VCs Get All Mushy Over Mesh Networks

It might be a bit much to call mesh networking this year’s en vogue technology for investors, but more investors lately just have to get into a mesh networking startup.

The two most recent recipients of funding are Kiyon Inc. and PacketHop Inc., the seventh and eighth mesh networking startups to snag funding this year. In comparison, six mesh networking startups were funded throughout 2004 and only five in 2003, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.

Redwood City, Calif.-based Packet-Hop raised $10 million in a Series C financing led by GF Private Equity Group. U.S. Venture Partners, Mayfield and ComVentures also participated in the round. The company has raised $25 million in VC funding since its 2003 inception.

Kiyon, a 2 1/2-year-old mesh networking startup, is based in La Jolla, Calif. This month, the company nailed down $10 million in Series B financing led by Siemens Venture Capital, with participation from Jacobs Capital Group. The company had previously raised $4 million from angel investors, including Kiyon founder and CEO Mike Nova.

Two other mesh networking companies assembled backing recently:

• Crossbow Technology, whose newest round of $12 million came in June, has raised more than $24 million over four rounds from investors such as Morgenthaler Ventures, Cisco Systems and Paladin Capital.
• Tropos Networks, which closed its eighth round of funding in April, has raised more than $45 million from Benchmark Capital, Intel Capital, Boston Millennia Partners and – as with Kiyon – Siemens Venture Capital.

So far in 2005, more than two-dozen venture firms have backed a mesh networking company, a figure on pace to surpass the 34 firms that funded the burgeoning technology last year.

Todd Jaquez-Fissori, an investment partner at Siemens Venture Capital’s office in San Jose, says that Siemens’ investment arm has not only helped to finance Kiyon and Tropos this year but that its parent, Siemens, Europe’s largest electronics and electrical engineering firm, earlier this year bought Chantry Networks, a builder of mesh access points, for an undisclosed amount. In a similar move last November, Motorola bought startup MeshNetworks, which makes equipment for mobile broadband and position location networks.

“Cisco, Motorola, Intel – all have proposals out for mesh networking standards,” says Jacquez-Fissori. “And all have an interest in this space and how to play it. Mesh networking is definitely heating up.”

Interest in mesh networks – while not on a par with Internet-bubble level enthusiasm – is sure to keep growing. The idea behind them is to link disparate 802.11 (or Wi-Fi) hot spots into a single, augmentable, wireless network. The most common mesh architecture consists of routing packets over wireless links to a central wired network.

The advantage is that devices using such networks – and they can be anything from sensors to laptops to Internet-enabled phones – can communicate with one another directly instead of going through a main communications point, such as a central hub.

As it is becoming clear, the technology is useful for enterprises. Mesh networking allows IT departments to extend wireless coverage to spots without a cable infrastructure. The mesh access points use existing wireless LAN access points to extend Wi-Fi coverage. It’s also cheap to architect and simple to disassemble.

For instance, Kiyon’s appeal partly lies with its efforts to capture the networked home market, whereas some competitors to have received institutional funding are focused on large buildings, such as manufacturing plants and warehouses. This includes startups such as Ember, Dust Networks and Millennial Net. Some companies are selling to municipalities that want to make broadband available to residents. Companies in this area include Tropos, SkyPilot Network and BelAir Networks.

“[Kiyon] is a hot company,” says Gabriel Brown, a London-based wireless analyst who focuses on ultrawideband and business-grade wireless LAN technologies.

Hot or not, Kiyon and its competitors have some obstacles to overcome. For starters, mesh networking equipment relies on proprietary methods, like complex algorithms, or on Wi-Fi, the standard that connects devices to wireless LANs within a range of 150 feet.

There are currently no industry standards expressly for mesh networking, although the same committee that came up with Wi-Fi (the IEEE 802.11 Committee) has created a group for forming a mesh networking standard. A final decision is likely 12 to 18 months away, according to published reports.

Adding mesh access points to a network can also increase latency on the network, a concern that needs to be overcome before mesh networks can be adopted broadly by homeowners, enterprises and municipalities.

Email Constance.Loizos@thomson.com