V-Span Bundles $28M Series B Deal

Goldman, Sachs & Co. recently led a $28 million Series B financing for business-to-business communications player V-Span.

The financing pumped enough capital into the company that it will both be able to complete its product development and imminently roll-out an Internet-based video and audio platform. The company is also now sated with enough cash that it expects profitability by 2002 with an initial public offering following soon thereafter.

The company bundles video services – such as video conferencing, streaming media, virtual seminars and Intranet video downloads – for corporations and delivers them through broadband networks. It is a communications space that could see as much as $22 billion in revenues by 2003, said Christine Perey, principal with Perey Research and Consulting.

“There’s lots of validation for this model and the industry, for transport and value-added services wrapped up in an outsource model,” she said

To date, V-Span has 2000 named corporate customers. Once its new technology platform becomes available, the company expects to grow by as much as 100% per year.

Still, the deployment of V-Span’s technology is an expensive proposition.

“A technical transition is happening behind the scenes, from ISDN networks to IP infrastructure,” said Ken Hayward, president of V-Span. “When we make that shift, an investment has to be made, and you have to make that investment on behalf of the customer, and make it up in access. It’s not a short-term return on investment.”

Indeed, much of the new financing will be spent on developing software and moving it beyond controlled introduction tests to user acceptance, Hayward said.

It also will be used to create a management team and a management infrastructure. Any additional private financing before 2002 will be based on a widened scope of the company’s build-out.

Once the technology is launched, pricing plans similar to cellular phone pre-paid calling plans may translate into multibillion-dollar yearly revenues, Hayward said.

Even the venture partners are willing to wait.

“V-Span’s got a great application that can take advantage of infrastructure Comcast is building,” said Sam Schwartz, managing director with early V-Span investor Comcast Interactive Capital. “Comcast is a telecom provider like lots of fiber optic providers and all of them are looking for things that can sell more bandwidth. V-SPAN’s technology allows people to connect wherever they are, they have technology that connects people all the time.”

Comcast, MF Private Capital, J.W. Seligman & Co., Boston Millennia Partners, Harron Capital, B-ETC and Edison Ventures also participated in the latest round. Comcast and B-ETC were Series A investors in V-SPAN, pumping $15 million into the company approximately 15 months ago.

The development of V-SPAN’s current product offering was funded through the cash flow positive operations of its previous incarnation as a video conferencing outsourcer founded in 1995.