In a move to become cash positive, broadband access provider New Edge Networks recently raised $77.5 million in its fourth round of private funding. The deal was split into a $40 million private equity tranche and a $37.5 million debt piece.
Goldman, Sachs & Co. led the deal, and was joined by fellow existing investors Crosspoint Venture Partners, Greylock and Accel Partners.
First Union National Bank, a new financial partner for New Edge, is providing a term loan and revolving credit facility.
The broadband company will use the proceeds to pay off some debt, complete its existing broadband network build-out and generate additional revenue from the sale of its broadband services, including high-speed Internet access and wide area network services.
According to investors, New Edge proved an attractive investment because there is little or no competition in its target markets. The broadband company currently provides service to companies and individuals in 350 cities, located in 29 states west of the Appalachian Mountains, with Florida and Georgia being the only exceptions.
Rich Shapero, a partner at Crosspoint, which contributed $8 million, said approximately 30% of the target areas are not currently serviced by anyone else. Peter Wagner, a partner at Accel partners, agreed with Shapero, saying that the market is relatively non-competitive.
“Americans in the mid-size cities and towns, like Brainerd, Minn., or Walla Walla, Wash., are no different from urbanites in New York or Los Angeles,” said Dan Moffat, chief executive with New Edge. “They are demanding broadband so they can change the way they work and live.”
New Edge’s chances of reaching profitability from this round may be decent, but only because the company decided to scale back on its business plan. Rather than opening 1,200 offices, as the company’s original business plan called for. Moffat decided to only open up 600 offices until the company is in the red. “We still have aspirations of opening up 1,200 but we would like to remain fully funded,” he said.
He added that the company’s CFO talks about taking the small-town business provider to Wall Street as early as early next year, but that such a move will depend on market conditions. Shapero also thought the company would hit the public markets within the next 12 to 16 months.
This latest funding round brings total invested capital in New Edge to $380.1 million, with about half being private equity and half debt. New Edge raised $139.9 million in its third financing round in October 2000. Prior to that, the company raised $62.5 million in January 2000 and $15.2 million initial funding in June 1999. New Edge also obtained another $85 million in vendor financing and credit facilities in 2000.
Contact Danielle Fugazyg.