When technology buyers earlier this year began asking for T-1 compatibility in DSL-based products, converged voice and data delivery provider vPacket Communications Inc. quickly reengineered its 6100 Series products to meet market demand. It has not, however, been able to maneuver quite so successfully through the ever-slowing venture capital market.

The Milpitas, Calif.-based company is expected to announce today that it has passed the midway point in its quest for a $50 million Series C financing. Although the news certainly appears positive, vPacket management must still be smarting from a $30 million valuation hit it took between the most recent infusion and a first tranche that closed back in January (See PEW 1/29, pg. 1).

“We’ve suffered some pretty significant dilution now, but having extra cash on hand is worth it in this market,” said Rob McCormick, chief financial officer with vPacket Communications. “We recently got our first sales order and have two more about to happen, so it’s important to have available working capital.”

The $23 million second tranche was led by a $10 million commitment from GE Equity, which was joined by Intel Capital and existing investors NIF Ventures/Daiwa Securities Group and New Enterprise Associates. The deal put the company’s post-money worth at $60 million, or more than 30% lower than the $90 million mark it had received after January’s $20 million first tranche. Nexus Group was the only existing institutional investor not to participate this time around.

Jim Timmins, a managing director with NIF Ventures, said the valuation downgrade was not so much dissatisfaction with vPacket, so much as it was a reflection of the public market performance of direct comparables like Cisco Systems, Redback Networks and Extreme Networks.

He added that he did not expect NIF would be involved in the Series C deal’s third and final tranche. Instead, that infusion will most likely come from U.S.-based strategic investors.