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White Rock Crushes D Round With $42M

Lonnie Martin, CEO of White Rock Networks, is a reluctant recipient of venture money this time around. Having already raised $102 million over three rounds between January 2000 and November 2001, the optical company, was ready to go to market with a product and seemed poised for growth. But while some sales revenue has trickled in this year, a meager marketing program and a sluggish economy prevented the company from realizing the revenue it expected. White Rock’s needed more cash for day-to-day operations. And with an IPO effectively ruled out by a weak stock market, Martin turned to his venture investors for the fourth time. “Can you say survival?” he asks.

White Rock’s $42 million Series D venture round was divided among a plethora of venture firms, all but one of which has been with White Rock through its first three rounds. Oak Investment Partners led the deal, with participation from Mayfield Fund, Meritech Capital, Fremont Communications, Fremont Ventures, Investor AB, Hook Partners, Gulf International Bank, Pacesetter Capital Group and 3i Group, which is the new investor. Nelson Stacks, a partner at 3i, became the newest member of White Rock’s board of directors. The deal also closed slightly above the $30 million to $35 million that White Rock was seeking for its latest round.

As the Dallas-based company continues to battle the likes of Lucent and Nortel Networks in the optical transport marketplace, Martin says that the cash will be used across the board in support of White Rock’s business operations.

“Previously, we used most of our venture money to spearhead product development. We will use the funds from this round for product enhancement, sales and marketing, and most all other day-to-day operating costs,” he says.

Despite the amount of cash White Rock has already bought in, Stacks is unconcerned. “Most manufacturers are designing rigid equipment that needs to be essentially rebuilt to make improvements,” he says. “White Rock’s flexible architecture allows for easy minor upgrades as you go along. Development of these types of products costs money. They have a great product right now, the development has come a long way.”

Andrew Knott, White Rock’s vice president for marketing, adds, “we are not reinventing a product here, we are building a better mousetrap in an established market.”

With its product suite having hit the market in January, White Rock was able to realize its first revenue in 2002, which Martin estimates will be “in the single digit millions” for the year. With product enhancements and a beefed up sales force, he predicts the revenue will double in 2003. “This is a billion dollar market,” he says. “To compete against the larger companies, we need to be cheaper and more intelligent. I think that our open architectural approach sets us apart.”

Martin is confident that the company is where it needs to be as far as product quality, and he now wants to concentrate on moving forward on the sales front. He indicated that this Series D financing is the “absolute last” venture round for White Rock. “I won’t be groveling to any more venture capitalists,” he says.