Sprout Floats $20M Into WaterCove Deal

Sprout Group, the venture capital arm of Credit Suisse First Boston, recently led a $40 million Series B round of funding for WaterCove Networks, a designer of software and hardware for high-speed wireless applications.

Providing half of the total committed capital, Sprout is not new to the communication industry as it has previously funded more than 60 companies in the sector including OminiSky Corp. and Globespan.

Peter Lojko, chief executive of WaterCove, said the Menlo Park, Calif.-based VC brings a lot of opportunities to WaterCove. Steve Diamond, a partner at Sprout and board member at WaterCove as a result of the deal, is also on the board of OminiSky and Avici Systems, a communications company that could further WaterCove’s position in the telecommunications industry. Additionally Diamond was vice president and worldwide director of telecommunications at Dataquest before coming to Sprout.

Other investors on the second round transaction included Orange Ventures, Comdisco Ventures and repeat buyers Charles River Ventures and Bessemer Ventures.

CRV led the wireless company’s first round in April and participated significantly in this round because it is a “big believer in the explosion of wireless data services,” said Bruce Sachs, a partner at CRV and board member at WaterCove.

As a matter of fact, CRV was very close to leading the offering.

“We wrote a double-digit check but Sprout priced it,” Sachs said. “We worked with WaterCove to create this idea [and] I hired the first 10 people who worked at WaterCove and for the first four months, the company was in CRV offices.”
More Fruit On VC Tree

While CRV may have been invaluable to WaterCove, Lojko said Orange was a key investor in this round, mainly because it is the third-largest mobile phone operator in Europe and just purchased France Telecom, which could create enormous opportunity for WaterCove abroad. “They are an aggressive operator, and we wanted a strategic investor to help us to determine what telecom operators need. Orange will be a tremendous partner,” Lojko said.

Although there is plenty of talk of future partnerships, WaterCove isn’t even in its trial stage yet. It plans to be in its beta-testing stage by the end of 2001, generating revenue by 2002 and expects to be in the black by the following year. Lojko went on to say that the Chelmsford, Mass.-based company has no clients right now but is currently negotiating contracts with a handful of telecom providers.

He added that the company will likely be back for another VC round in the middle of next year.

Danielle Fugazy can be contacted at Story Feedback.