At a time when many other softswitch vendors are going belly-up or being sold for small change, softswitch-based voice and data infrastructure provider Telica Inc.announced today that the company has received $60 million in third-round funding, bringing its total funding to over $120 million.

So what's enough to differentiate a startup in a difficult market these days? Well, for one thing, Telica has not only made the products it said it was going to make; it also counts some of the largest carriers in the world among its customers. In addition to 17 other large carriers, Telica announced last October that Verizon Communications Inc. (NYSE: VZ) had signed on with a multiyear contract to use its Plexus 9000 switch (see Telica Signs Verizon).

“You can divide startups into two categories,” says Michael Howard, an analyst with Infonetics Research Inc., “those that have customers, and those that don’t. Telica recently announced Verizon, and they have other named customers that are using their gear. The proof of the pudding is when the carriers start buying.”

Highland Capital Partners and Oak Investment Partners co-led the round of financing, with new investors including Prism Venture Partners and Nassau Capital LLC. In addition to the equity funding, Telica recently received a $20 million working capital line of credit.

Sean Dalton, the partner at Highland Capital Partners involved with Telica, said his company was thrilled to continue its relationship with Telica. “We’ve been involved with them really since day one,” he says. “It’s a sad market in general. When we looked at Telica, we saw its traction... and we were happy to step up and play a larger role.”

One of the reasons that Telica is snatching customers away from other softswitch startups, according to Dalton, is that it made the call to include hardware in its product line.

“Most softswitch companies have been a disaster,” Dalton says. “The real value in [Telica] is in the media gateway. They understood that you can’t sell a softswitch without the hardware. This was their key strategic decision, and I think you can say that the market has responded positively.”

Telica's management said the company is intensely focused on its customer base. “We’ve actually executed our plan,” says John St. Amand, president and CEO of Telica, declining to compare his company's situation with that of Tachion Networks, a softswitch provider that fell off the map last summer. “Our top-tier customer base separates us from the competition. Our products are for customers that are the largest carriers in the world. Other companies targeted smaller service providers… and others never built a product.”

The hope, of course, is that Telica’s last round of financing is an indicator that the market is picking up again. After hearing about almost nothing but downsizing and bankruptcy during the last year of uncertainty, it’s nice to see a company that is not only stable but possibly thinking of moderate expansion.

“This money will last us through profitability,” St. Amand says.

Dalton agrees. “There’s enough cash to run this thing for the next couple of years,” he says.

But while Dalton says that this news is definitely good for Telica, he’s not sure that the whole market will profit. “I think we’re back to a situation where you have to be number one or two, or forget about it,” he says. “This is certainly positive for Telica, and positive for us, but I’m not sure if it’s good for their competitors.”

Howard, however, disagrees. “I’m really happy,” he says. "This is another piece of good news for our industry. We’ve hit the bottom of the trough, and this is an indicator that we’re on our way back up.”

Telica counts Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT), among its largest competitors in this market space.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com