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Photuris Nets Third-Largest Deal of Year

Based on claims that its product breaks new ground in the telecommunications industry, New Jersey’s Photuris Inc. closed the first tranche of its Series C round, raising $40 million.

This was the third-largest deal of the year, behind a Series E closed by Calix Networks Inc. earlier this month for $50 million and a Series C closed by Axiowave Networks Inc. for $45 million in January. More than 70% of the deals this year have been for $10 million or less.

Under new leadership, Photuris had no problem claiming third place. “I’ve been in the communications business over 20 years, and what I’ve seen is that technological breakthroughs are very rare,” says the company’s chief executive, Charles Childers, who came aboard in January. “I believe that at Photuris, we have a technological breakthrough, and I think the closing of this round is an example of why that technology breakthrough will make us successful.”

Based in Piscataway, N.J., Photuris employs 100 people. It has raised a total of $105 million in venture capital, beginning with a Series A round of $6 million in January of 2000 that consisted entirely of individual investors. In September 2001, it closed a $60 million Series B round led by Greylock with participation from Columbia Capital, Artiman Ventures, and private investors.

The C round, described by Childers as a down round, was led by Columbia Capital with contributions from Artiman Ventures and individual investors. Everyone involved was a previous backer of the company, which was founded in 2000.

Photuris sells the V32000 Optical Distribution System, a product aimed at service carriers like Verizon, SBC Communications, Bellsouth, and AOL Time Warner. These are metro core and regional optical transport systems that are said to cut costs through increased automation in a notoriously hands-on business.

Bill Gartner, the company’s chief operating officer, says the product is the equivalent of giving carriers with manual transmisions an upgrade to an automatic transmission.

Competitors like Lucent Technologies, Ciena Corp., and Nortel Networks are already entrenched in this space, but Photuris cites the confidence of its investors as evidence that it has something new to bring to the market and shake things up.

“Money is attracted to quality,” says Childers. “Our investors have put a lot in at a very difficult time.”

Although Photuris is calling the deal the “first tranche” of its Series C, there are no definite plans to raise more capital.

“We set out to raise $40 million, so we definitely met our expectations,” says Childers. “Still, we’re leaving the round open for a short period of time for a couple of outside investors we’re looking at.”

The money will be used to continue product development, for testing and for customer trials.

Childers expects Photuris to start producing revenue in the later half of this year. A timeline to profitability is, however, unpredictable, given that the telecom industry has been in a painful slump for more than a year.