XOR Networks $33.5M Series B

Despite the mediocre valuations currently plaguing most of its peers, e-business applications manager XOR Inc. recently landed $33.5 million in a Series B round of venture and debt financing.

First-time investor Lexington Partners came on board to lead the $23.5 million private equity portion of the round. Newcomer Far West Capital Management also participated, along with previous backers Frontenac Co. and Minotaur Capital Management. XOR also secured a $10 million line of credit from Silicon Valley Bank.

There were no board changes as a result of the Series B play.

XOR’s second dip into the private equity pond was prompted primarily by a reluctant recognition that now might not be the best time to depend on a public market capital raising strategy, given the disasterous results of many recent IPOs.

“We decided to go to the private markets and raise equity to give us flexibility and get us to cash flow positive,” said Robert Komin, chief financial officer at XOR. “The debt instrument gives us added flexibility.”

He added that the company isn’t likely to do any additional debt financings, but he is looking into expanding XOR’s relationships with the providers of its lease financings for computer hardware and software.

Slim Pickings?

The 10-year-old company’s perception of slim times in the venture capital markets caused it to short-sight its fund raising goals, although Komin said the the round was in line with his initial expectations.

“If the market climate had been better, we might have looked for more capital,” he said. “Overall, it was what we were hoping for. Valuations in the industry aren’t terrific in general, so I’m pleased.”

XOR’s own valuation has not been disclosed, but the company’s rather timid approach to the venture capital community and Komin’s bleak view of valuations in the sector suggest that it’s not quite as high as he would like.

Still, it seems that a company with nearly a decade of operating history under its belt – and a ranking of 109 on Inc. magazine’s year 2000 list of the 500 fastest-growing private companies in the country – should have fared well in the valuation game, although Private Equity Week could not confirm a valuation by press time.

Komin said XOR will continue to explore both private and public equity alternatives to bolster its capital base depending on market conditions, especially if the company follows through on its pursuit of an international expansion into Europe and Asia next year.

On the domestic side, it will likely open offices both in the greater New York area and in the San Francisco Bay area sometime in 2001. Headquartered in Boulder, Colo., XOR currently has shops in Atlanta, Chicago, Dallas, Denver, Nashville and Tulsa, Okla.

The company intends to use the proceeds from this latest infusion to fund those expansions, as well as continue to grow the business.

Initially established as a network engineering company specializing in local area and wide area network technologies, XOR provides systems management, consulting services and infrastructure support for more than 60 corporate and Internet clients, including Chase Manhattan Bank, Federal Express, Juno Online Services, McDonald’s Corp. and Netgov.com.