Despite the battering broadband stocks have received in the public markets, a pair of late-stage, privately held companies in the space managed to pull in more than $131 million worth of new money from the venture community within the past month.
First up is broadband content provider 2Wire Inc., which recently soaked up $65 million in its fourth trip to the private equity pool. The company is expected to announce publicly within the next two weeks that the deal has officially closed.
New investor Technology Crossover Ventures co-led the transaction, investing alongside repeat backer Oak Investment Partners. Among the other disclosed investors were Doll Capital Management, Meritech Capital Partners, Pilgrim-Baxter Hybrid Partners II, Venrock Associates, Chancellor V LP, EuroMedia Venture Fund and Invesco Private Captial, which pumped $2 million into the round.
“Later stage deals are more difficult to close, so it is a good sign that two investors wanted to lead. This company has a first-class management team with a large opportunity to gain traction in the [broadband] field,” said one investor familiar with the deal.
Another investor said he believed that this latest infusion would take the San Jose, Calif.-based company to the break even point within the next year. This round brings the company?s total venture capital take to date to $142 million.
You?re Not Alone
2Wire business partner General Bandwidth also recently landed $66 million in a Series D round of financing. The Austin, Texas-based telecommunications equipment provider deploys voice over broadband technology for regional bell operating companies (RBOCs) and inter-exchange carriers (IXCs) like Verizon Communications Inc. and Sprint Corp.
Hoping to take advantage of that burgeoning market before its competitors get a chance to, General Bandwidth is focusing exclusively on offerings for those groups.
In addition to being business partners, 2Wire and General Bandwidth also share a common investor. 2Wire backer Invesco led General Bandwidth?s transaction with a $10 million contribution, and was joined by new investors Wheatley Partners, Granite Global Ventures and strategic player Texas Instruments.
An additional $43 million came from repeat backers Sevin Rosen Funds, Sequoia Capital, Oak Investment Partners, Venrock Associates, Trellis Partners, CIT Venture Capital, HLM Management and Thomas Weisel Capital Partners, which also placed the deal. General Bandwidth has raised more than $150 million worth of venture capital since its 1999 inception. The company raised $12 million in first round financing in September 1999, followed by $24 million in February 2000 and an additional $47 million last August.
Greater Reliability, Less Cost
General Bandwidth claims its flagship G6 telecommunications platform enables RBOCs and IXCs to deploy voice over broadband technology over their existing infrastructure at much lower costs. It?s also more reliable, said Doug Childress, chief financial officer with General Bandwidth.
“The phone companies have been regulated for decades and the government has high standards. Phones have to be up and running 99.9% of the time. Our equipment is built to that standard,” he said.
What?s more, although billions of dollars have been pumped into competitive local exchange carriers (CLECs), many don?t comply with government standards and haven?t followed through on promises to operate without interrupted service, Childress said.
“CLEC products were built fast and are not of the quality of the incumbent,” he added.General Bandwidth is targeting what Childress calls the “big seven,” which includes AT&T Corp., WorldCom Group, Sprint and Verizon.
A Pass, Then A Go
Nina Tao, an associate at Invesco, said she met with General Bandwidth last summer and liked the management team. However, she said the VC firm passed on the investment because of the company?s high valuation.
“We decided it would have been a good investment but not at the time. Since then, the environment has changed and they have made substantial changes. They demonstrated progress with RBOCs ever since the CLECs started suffering,” Tao said.
Indeed, the company has already captured $1 million worth of revenue during the first two quarters of this year.
Childress said he was happy with the valuation Invesco had assigned the company this time, adding that General Bandwidth fared well compared to the telecom providers in the public sector, whose valuations have plummeted as much as 70% to 90% since last year. He declined to disclose the company?s exact worth, however.
While the company expects its latest venture windfall to carry it to cash flow positive late next year, Childress said General Bandwidth may seek additional capital in order to bring another strategic investor on board. Alternatively, the company may wait out the market downturn and instead attempt an IPO, he added.
General Bandwidth intends to use the proceeds from the round to continue its research and development efforts and expand client service and support capabilities as its customer base grows. General Bandwidth also hopes to increase its current staff of 285 by at least 5%.
Contact Danielle Fugazy: Danielle.Fugazy@tfn.com