UltraDNS Proves It Is Master of VC Domain

As memories of the wild and heady days of last year’s dotcom gold rush fade with the onset of the new year, the notcoms of Silicon Valley are finally getting the lion’s share of the private equity pie.

That means New Economy groundbreakers like UltraDNS Corp. now have access to a vast pot of VC cash.

In December, the San Mateo, Calif.-based Internet infrastructure firm netted slightly more than $25 million in the first part of its Series B round, which will likely be its last venture round as the company is considering an initial public offering within the next 18 months to 24 months.

The deal was transacted in two parts so UltraDNS could bank the $25 million before the holidays, said Ben Petro, vice president of marketing. The round’s second tranche will remain open for the next 30 to 60 days in order to include several undisclosed “smart money” investors, and the entire transaction will probably close in the neighborhood of $30 million to $35 million, he added.

Reuters Group PLC led the round’s initial portion, with follow-on investors Comdisco Inc., New Enterprise Associates and VantagePoint Venture Partners fully exercising their pro-rata shares.

“We were overwhelmed by the sheer response we received from investors we never really hit the road [with this round],” said Darren Johnston, vice president of corporate development with UltraDNS. “We started talking [with VCs] in September, and we had a term sheet by November. We were a little worried when we saw the capital markets drying up, but fortunately our investors saw the value in the longevity of the space and the product we’ve created.”

Acceptance Bolsters Valuations

Considering that UltraDNS’ post-money valuation weighed in at about $30 million after it completed an $8 million Series A deal last March, that show of confidence is perhaps most evident in the company’s current pre-money valuation, which jumped to $100 million in this latest round.

“We’re pleased with the pre-money valuation assigned to the company,” Petro said. “It’s reasonable for our business.” He added that UltraDNS’ post-money worth won’t be disclosed until the second part of the deal has officially closed.

It also doesn’t hurt that the company’s technology has been widely accepted throughout Silicon Valley by New Economy leaders such as Inktomi Corp., which develops and markets software for Internet infrastructure and media companies.

To date, UltraDNS has approximately 140 “live” customers, including Robertson Stephens, dotTV Corp., the worldwide registry for television domain names, virtual mall mySimon.com and Kmart’s online store BlueLight.com.

Master Of Its Domain

As its moniker implies, UltraDNS’ technology is targeted at the Domain Name System (DNS), the world’s largest and most widely accessed network directory system. DNS is required to initiate virtually every exchange of information, including e-mail, Web transactions, mobile or stationary phone calls and instant messages.

As the number of domains increases, along with the number of Internet users, UltraDNS contends that service providers and e-business companies will be faced with “significant challenges in meeting the service expectations of their Web users and customers,” according to its corporate backgrounder. To that end, the company is focused on making the information exchange better and more reliable for corporations, service providers and Internet users.

“UltraDNS’ [technology] has solved the problem of corporations and service providers and ultimately, we believe, mobile phone companies that were previously unable to deploy robust applications because of creaky or unreliable existing directory infrastructure,” noted Matt Ocko, a partner with VantagePoint Venture Partners.

Explosive Expansion in the Works

Johnston said the company has an “explosive” growth plan this year, which will “take UltraDNS from where we are now – a commercially viable business – to a dominant [force] in the DNS space.” Thus, it plans to use proceeds from its most recent financing to continue ramping up its technology and expand its employee base to 120 from 60 by the end of 2001.

The company is also expected to officially announce this week an international expansion that will give it a presence in South America and Asia.

“We’re seeing tremendous growth in these regions, particularly in the Asian markets, of wireless applications and DNS registry,” Petro said. “In addition, Gartner Group projections through 2004 show that 50% of all global Internet growth will come from the Asian sector alone.”

The Gartner Group also estimates that the number of registered domains will skyrocket and reach 180 million by 2004. There are approximately 22 million domains in existence today.

If all goes as planned, this should be the company’s last foray into the private equity market, as the round is intended to carry the company to break-even, or quite possibly profitability, by the fourth quarter of this year.

Robyn Kurdek can be contacted at Story Feedback.