While common wisdom may hold that a company involved in the Internet and telecom sectors can’t raise venture funding these days, Edison, N.J.-based Vonage has turned that notion on its head with a $35 million Series B round last week.
Vonage offers hardware and services that lets users make unlimited local and long-distance calls via the Internet for $40 a month.
The funding brings the total raised by the company to over $65 million.
Sole venture capital investor New Enterprise Associates (NEA) led the round with $12 million. Other investors included company management, strategic investors and individual investors.
The financing, which is officially a Series B, is the first institutional round for the company. The Series A round, which brought in more than $30 million, was doled out in two parts in 2002 and 2003 and was funded by company founders and management. Management still has more than a 50% stake in the company.
The latest round was a slightly up or flat round from the company’s Series A.
“It took us a while to get over the risks,” says NEA Partner Harry Weller, who will join the company’s board of directors. NEA observed the company over an eight-month period, during which time Vonage met all of its goals, Weller adds.
“This company can build a very nice business with relatively small market penetration levels,” he says. “Yes, there’s a lot of competition, but you don’t need to dominate the market to succeed.”
Vonage is expected to announce the appointment of another new board member before the end of the year. The company has also signed partnership agreements with cable providers Advance and Armstrong and expects to ink more deals in the near future.
More compelling has been the company’s growth in customers. Vonage went from having about 7,000 customers at the beginning of the year to more than 70,000. Meanwhile, the company has expanded its reach from 50 area codes to 180 and from 10 U.S. states to 37. Jeffrey Citron, Vonage chairman and CEO, expects the company to be in all the contiguous 48 states by the middle of next year.
Vonage plans to use the funding for company expansion and product development. Citron expects the company’s 220 employees to grow to 400 by the end of 2004. He expects to add 100 employees to Vonage’s customer service division and another 50 workers dedicated to engineering and operations. Other new hires will focus on marketing and general corporate administration. The company expects to be profitable by the end of the second quarter of 2004.
Email Matthew Sheahan