Telseon Scores $175M in Funding

Another Ethernet-based service reaps a bumper crop of venture capital UPDATED 10:20am EST

February 6, 2001

3 Min Read
Telseon Scores $175M in Funding

When Telseon announced the successful completion of a $175 million third round of funding today, it was hard not to conclude that Ethernet-based service providers have got something special.

After all, it was only yesterday that Yipes Communications Inc., one of Telseon’s main rivals, itself announced the closing of a $200 million round (see Yipes Closes $200M C Round).

Both companies, however, say that raising this much money has been a long, hard slog.“We started looking at financing back in April,” says John Kane, Telseon’s CEO. “And we really got busy in midsummer. Then no one could find the floor when the bottom fell out of the capital markets, so we had to wait until the end of the year.”

Much the same appears to be the case with Yipes, which announced that it had raised $139 million last October and has now increased this to $200 million to close out its C round.

In terms of total funding raised, Telseon now has $261 million compared to Yipes’s $291 million. A third player offering Ethernet-based services, Cogent Communications Inc., boasts a total of $396 million, although $280 million of that is in the form of vendor financing from Cisco Systems Inc. (Nasdaq: CSCO) (see Next Gen Carriers Cash In).

Yipes makes a big thing out of having no vendor financing, although some of its investors are equipment providers. Scott Kriens, the CEO of Juniper Networks Inc. (Nasdaq: JNPR) participated in the latest round, according to Ron Young, a founder of Yipes and its chief marketing officer. A prominent Ethernet switch vendor is also an investor, Young adds, although he declines to identify it. The latest round was led by Charter Growth Capital.

A couple of equipment vendors -- Cabletron Systems Inc. (NYSE: CS) and Foundry Networks Inc. (Nasdaq: FDRY) -- participated in Telseon’s latest round. The lead investor is DLJ Global Communications Partners, the telecommunications investment arm of DLJ Merchant Banking Partners (an affiliate of Credit Suisse First Boston).

Previous Telseon investors Goldman Sachs & Co. (NYSE: GS) participated in the latest round -- appearing to indicate that an IPO may be in the offing. But Kane says he is content as a private company for the moment. “If you would have asked me 12 months ago, I would have said that we’d be public by now,” he says. “But things are different now, and it’s difficult to get out there. Besides, once you are public it changes your competitive edge, because you always have to be worried about making sure you don’t miss your numbers.”

According to Kane, the current investors are happy about the longer-term approach. “We didn’t want investors who were looking for a quick flip,” he says. “We wanted investors who were willing to go deep in their pockets to write more checks in the future. In today’s market you have to look for investors who are willing to go two or three rounds with you. They may be the only ones you can find to fund you.”

-- Marguerite Reardon, senior editor, and Peter Heywood, international editor, Light Reading http://www.lightreading.com

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