Cogent Bags $200M in Funding?

In a grim market, Cogent says it is close to closing a $200 million funding round

August 14, 2001

2 Min Read
Cogent Bags $200M in Funding?

SAN JOSE, Calif. - Opticon 2001 - Cogent Communications Inc. says it is about to close its third funding round -- a $200 million combination of equity and debt financing. The company won't announce the financing details for a couple of weeks, but the round will include some new investors, says Helen Lee, Cogent's CFO.

Cogent is a metro Ethernet service provider, selling small and mid-sized businesses 100 Mbit/s of bandwidth for $1000 a month. Now that businesses in most industries are looking to trim operating expenses, the company has enjoyed some success in finding customers for its flat-rate, data-only service. Cogent says it has 3,800 orders for its service, though it won't specify how many customers are currently connected.

Some attendees of the optical networking conference here doubt that the company can sustain that kind of momentum. There are also questions about the profitability of selling $1,000 100-Mbit/s connections. Cogent, however, claims that once it attains a critical mass of customers, its capital expenditures will be low enough to create profitability (see Cogent Boosts Its Buildings Presence and Cogent Banks on T1 Replacement). The company says this, in part, because it doesn't have to pay fees associated with using incumbent local exchange carriers (ILECs) to provide its connections.

Interestingly, even with customers and some short-term proof of its business plan, Cogent didn't raise its third funding round as quickly nor as easily as it had raised prior rounds. "I never thought that raising a Series C round would take more than six months," Lee told the audience at Opticon. Lee says Cogent contacted more than 100 venture capitalists since it began raising its Series C funding in February. Several had stopped funding service providers and two funds had gone out of business, she says.

So far, Cogent had raised $116 million in equity funding. The company also has a vendor financing arrangement with Cisco Systems Inc. (Nasdaq: CSCO) through which Cisco supplied Cogent with $72 million of working capital and up to $310 million to buy discounted equipment. Lee says Cogent has only drawn down $130 million of the available $310 million vendor financing facility (see Next Gen Carriers Cash In).

Lee wouldn't say whether Cogent's third funding round would be a down round. However, in giving a presentation on financing at Opticon on Monday, Lee gave some sobering anecdotal evidence about the state of fund-raising for private communications companies. While companies seeking funding were seeing 200 to 400 percent jumps in valuation in 2000, they can now only expect a 25 percent step up in valuation, says Lee. But more than likely, most will settle for a down round (see Venture Funding Plummets).

- Phil Harvey, Senior Editor, Light Reading

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