Venture money is still chasing bandwidth.
Network Photonics, a developer of gigabit-level switches for fiber optic networks, yesterday closed on a $106.5 million round of equity financing. The deal was originally targeted at $60 million, but oversubscribed and raised due to the anticipated market demand for optical switches.
Steve Georgis, president and chief executive with Network Phonics, also said that his firm?s aggressive research and development helped successfully lure capital.
“Investors recognized what our value proposition is if we can execute to plan,” he said. “Lots of competition pushed up the valuation, and with the increased valuation, we were willing to take more money.”
The Strum Group led the round, with Spectrum Equity Investors, Mustang Ventures, New Enterprise Associates and U.S. Venture also participating. NEA and USVP pumped more than $10 million into the company in May, each taking a $5 million slice in another oversubscribed round. At the time, investors plugged the company?s valuation at $22.5 million.
While this was only the issuer?s second trip into the private equity market, it is expected to be its last prior to an initial public offering.
“Looking at our operating plans going forward ? how much money it would take to get out and compete for market success ? the size of the round made sense,” Georgis said. “Raising money is a tremendous amount of effort for management, it?s very distracting in terms of operations, so we took more money while getting a higher valuation,” Georgis said.
Speed It Up
Although optical fiber is approaching terrabit-level capacity, bandwidth delivery mechanisms lag behind. In other words, without optical switches like Network Photonics? to deliver data to customers along a metropolitan fiber networks, the fiber?s capacity is meaningless.
Gigabit-level technology expects to create a new standard for data delivery. While the Internet could transmit only 10 megabits per second in 1980, today?s DSL technology transmits data at 100 megabits per second. Gigabit technology can transmit 1000 times that amount of data.
Network Photonics? all-optical dense wavelength division multiplexing (DWDM) switches operate along existing fiber optic networks. Customers, which include utility companies, CLECs and fiber optic providers like Level 3 Communications and Qwest Communications, need only to add an optical switch to the fiber to maximize bandwidth.
And it is the continued development of these switches that will be funded by the Series B transaction, both at the company?s headquarters in Boulder, Col. and at a new facility in Santa Rosa, Calif. It will also be used for personnel acquisitions and product marketing when the company?s DWDM switches are released in 2001.
As part of the Series B transaction, Greg Williams, principal with The Sturm Group, and Neal Douglas, managing general partner with Spectrum Equity Investors, each took a seat on the Network Photonics board. Series A participants NEA and U.S. Venture Partners already hold board seats.