Networking startups storm ahead

The Deal, March 4, 2004
By George White

Over the past two weeks, the networking hardware and software sector has secured $186 million in new funding from 10 deals.

The good times are rolling in the networking hardware and software industry as the venture deals in the industry grow ever larger.

Over the past two weeks, the sector has secured a hefty $186 million in new funding from only 10 deals. In the period between Jan. 1 to Feb. 22 networking startups raised $416 million from 33 deals , according to data from the VCDeal.com.

The recent surge has come as a result of the companies in the industry closing a host of large financing. Since Feb. 23, the average size of a networking deal was $18.6 million, up until that point the sector average had been $12.6 million.

In the period between Jan. 1 - Feb. 22 , there were only 3 fundings in the industry that topped the $20 million mark, Maranti Networks and iPolicy Networks Inc., garnered $26 million each, while Broadbus Technologies Inc. raised $25 million.

However, the last two weeks has seen venture capitalists doling out far larger rounds to networking startups. Since Feb. 23, four different networking companies have closed financings over $20 million.

The largest of which went to Fortinet Inc., a Sunnyvale, Calif.-based provider of antivirus firewall systems for network protection. The $50 million financing was the largest deal in the sector since August of 2003.

Fortinet's $50 million in Series E round was backed by existing investors Acorn Campus, Defta Partners, Meritech Capital Partners and Redpoint Ventures, bringing its total funding to date to $93 million.

Another large deal included a $30 million financing for Allen, Texas-based Xtera. While the company couldn't match the $110 million second round that it raised in Jan. 2001, its current $30 million third round makes its the second biggest deal networking deal of 2004. Xtera's investors include New Enterprise Associates, Sevin Rosen Funds, ComVentures and Star Ventures.

Both deals may have been able to land such large financing since they were late stage deals, a time when the company's prospects for success and proximity to profitability can be far clearer than for early stage companies.

Other large deals included financings for Covaro Networks and Infoblox Inc.
Covaro Networks received a $25.30 million funding on Feb. 24. The developer of transport products for hybrid networks containing both Ethernet and T1/T3 based services received its capital from Centennial Ventures, CenterPoint Ventures, InterWest Partners, Sevin Rosen Funds. The company has raised $42 million in its two rounds.

Rounding out the large deals was a $21 million deal for Infoblox Inc. on Feb. 27. The Sunnyvale, Calif.-based developer of network identity appliances that connect applications to network infrastructure received its financing from Lehman Brothers Venture Partners, and Sequoia Capital Partners.