Radiant Networks Doesn’t Exactly Shine

British Telecom, Radiant Networks’ largest potential customer, said it didn’t want the company’s wireless video-on-demand services. The company had already burned through $44.5 million and hadn’t yet signed a single customer. Then, while out raising its third round of financing, one of the company’s founding investors backed out of the deal. Those that did stay on decimated the company’s pre-money valuation, virtually eliminating the value of investors’ earlier commitments.

Last week Radiant Networks closed its Series C round – a $19.5 million deal at a pre-money valuation of $16.2 million.

Could things get any worse for the wireless mesh network developer?

“There’s been a severe cram-down,” chief executive Geoff Butcher says from the company’s Little Chesterford, U.K., headquarters. “The early investors have lost value on their shares.”

Led by Dresdner Kleinwort Wasserstein, the Series C round also included three of the company’s four original backers Advent Venture Partners, Intel Capital and Gartmore Group. While Sandler Capital Management, an early investor in the company, backed out of the deal, the rest of the company’s early backers wrote a 1.5x liquidation preference into the deal’s term sheet to salvage their investment.

“Market conditions are getting tougher,” Butcher says. None of the company’s backers could be reached for comment on this story.

Radiant Networks develops wireless mesh network technology, a networking technology that carries data from point to point, leapfrogging through a web of nodes until it reaches a final one that is connected back into the network with a cable. Mesh networks are bigger than typical wireless hot spots; they’re a way of extending wireless networks to build hot zones’ rather than hot spots.’ They can be used to bring broadband access to places that are too difficult to wire – an old building or a factory floor, for example. Radiant uses mesh topology to bring broadband into the home by allowing neighbors to link up to each other rather than a base station. It is cheaper for the carrier to deploy since the carrier doesn’t need to wire every home and needs only to install nodes that can service entire neighborhoods. It can also be cheaper for the consumer, since an entire neighborhood can shoulder the cost of a single node.

Although wireless mesh networks are still largely an unproven technology, and they have not yet been deployed on a wide scale, Radiant Networks has not lost hope. While British Telecom abandoned its plans to offer a wireless video-on-demand service, it is still planning to use Radiant Networks’ technology to bring broadband to rural and urban customers. The company recently opened an office in Tampa, Fla., where NSight Technologies plans to deploy the service. It has also signed a distribution contract with TradeWinds Communications Corp., a systems integrator in Roanoke, Va. With a product out the door, the company plans to use this round of capital to build a sales, marketing and customer support staff. The company currently has 85 employees.

Still, the next six to 18 months won’t be easy. Spending budgets are tight among telecom carriers and consumers don’t want to shoulder the cost of installing new technology. Each node costs between $500 and $1000.

“If the carriers are looking for a real ROI inside of three years, it’s pretty clear where the price points need to be,” Butcher says.

Founded in 1997, the company raised $10 million from family and friends before securing its first round of institutional financing. The company’s Series A deal closed in April 2000 with $20 million in capital committed by Advent Venture Partners, Gartmore Group, Intel Capital and Sandler Capital Management. Individuals from Kohlberg Kravis & Roberts also invested in the deal. The company’s backers closed a $16 million Series B follow-on financing in January 2002.

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