VCs Bet $56M On Mellanox

Hoping that their horse will win the race to capture the greatest share of the InfiniBand market, a group of venture investors recently bet $56 million on Mellanox Technologies Ltd.

The Santa Clara, Calif.-based company originally set out to raise between $40 million and $50 million, then decided to take more money as investors began to show overwhelming interest shortly before the round closed, says Eyal Waldman, Mellanox’s chairman and chief executive. In fact, the company could have raised significantly more than $56 million had it felt the need to, he claims. Mellanox’s total venture capitalization to date is $89 million.

New investor Bessemer Venture Partners led the oversubscribed Series C deal, and was joined by fellow newcomers Banc of America Securities, China Development Investment Bank, Dell Computer Corp., Gemini Venture Funds, Jerusalem Global Ventures, JNI Corp., Quanta Computers, Sun Microsystems Inc. and Walden Israel Venture Capital.

Previous Mellanox backers Intel Capital, Raza Venture Management, Sequoia Capital, U.S. Venture Partners and Vitesse Semiconductor all re-upped this time around as well.

Bessemer General Partner Rob Chandra also received a Mellanox board seat as part of the financing.

Bessemer is no stranger to the InfiniBand space, having previously backed Westborough, Mass.-based InfiniSwitch, which makes a suite of InfiniBand products for data centers. InfiniSwitch raised $26 million in August 2001 in a Bessemer-led Series B round that also included OneLiberty Ventures, NewcoGen Group, Columbia Capital, TL Ventures and Moore Capital Management.

For its part, Mellanox manufactures InfiniBand semiconductors for the server, communications and data storage markets. As one of six companies in the space – Mellanox counts IBM, Intel, Agilent, Banderacom and Infiniswitch among its peers – the company already has sold its product to more than 70 companies. Its customers, however, have not been announced, Waldman says.

What is perhaps most interesting about the investment syndicate in Mellanox’s latest round is the strategic money from Intel. At first blush, it would seem odd that Intel would fund a would-be competitor, although Mellanox could potentially be swallowed up by the semiconductor giant at some point in the future, which would further legitimize Intel’s support of the small company. Waldman declined to comment on the likelihood of such a future combination, but did say he hoped to partner with all of Mellanox’s strategic investors down the road.

Actually, if Waldman has any say in the final outcome, Mellanox may eventually be an independent, public company. So far, it’s on the right path: the company met its revenue projections for 2001, and continues to be on track for this year.

In the meantime, the company plans to put its newfound capital to work to develop future iterations of its product, as well as expand its sales force to garner additional customer traction.

Mellanox was last in the private equity market in March 2000, when it raised $25.7 million in a Series B round of financing.

Robyn Kurdek can be contacted at: