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Communications Wrap: Foreign Firms Harvest US VC Dollars

The communications industry enjoyed some healthy U.S. venture capital funding for the four-week period ending October 9, with 39 companies landing $867.42 million, sharply surpassing the previous four week period. The most interesting trend, however, was that eight of those companies were from abroad, indicating that foreign venture capital firms are still in short supply, or are at least having a hard time keeping up with the scores of emerging foreign technology companies. At the same time, American venture capitalist outfits are becoming less shy about crossing the water to meet the demand.

And these were no mini-deals either. Together, the eight foreign deals accounted for $267.92 million, or 30.89% of the disbursement total, according to our VentureXpert database. In fact, three of top five deals hailed from abroad.

Leading the way was Dutch-outfit InterXion, which provides “one stop shop” trading, telecom, distribution and equipment housing services for telecom and Internet industries, and also operates a virtual dealing room on the Internet for the real time trading of telecom capacity. The company raised $173 million – or nearly a fifth of the total raised between the 39 companies ? of private equity financing, bringing its total equity raised this year to approximately $234 million. New investors included Goldman Sachs-sponsored Whitehall Real Estate Funds and GS Capital Partners 2000, DLJ Real Estate Capital Partners II, CSFB Private Equity, CSFB Real Estate Investment Banking, CSFB Technology Group< , Enron Broadband Services, Continuum Group Ltd. and Aman Ventures.

Existing InterXion shareholders participating in the Series B preferred stock investment round included the Baker Communications Fund II, Navis Partners V, Bear Stearns Merchant Banking, Morgan Stanley Dean Witter, Paribas Deelnemingen and Residentie Investments.

Interxion plans to use the proceeds to continue the roll out of new IECs across Europe, developing new service offerings, and expanding personnel.

“We believe that this additional capital will enable us to further pursue the objective of becoming the leading European provider of managed data services,” said Bart van den Dries, Interxion?s chief executive, in a prepared statement, ”

And it?s a huge market, easier to traverse with European Monetary Union. Ovum, an independent research firm, estimates that the European collocation and Web hosting market will grow from $1.8 billion in 2000 to $12.3 billion by 2005, representing a compound annual growth rate of 47%. International Data Corp., another independent research firm, estimates that European Internet users will grow from 81million in 1999 to 215 million in 2003 – a compound annual growth rate of 35%.

Speeding Over To Canada

The third biggest deal over the past four weeks was that of Montreal-based Hyperchip Inc., which brought in $67 million. The company develops a router that it says relieves data traffic jams on the information highway, a problem may expect to become worse as streaming data takes up cable space.

Optical Capital Group, which led the financing, was joined by fund manager Altamira, Pilgrim Baxter and, once again, Enron Broadband Services and Morgan Stanley Dean Witter.

London-based IX Holdings, which provides co-location facilities for telecom companies, Internet service providers and content providers, took honors for the fourth biggest deal, hauling in $56.8 million, nearly 7% of the total.

Although the deal was closed September 12, the company, which will become one-year old in November, announced on October 2 plans to list on the London Stock Exchange. The company is developing a network of purpose-built IT and telecom facilities in the major European cities, offering housing, back-up and connection services to the specification of different users.

It is seeking to complete the IPO in November, with J.P. Morgan at the helm. As for the most recent cash injection, led by Banc of America Equity Partners, J.P. Morgan Capital Corporation, and First Union Capital Partners, the proceeds will be used to increase the number of IX?s co-location sites from three to eight by the end of the year. Targeted markets are in France, Germany, and Switzerland. In announcing the IPO, Guy Willner, chief executive of IXEurope said: “Flotation is the next logical step for our business.”

IX was not the only UK company to receive financing. Cognito LTD, which develops and implements integrated mobile data software for corporate customers, brought in $10.78 million.

Other VC recipients from abroad included a Danish-duo – Mobli A/S and Realtime ?which raised $2 million and $5 million, respectively. Mobli develops software for personal area networks (PAN) while Realtime provides information and entertainment services for mobile phones. Pushing eastward, an undisclosed investor supplied Budapest-based Mobil ASK Kft with its very first round, totaling $1.2 million. Mobil ASK operates a mobile e-commerce homepage for Hungary and plans to set up a WAP-farm to create and manage WAP-sites for customers.

Hitting the Mideast

Europe was not the sole recipient of American VC generosity, however. Niragongo Technologies of Israel tapped Carmel Ventures and an undisclosed investor for $5 million, to expand the company?s business of developing wireless platforms and wireless applications for mobile devices.

Headquartered in Jerusalem until recently, Chiaro Networks Ltd., now calls Richardson, Texas, home, and landed a Texas-size deal of $100 million, second only to InterXion in thelast four weeks. Leading the round were Polaris Venture Capital and Koor Corporate Venture. To date, the company, which designs and manufactures data switching solutions to remove bottlenecks from carriers’ optical backbones, has raised a total of $130 million.