Meriton Raises $54M, Finds Good Company

Meriton Networks Inc. may be signaling the optical market's awakening, as Light Reading has learned the company has set up yet another big-name partner, this time going after the Verizon Communications Inc. "WDM-OTP" request for proposals (RFP).

As if sensing that the stakes are rising, Meriton also raised a whopping $54 million round of funding (see Meriton Raises $54M).

Yes, that's $54 million for a company in the long-dormant optical sector. Meriton had raised a combined $46 million to date, most recently nabbing $17 million in December 2002 (see Meriton Grabs Another $17M, Edgeflow Scores $18M, and Edgeflow Becomes Meriton).

The money should help Meriton pursue marquee projects such as the Verizon RFP. In fact, Meriton, fronted by Ericsson, has responded to that RFP, according to two sources.

Meriton's spokeswoman says the company can't comment on its RFP activity with carriers.

Meriton is not believed to be the lead horse for the RFP, but the fact that it's even responding shows the company is thinking big. Verizon's RFP calls for next-generation platforms that "must improve optical transparency and reach while integrating wavelength and Sonet transport and switching capabilities into a single element," according to sources familiar with the matter. The systems must have a general availability date of August 1, 2005.

Analyst Simon Leopold of Morgan Keegan & Company Inc. says the Verizon RFP is worth $110 million to $130 million per year over three years "as Verizon seeks to address bandwidth requirements from broadband access and business applications." (See Verizon's Optical RFP: The $1B Question.)

Ericsson isn't the only company that is including Meriton in its pitch to big carriers.

Fujitsu has already included Meriton's technology as part of its successful access infrastructure bid at BT Group plc's 21st Century Network. Fujitsu even made a strategic investment in Meriton to help the company build a support and marketing team in Britain (see Fujitsu Shares Its 21CN Success and Fujitsu Invests in Meriton).

And sources say Siemens AG fronted Meriton in at least one Canadian carrier RFP, but that the Ericsson relationship is likely to extend to other opportunities.

All this adds up to the $54 million funding round, which is aimed at giving Meriton some clout as metro optical comes back in vogue.

The round includes new investors Nomura International and VantagePoint Venture Partners alongside prior investors Desjardins Venture Capital Group, Newbury Ventures, Primaxis Technology Ventures Inc., RBC Capital Partners, Sierra Ventures, VenGrowth Investment Fund Inc., and Venture Coaches/Skypoint Capital.

A $54 million round might seem large for the sleepy optical market, but Meriton's investors see a huge opportunity as that market rebounds, says Mike Pascoe, the startup's recently appointed CEO (see Headcount: Vendor Vivisection and Michael Pascoe Joins Meriton as CEO).

"It's a large and quite aggressive marketplace that's come together in metro optical," Pascoe says. "The majority of [the funding] was done with the belief in our ability to compete in that market."

Indeed, an optical revival is afoot as carriers cozy up to the latest generation of reconfigurable optical add-drop multiplexers (ROADMs). It's the "R" that has them buzzing, as the ability to change add and drop assignments at will would simplify networks and lower operational expenses.

U.S. RBOCs, in particular, are expected to need metro optical upgrades to follow up their ambitious broadband access buildouts. "In 2005, a true growth market for these systems has begun to emerge," writes Heavy Reading analyst Scott Clavenna in the recent report, "ROADMs and the Future of Metro Optical Networks." (See ROADMs: Almost Famous.)

Another possible factor behind the funding is that Meriton is up against some well funded competitors. Mahi Networks Inc. picked up $70 million last year, and Tropic Networks Inc. rounded up $48 million of its own in March (see Mahi Nabs $70M, Photuris Assets and Tropic Taps Investors Again). Movaz Networks Inc. claims to be flush with cash, as chairman Bijan Khosravi says his 70-employee company is shipping $20 million per quarter of revenues and is profitable.

There's also Fujitsu, which leads the market and has plenty of its own resources, and Infinera Inc., the super-startup that's raised a total of $205 million (see Infinera Raises $52M More).

So $54 million keeps Meriton on track with its peers. Still, one wonders if the company has something up its sleeve, just as Mahi bought Photuris Networks's assets concurrently with the $70 million round.

"We certainly have some of those opportunities, but that wasn't the driving factor for the raise," Pascoe says. "The intent is that this will take us to cash-flow positive and to the next phase in our life, whether that be an acquisition or M&A [merger/acquisition]."

Hiring tops Meriton's to-do list. The 80-employee company plans to beef up product development and substantially increase its sales and support organizations.

In addition to its carrier RFP aspirations, Meriton has picked up some wins in the enterprise market, Pascoe says. "We're seeing interest in using the dark fiber that's out there, using it for Gigabit Ethernet or disaster recovery," Pascoe says.

— Craig Matsumoto, Senior Editor, and Phil Harvey, News Editor, Light Reading