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Atrica Attracts $75M

Optical Ethernet startup, Atrica Inc. is set to announce a third round of funding worth $75 million Wednesday, say company officials. This latest round brings the total raised to $117 million (see Atrica Lands $75 Million).

The company far exceeded earlier reports that the third round would close at $30 million (see Atrica Closing in on Third Round).

“I think that was a low number to begin with, but at the same time the external metrics are changing,” says Bill Cadogan, general partner at St. Paul Venture Capital, which led the round. “People have been surprised at the traction other Ethernet companies like Riverstone are getting, and I think that had something to do with the interest in Atrica.”

Indeed, there was significant interest from the venture community in this deal. The buzz generated during the company's search for funding contributed to its selection for Light Reading's Top Ten Private Companies list, where it currently sits in the No. 2 spot.

Cadogan says that the company was offered more than $100 million, but decided to settle on the $75 million. The amount of the round and the fact that more than ten new investors signed on are signs that Atrica could be on to something hot.

St. Paul Venture Capital led the round as a new investor. Other new investors include JK&B Capital, Investor Growth Capital, Saturn Venture Partners (an affiliated fund of Telecom Italia), Gemini Israel Funds LP Ltd., Lehman Brothers, Part’com, Challenge Fund, Young Associates, Triton Ventures, CDIB, and Hotung. Several first- and second-round investors also participated in the round.

According to Cadogan and president/CEO Vivek Ragavan, the terms of the deal were straightforward and very “clean." For example, there are no stages of funding or milestones to meet, and Atrica has access to the entire $75 million immediately, says Ragavan. While neither Ragavan nor Cadogan would talk specifically about the company’s valuation, Cadogan confirmed it was a "down round" from the company's last one, which means the valuation has declined and investor dilution was substantial.

With roughly 175 employees at Atrica, Ragavan says this round will fully fund the company to profitability. He says the company plans to use much of the new funding to beef up its manufacturing and sales force.

Atrica's schtick is doing gigabit Ethernet, while adding protection features to make it carrier class. The company recently demonstrated to Light Reading editors, for example, that it can provide 50 millisecond restoration in an Ethernet network, a feature normally reserved for Sonet networks.

The Ethernet space is already full of players like Ethernet switch vendors Extreme Networks Inc. (Nasdaq: EXTR), Riverstone Networks Inc. (Nasdaq: RSTN), and Foundry Networks Inc. (Nasdaq: FDRY), along with IP routing giant Cisco Systems Inc. (Nasdaq: CSCO). Not to mention, the company also faces competition from startups like resilient packet ring vendor Lantern Communications Inc.

So why are so many venture investors interested in Atrica? Part of the hype is rooted in the strong support the company has gotten from service providers. In its second round of funding, Atrica received money from BellSouth Corp. (NYSE: BLS), Israeli service provider Bezeq, SBC Communications Inc. (NYSE: SBC) (via AurumSBC Ventures), France Telecom SA (via Innovacom), and Telia AB. In the third round, SBC and France Telecom invested again, along with newcomer Telecom Italia.

At least two of these investors have already turned into announced trial customers. In a previous Light Reading article, Ragavan said that France Telecom and Bezeq were beta testing the Atrica products.

“The fact that they have a number of customers as investors is critical,” says Cadogan. “If they are willing to put their own money into the company and work with them instead of sitting back and waiting for them to develop something, it shows another measure of confidence.”

The company will also be adding Cadogan to its board, where he will join Ragavan and Eric Behamou, founder of 3Com Corp. (Nasdaq: COMS). Before his days as a venture capitalist, Cadogan was chairman and CEO of ADC Telecommunications Inc. (Nasdaq: ADCT), where earnings grew from $263 million in revenue in 1990 to approximately $3.2 billion in 2000. Ragavan, who served as CEO of Redback Networks Inc. (Nasdaq: RBAK) after his startup Siara was acquired by Redback in 2000, worked for Cadogan as president of ADC’s residential broadband group.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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realdeal 12/4/2012 | 10:57:08 PM
re: Atrica Attracts $75M I have to give these guys a lot of credit for attracting new investors and scoring a great 3rd round.

I am sure they worked their butts off bringing in the new investors- I'd guess they spoke with 50-60 investors before coming to terms with 10. And the 50-60 were not knocking on their door so I'm sure they worked hard to get the attention of the VC community.

And they had the sack to admit it is a down round. Don't think I'd believe anyone if they said a recent round was not a down round in this market.
Cyras Forever 12/4/2012 | 10:57:06 PM
re: Atrica Attracts $75M Good on you Vivek!

Nothing like ample amounts of indiscriminate money sloshing around!

