WaveSmith Surfs On $12M

Spurred by existing investor Bessemer Venture Partners to seek debt financing before dipping back into the venture capital market for a Series B deal, WaveSmith Inc. last week closed a $12 million financing that is expected to lengthen its cash runway and boost its valuation going forward.

“Our Bessemer guy, Managing General Partner Rob Soni, said we should look at subordinated debt as a way of increasing our war chest because the more you have in your war chest, the better you can manage time,” said Bob Dalias, president and chief executive with WaveSmith.

Comdisco Ventures, a $2.1 billion Menlo Park outfit specializing in alternative capital structures for venture-backed companies, and GATX Ventures, a subsidiary of Lafayette, Calif.’s GATX Capital, each took a $5 million slice of the deal. Silicon Valley Bank contributed the remaining $2 million.

WaveSmith collateralized $5 million of the financing with equipment and software, with the remainder to be spent at the company’s discretion. Still, the debt is a medium-term package backed by warrants representing less than a 5% ownership stake in the company. When WaveSmith completed an $11.5 million Series A deal in June, backed by Atlas Ventures, Bessemer and Commonwealth Capital, the company’s founders ceded control of almost 50% of the company.

In terms of dilution, the capital is highly leveraged, Dalias said. This means that WaveSmith will be able to continue its engineering efforts and move into the beta phase, a milestone that may boost its valuation in a Series B round of equity financing.

“Establishing these relationships gives the company access to money, influence and longevity because now more people are committed to the success of the company,” Dalias said.

Although the cash infusion will speed the development of WaveSmith’s optical switching technologies, without a second round of equity financing, the company’s war chest will run dry before year-end. Meanwhile, the Acton, Mass.-based company will be adding to its sales and marketing efforts, and adding support and engineering teams to develop new products.

Carolina Braunschweig can be contacted at Story Feedback.