VCs Wire Pagoo $16M First Tranche

After completing a $10 million Series C venture round last July, Internet-based telephony provider Inc. said it was ready to bridge operations into Asia and Europe and launch onto the public markets by the end of the first quarter of 2001.

The unending volatility among technology stocks – and the increasing inability of investors to look favorably on a company that was still not cash-flow positive and reporting revenues of only $3 million for fiscal year 2000 – put a temporary hold on those plans.

Instead, the company returned to the private equity markets. On Monday it is expected to announce a $16 million first close on a $25 million Series D financing. The round will hold a final close before the end of the month.

“[The capital infusion] opens up ourability to invest further in the company than if we had to rely on the public markets,” said Chief Financial Officer Skip D’Orazio. “It positions us to get to a cash-break-even point while still having cash left, and not at the mercy of the public markets.”

3i Group PLC , the only new investor in the round so far, carved out a $10 million interest in the San Francisco-based company. Pagoo’s existing venture backers – Draper Fisher Jurveston’s, Hummer Winblad Venture Partners and Selby Venture Partners – coughed up an additional $6 million to maintain their pro rata shares in the round. The remainder is expected to come from smaller venture funds, both in the U.S. and Europe, as well as high net worth individuals.

If I Can Make It There

3i’s equity commitment is the first stone along the company’s path abroad. Already, has opened offices in London, soon to be followed by another in Singapore. For international broadband carriers, the need to offer voice-over IP is as critical as any other broadband component, said Gerald Brady, associate director in 3i’s Palo Alto, Calif., office. Customers include Tiscali SPA of Italy, Europe’s second-largest Internet service provider, and AT&T WorldNet. For 2001, the company expects half its $14 million of projected revenue to come from international sources.

“We’re really finding that opportunities, at least in the short-term, are great, if not greater, on foreign shores, than in the U.S.,” D’Orazio said.

Indeed, much of the equity will be spent building the company’s presence offshore, investing in people and technology, and securing customers. Founded in 1997 by a pair of French software engineers, builds, hosts and licenses voice applications for broadband providers.

Carolina Braunschweig can be contacted at Story Feedback.