Trapeze Swings $34MTrapeze Swings $34M

Trapeze Networks Inc., a 15-month-old wireless LAN switch startup that only came out of stealth mode in January this year, will tomorrow announce closure of its $34 million Series-B funding.

The round was led by Oak Investment Partners with $12 million, and included the particpation of investment banks Trautman Wasserman & Co. and C.E. Unterberg Towbin, VC investors Duff Ackerman & Goodrich and Castile Ventures, as well as Series-A investors Redpoint Ventures, Accel Partners, and Trapeze employees.

Trapeze has now raised a total of $50 million and is one of the most aggressive vendors in the emerging wireless LAN switch market.

“This is probably the biggest round of funding in the enterprise networking space in the last one or two years,” says George Prodan, vice president of marketing at Trapeze. “This is way beyond what others have been raising and it’s a significant up valuation. Investors value the company more now than they did in the last round.”

The extra cash comes at a good time for Trapeze, because the window of opportunity for wireless LAN switch startups is extremely narrow and established networking vendors already have their sights firmly set on this market (see Cisco's Path to Switchdom, So Extremely Sorry, Startups, and Nortel Preps 'Security Switch').

And with 106 employees, Trapeze’s headcount is double that of its startup rivals, which means it also has twice the burn rate (see Switch Startups Seek Funding). The $34 million is expected to take Trapeze close to break-even.

“We see this market moving very fast; the battle will be won or lost in the first 12 to 15 months of selling,” says Prodan. “If we do this right we’ll break away from the pack.

“We’re already booking orders in Europe and the U.S. and we’ve built up an order backlog. We’re also about to close business in Asia.”

Prodan says the company is still aiming for an IPO, though he declines to guess when this may happen. He points specifically to the participation of two investment banks in the round. “It really helps to have people who are familiar with Wall St."

However, Trapeze may be getting ahead of itself with this talk of going public. The IPO market for technology startups is shut tight right now, and even trade sales are a rarity. On top of this, signs are emerging that price pressures could rip the guts out this nascent sector before it even gets started.

The most recent Unstrung Insider report -- "Wireless LAN Switches: The Market Makers" -- finds that the average price per port for a wireless switch is already at $885 and is set to fall rapidly (see Penny-Pinching Switch Hitters). “All vendors support a similar set of base services, and never-ending competition to add new features makes it hard to differentiate,” concludes the report. “Marketing, branding, and product support will triumph over technical ability.”

— Gabriel Brown, Research Analyst, Unstrung

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