Wireless LANs Could Turn Into a Big Mesh

Mesh network technology promises to multiply the number of wireless LANs, boosting the fortunes of Wi-Fi startups.

Venture firms have pumped more than $100 million into mesh networking since 2001, and the money is still flowing despite two flameouts. The latest company to land venture backing is FHP Wireless, which announced today that it secured $8.2 million in its third round. That boosts its venture capital base to $13.4 million. Led by a $4 million investment from Seattle’s Voyager Capital, the deal also included commitments from Benchmark Capital, Boston Millennia Partners and Hanna Ventures.

The San Mateo, Calif.-based company develops mesh networks using the 802.11 standard (commonly refererred to as wireless fidelity or Wi-Fi). Mesh networks aren’t built around a single access point, so users can access a wireless LAN beyond its typical 300-foot radius. Users hop through shoebox-sized routers hung from light poles and in parking lots to connect to the Internet or a private data network.

FHP and other mesh network developers are building hot zones’ rather than hot spots,’ says Jodi Sherman Jahic, a senior associate with Voyager specializing in wireless deals. Since the data hops from router to router until it finds one that’s cabled in to the Internet, wireless mesh networks can blanket entire cities.

FHP Wireless is marketing its technology to public safety officials and the military – anyone that needs access to a metro-scale data network. One U.S. city is already testing FHP Wireless’ technology.

Although FHP Wireless has two years of research and development behind it and is set to make a formal launch of its technology in March, the company may be late out of the starting gate. At least 12 other private companies have secured venture backing to develop mesh networks. Two – Caly Networks and United Internetworks – have already gone under despite securing more than $44 million from private equity investors. Others are already piling up customers. MeshNetworks, a three-year old Maitland, Fl. company backed by $39.6 million in venture funding from 3Com Ventures, Apax Partners, BancBoston Capital, ITT Industries and Redwood Venture Partners, signed its first customer in November. Viasys Corp. will use the company’s technology to build self-assembling wireless networks. An Intel Capital portfolio company, Radiant Networks in Cambridge, U.K., has raised $54 million since 1997 and has closed deals with British Telecom, Mitsubishi in Japan and Motorola Inc. in the United States. Its backers include Advent Venture Partners, Dresdner Kleinwort Wasserstein, Gartmore Investment Ltd., Kohlberg Kravis & Roberts, Intel and Sandler Capital Management.

The number of competitors in the space validates the technology, Voyager’s Jahic says. Independent analysts say that not enough wireless mesh networks have been deployed yet to see if the technology can deliver the speed and quality of data transmission that it promises.

“We’re excited about the technology, but we’re looking for physical implementation to show results,” says Rajeev Chand, a senior equity research analyst of wireless technologies with San Francisco-based Rutberg & Co. “Our primary concern is whether the technology is likely to produce the performance benefits that are anticipated.”

FHP Wireless, meanwhile, will make a formal launch in March, revealing the details of its technology and beginning active sales drive, says David Hanna, the company’s chairman and chief executive. It will add another 10 to 15 people before the end of the year, bringing its head count up to 40. Service providers are already testing the technology, but the company will not reveal their names.

Founded in 2000, the company scored its first venture capital deal in February 2001, a $1.2 million seed deal funded by Boston Millennia Partners. Then in January 2002, Benchmark and Hanna Ventures jumped in alongside BMP to fund a $3 million Series B round. Fund-raising for the company’s third venture capital round began this fall, setting a target that would finance its operation for 12 to 14 more months. The company anticipates closing another round of financing at that time.

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