Movaz Scores $60M More

Movaz Networks Inc., a startup specializing in optical networking gear for metro networks, has added $60 million in funding to the $100 million it's already raised. The round, to be announced tomorrow, includes $50 million in equity funding and $10 million in non-equity funding, the company says.

The round is led by a group of previous investors in Movaz, including round leaders Meritech Capital Partners and Oak Investment Partners, along with Anschutz Investment Co., GATX Ventures Inc., Menlo Ventures, Silicon Valley BancVentures, and WorldView Technology Partners.

There's also new investment from Telus Ventures, the venture capital arm of Telus, one of the top two carriers in Canada -- the other being Bell Canada Enterprises (NYSE/Toronto: BCE).

The size of the round is bound to raise eyebrows, and that's just what CEO Bijan Khosravi wants it to do. "This round is designed to make us fully funded and bring us to breakeven by next year," he says. "This gives us a strong balance sheet we can present to service providers."

Khosravi admits this is a "down" round, in which the company has reorganized its capital structure, diluting previous equity stakes. Khosravi also makes no secret that he'd like to use some spare shares to sweeten the deal for business providers. As a result of this financing arrangement, he has another $10 million in equity still available, waiting to be taken up by strategic partners, "such as service providers."

It's no surprise the brash Khosravi's casting a line. It's those service providers he's eager to impress that are key to the future of Movaz, which has been shipping its central office switches for several months and has an optical crossconnect in the works (see Movaz Makes Its Milestones and Movaz Sees 3D).

Movaz may have snagged a live one that it needs to reel in. The size of the round indicates that Movaz may have gotten close to a large carrier customer, only to have them suspiciously eye the startup's balance sheet.

"Usually, rounds this big mean a company has some business coming in from a key customer," says Frank Dzubeck, president of Communications Network Architects (no Web site). But he notes there may be strings or conditions attached. It's not unheard of for investors to pull out of a deal if products don't meet specs or perform as planned, he says.

So who's the carrier behind the curtain? Khosravi isn't saying anything beyond that Movaz did "several million" dollars worth of business last quarter with a handful of carriers. But so far, no big names have surfaced.

The participation of Canada's Telus in this funding round is intriguing. Telus Ventures is a relatively new fund, established in 2001 with US$100 million from parent company Telus. According to its Web site, the fund invests strictly with the carrier's business in mind: "TELUS Ventures is not an opportunistic fund but a very focused corporate fund set up to secure strategic growth options for our business units," the site proclaims. And there's more: "Through our Brand And Technology Agreement with [Verizon Communications Inc. (NYSE: VZ)], who have roughly a 26% equity stake in TELUS, we are also in a position to potentially open a door to targeted US domestic and international markets."

Regardless of who may or may not take up Movaz on its offer of equity, the startup plans a suitable venue for any possible pairings in Atlanta: a 40-by-50-foot booth, in which the vendor will be demonstrating its central office switches. Movaz also plans seminars on various topics.

— Mary Jander, Senior Editor, Light Reading
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