Raising private equity capital like a corporation while simultaneously acting like a broadband-focused Silicon Valley incubator, Raza Foundries announced this morning that it has secured $125 million in its oversubscribed third round of institutional financing.
Although Raza Foundries had previously been backed by VC powerhouses like Benchmark Capital and Technology Crossover Ventures (TCV), not a single non-corporate investor participated in the Series C transaction, despite outstanding pro rata options.
“We could have gotten in on [the new deal] but held out as a favor to [Raza] who was trying to save the round for corporate investors,” said Chris DePuy, general partner with Series B Raza investor Bowman Capital.
Brooke Sewell, general partner with TCV, added, “I lobbied pretty hard to get in – and we had a legal right to do so – but they asked all of us financial investors to step aside for the strategic investors and we eventually agreed to do so.”
Heading up the strategic charge was lead investor Cisco Systems Inc. Other participating broadband industry players included Applied Micro Circuits Corp., Broadcom Corp., Infineon AG, LSI Logic Corp., PMC Sierra Inc., Siemens AG, Virata Corp. and Xilinx Inc.
“What we really wanted to do was the type of round that would enable equipment companies and component companies to be directly invested and involved with us,” said Dana Krelle, vice president of marketing with Raza Foundries.
Such involvement is vital to Raza as it continues to scout out broadband companies interested in growing under Raza’s self-titled “Metacompany” umbrella.
“We’re completely focused on broadband networking and communications so we can provide a deep domain knowledge,” Krelle said. “Beyond that, our value proposition is to help these companies build on their ideas with Series A funding, facilities, marketing and every other need of a start-up company.”
It also maintains a strict policy that it will not overrule a company’s founders on business decisions, despite holding both an equity stake and board seat.
“A key principal behind us is that we do not disempower the founding teams when it comes to decision-making,” Krelle explained.
A majority of the Series C funding will be used for investment purposes.
As for whether or not the San Jose, Calif.-based firm will take another step into the private equity arena, Krelle said that an additional strategic round was possible. He added, however, that an initial public offering is viewed as Raza’s eventual course of action.
When the IPO does come, Raza will bank on its broadband focus to help differentiate itself from other incubator-like companies currently floundering in the public market or in registration.
“The exact reason for why we’re different from companies like Divine Interventures and idealab! is that we have no involvement with Internet b-to-c,” Krelle said. “In our opinion, the barriers to entry are too low there, as is the amount of intellectual property.”
Dan Primack can be contacted at Story Feedback