Ikanos Communications Nets $30 Million

When Ikanos Communications Inc. first launched in January 1999, the goal was to developer flexible ADSL (asymmetrical digital subscriber line) chipsets that could provide last-mile broadband access along already laid copper wire infrastructure. At the time, it seemed like the entire communications market was moving toward ADSL, and investors were happy to pump $53.1 million into the company’s first three financing rounds.

“We all figured that the market for ADSL would continue to take off, and that there would be a large need for flexible, scalable, low-cost solutions,” says David Aronoff, a general partner with Greylock, which first invested in Ikanos three years ago. “But it turned out that the market for ADSL tanked.”

Fortunately for Aronoff and other Ikanos investors, however, the Fremont, Calif.-based company was also working with a newer technology called VDSL (very high-rate digital subscriber line). At the same time that ADSL fell out of favor, VDSL began gaining popularity.

This was especially true in Asian countries like Japan and Korea, which feature higher population and corporate densities than do most domestic markets. By early last summer, Ikanos had also signed on a pair of Japanese equipment vendors and begun generating revenue. Not only was the newfound cash-stream a few months ahead of schedule, but it also rearranged the company’s financing outlook.

Rather than reopening a Series C round that had held a final close last March, the company began marketing a new Series D offering. Ikanos received a handful of term sheets from new investors, but ultimately decided to stick with previous backers.

The deal closed earlier this month with $30 million, and is expected to be publicly announced tomorrow. Sequoia Capital set the terms, and was joined by Greylock, Intel Capital, JPMorgan Partners, Presidio Venture Partners, Ridgewood Capital, Telesoft Partners, VentureTech Alliance (an affiliate of Taiwan Semiconductor Manufacturing Co.) and Walden International.

“On January 31, we beat our plan for the entire first quarter,” says Richard Sekar, vice president of marketing with Ikanos. “So the main reason we did the [deal] was to go for volume production.”

Sekar would not divulge what the Q1 plan called for, except to say that Ikanos should make “tens of millions of dollars” by the end of 2003. Current clients include Japan’s Sumitomo Electric Industries Ltd. and NEC Corp., plus Korea-based Hyundai Networks Inc. and Samsung Networks Inc. It has not yet signed a U.S. vendor, but is actively involved in such negotiations. Aranoff says, “The flu that’s affected North American carriers just hasn’t affected Asian carriers the same way.”

This is expected to be the final round of venture capital funding for Ikanos, and raises the company’s total private equity take to $82 million.

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