Entrisphere Locates $33M for Telecom

VCs are not sick of the telecom sector just yet, or at least Duff Ackerman and Goodrich (DAG) and Crosspoint Venture Partners aren’t. The pair just led a $33 million deal for Entrisphere, a broadband company that focuses on voice, video and data services.

“We offer multiple services at economic rates,” says Mark Floyd, the company’s new president and CEO, who was most recently an entrepreneur-in-residence at Crosspoint. “By focusing specifically on the technical and operational needs of RBOCs and other incumbent carriers, Entrisphere is solving business problems for its customers with products nobody else can duplicate.”

While Entrisphere is up against serious competition like Alcatel and Lucent, Floyd says the company, based in Santa Clara, Calif., has a unique game plan. “The competition has a different style for solving the problems than we do. Most of them have been in this area for a long time and have a wide span, so they just keep adding data to a bunch of mature, long-standing platforms. We have come in with a converged platform that allows for higher performance,” Floyd says.

Entrisphere might have the right idea but the lack of telecom spending and the poor economic conditions adds an extra challenge. According to Floyd, telecom spending is down 45% from two years ago and is not expected to bounce back until 2004 at the earliest.

This last round brings the company’s total funding up to $46 million. Upon Entrisphere’s founding in 2000, it completed a Series A round of financing for $13 million. Benchmark Partners and Accel Partners were the investors in the first round and came in on this round. Other investors in this round include Capital Technologies CDPQ, and The Ontario Teachers Pension Plan.

“It was oversubscribed. We were looking for around $25 million and we took in $33 million. We are a new company and we have the solution. The venture community looked at us and said they see a good company,” says Floyd.

Indeed, John Cadeddu, a managing director at DAG, which put in about $9 million, says that his firm wanted to put in more but didn’t. “We wanted to leave some room for our LPs, [Capital Technologies CDPQ, and The Ontario Teachers Pension Plan] to be able to make straight investments in to Entrisphere,” he says. “We spent about a year and half looking at this sector. We typically make our investments by listening to customers. We try to figure out what their buying is going to be like in three to five years out. From those conversations we became convinced that we wanted to be involved with access for the RBOC. It is quite clear carriers are going to need this.”

The product is in trials and is about ready to be shipped to three medium-sized network labs in North America for in-house testing it. Eventually, Entrisphere plans on rolling out an international version of its product. Mass deployment is planned for 2004 or 2005.

“We should have taken in enough money to get through the trials, which will give us a good indication of how good the company is and if we will need to raise a Series C round, but we are not expecting too,” says Floyd.

The company has a little under 80 employees and is planning on adding between 20 and 50 in the next 12 months.

Assuming that the Entrisphere doesn’t need more venture capital funding, Floyd expects the company to start seeing revenue in 2003.

As for an exit Floyd is prepared to play it by ear. “You have just build a strong independent company and when you do that it attracts other companies and you can look at the public market. It’s best to just build a strong company and let the exit happen,” he says.

Contact Danielle Fugazy