Telseon Tabulates $123M Funding

Steeling itself against the IPO market’s anemia, Telseon Inc. is finding the private market equity flush. With $80 million in capital from a cadre of venture capitalists that would be the envy of any IPO candidate, the company is well-armed for the first phase of its network rollout. Participants in the second round of equity financing included Goldman Sachs & Co., Morgan Stanley Dean Witter and Donaldson, Lufkin & Jenrette.

Additional venture support included commitments from Sevin Rosen Funds and Hunt Ventures. Corporate investors included Level 3 Communications, Enron and Nextlink.

“We tend not to be reactive to short-term market issues,” said Rich Shapero, managing partner of Crosspoint Venture Partners, which also participated in the round. “We incubated the company with the founder out of our offices under the impression this was a missing link in the broadband footprint.”

In between the high-speed capability of corporate LANs and the national fiber backbone sits the dated and oversubscribed technology of local access providers. Primarily relying on outdated technologies, metropolitan areas have become congested, creating a virtual bottleneck as information travels from one city to another.

Cognizant of the cramped characteristics of today’s metropolitan networks, Teleson is set to clear the clog with its LogicalWire Service.

“Within the metropolitan area you have SONET/ATM networks developed 10 to 15 years ago to carry voice, and it’s not effective carrying data,” said Vesna Swartz, vice president of marketing for Telseon.

Such legacy standards are not only several times more expensive than modern technologies like fiber, the amount of lead time they require for service upgrades is tremendous.

“If you need more bandwidth, you would call your ILEC and order an OC3 line, but the problem is it could take several months, and you would probably have to contract for 50mbs of bandwidth when you only need three,” she said.

Teleseon’s solution relies on dark fiber, which it leases from fiber network operators like Level 3. Once secured, the company drops in gigabyte ethernet switches to bring the metro market up to par with the gigabyte and beyond corporate LANs and national architecture, which are its bookends.

Cracking the enterprise market through local service providers, Telseon offers its customers advanced bandwidth control capabilities. If a client runs on a fiber network, upping bandwidth can be done within seconds over the Web. As such, the company’s LogicalWire service allows customers to contract for just the amount of bandwidth necessary once they recognize how easy it is acquire more.

With $80 million from the current round and $43 million in dark fiber leases from Level 3, the company intends to use the proceeds to roll-out its service in the top 20 metropolitan market over the next year. Currently available in San Francisco, the company is ready to deploy in Dallas, followed by Los Angeles, Seattle, Chicago and New York by late summer.

Although the company wouldn’t disclose how fast it is burning cash, Swartz is confident that the current chaos on the Nasdaq won’t trip up Telseon the next time it courts the market.

“The fact we’re an Internet infrastructure play with a well-defined market, and a focused strategy, our feeling is that when the time comes to raise (more) funding we’re not going to have problems,” he said.