Has Redback flat-lined yet?
mu-law 12/4/2012 | 10:57:05 PM
re: Atrica Attracts $75M Wow... you're not kidding.

This is a windfall for a company full of repeat losers in high calibre ethernet, with development in israel. Not exactly a historically successful recipe.

Could it be, another bubble is forming?
flanker 12/4/2012 | 10:57:04 PM
re: Atrica Attracts $75M Every four weeks, LR announces another firm that has raised $30 - $75mln for an equipment start-up.

Great.

And how many of these firms have had a liquidity event? Atrica is "different" becuase they have investor-customers? So what? A whole 'lot' of good Corvis' investor-customers did them.

Now you're saying Gig-E is hot. Yeah, for like the last 18 months: another bandwagon equipment start-up with blue chip investors and 18 months to bankruptcy at $5mln burn per month.
gea 12/4/2012 | 10:57:03 PM
re: Atrica Attracts $75M Just goes to show you...

With such low interest rates almost pushing the money out of the front door of banks, looks like the investment community's desparate for a place to put their cash. "Optical" Ethernet's as good as any!
opticalguy 12/4/2012 | 10:57:01 PM
re: Atrica Attracts $75M I bet Cadogen saw the writing on the wall when he left ADC and decided to put his trust in his former boy, Vivek Ragavan, to do a good job. Hopefully they can achieve what ADC did from 1990 to 2000, or at least, that is what Cadogen is hoping. :)
high plains drifter 12/4/2012 | 10:57:00 PM
re: Atrica Attracts $75M I think you might be missing the fact that this exact sequence of events has happened about 15+ times in the last 18 months with the same exact outcome: slow (or quick) death.

no doubt this is much more significant than creative marketing (like Movaz last week for example) but it's been proven that VC $$, even from potential customers, doesn't mean anything in this market. VCs, corporate, strategic, traditional, whatever, have proven they don't know what the hell is going on any more than the next guy. this is a large roll of the dice, coming at a particularly interesting time.

if customers aren't buying, it doesn't matter how much $$ they raise. it just puts a little more time on the clock. when I see contracts, no, when I see revenues booked, then I will congratulate them.

I wish them luck but let's remember that Vivek didn't even come close to doing that with Siara. they didn't even have a product. talk about a roll of the dice... Redback crapped out on that one.

BBBoa 12/4/2012 | 10:57:00 PM
re: Atrica Attracts $75M I don't get all these negative posts. Here's a company that just raised $75M - that's real money. This isn't some lame lab trial announcement with some podunk carrier in Idaho. This is a real cash infusion into a company so they can accelerate their development, employ more people and hopefully, bring Atrica to profitability.

Good for you, Atrica and the other start-ups who are out there fighting, kicking and scratching - and hopefully, working smarter to make your company worth something.

BBBoa
Confucius 12/4/2012 | 10:56:58 PM
re: Atrica Attracts $75M All this negativity is actually encouraging, in a way. When everybody thinks things can never get better, that's when the market starts to turn. It's the polar opposite from 18 months ago, when everyone thought the sky was the limit and no one could see an end to the gravy train. "We're all going to be rich!" we giddily gushed.

Well, I congratulate Atrica (is it At' rick a or Ah treek' ah?) for closing a big round. Still, I recognize that the employees are taking it in the pants with such a huge round. Investors are funny. They'd rather give you a really huge round (at a meager valuation) than a smaller round. Why? Because that reduces risk in their mind, given that this is a war of attrition. The more money you have, the more likely you'll have the financial wherewithal to survive (or so they think.) So unlike some of the other deals we've heard of, this doesn't sound like a round of funding intended to keep the company afloat long enough to find a suitor; it sounds like a round intended to keep the company around long enough to make it to the other side of this economy. Bully for them.
sntwk 12/4/2012 | 10:56:55 PM
re: Atrica Attracts $75M I am surprised that a vendor is receiving huge VC funding to help carriers deploy a solution that is aimed at cutting their curren revenues. May be I am missing something.

Look at this: A Bank with 10s of branch offices pays 500$/Mbit using T1/T3 connectivity from carrier Y. Now the same carrier Y is going to tell the Bank customer - hey! I got some new technology and I can provide you connectivity for 100$/Mbit.

Isn't carriers revenue going to adversly affected by this?

Also all the carriers , especially IXCs and CLECs, if there are any, will need money to deploy new Equipment. Probably Bell South and SBC are fine but others need money. Who is going to give them. 600Billion dollars from 1996-2000 invested in Telecom only to find it is all gone. Now I don't think any Investment into Telecom carrier space is going to happen any time soon.

So what is the promise for investors in Atrica? I think it is good for engineers that VC funding is active again but I am just trying to understand the business logic.
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