delicate balance," he said.

KeyEye did give samples of its first chips to customers last year. Those customers worked to integrate the chips into their systems, but the chips required further engineering, which costs money.

"We do know what's wrong," Pepper said. "It's not huge."

If the chip had been "absolutely bulletproof," KeyEye's fate might have been different, he said.

KeyEye landed about $16 million in a third round of funding that included Roseville venture fund American River Ventures, Menlo Ventures and Western Technology Investments, a private equity investment company in San Jose, in October 2006.

American River led the first round of funding for KeyEye with $1.6 million of a $4.7 million funding round in December 2003. American River was part of the second round of $15 million in funding, and brought in Menlo Ventures at that time.