Ellacoya Snags Third Round
”I don’t know why anybody would think that we were at death’s door,” says Ron Sege, CEO of Ellacoya. “It’s not like we stopped paying the light bills. We have plenty of cash.” The latest round of funding announced this morning brings the company’s total to $111 million and included contributions from its previous investors, Bessemer Venture Partners, Centennial Ventures, Goldman Sachs & Co., and Lightspeed Venture Partners. No new investors contributed to this round.
It seems almost ironic that the company would snag more funding just after it cut its head count for the second time in six months (see Boston Area Startups Slash Jobs). But CEO Sege says that the company had to make cuts to ensure it was accurately sized for the current market potential. And this meant reducing its total staff by about 50 percent from what it was before its first layoffs last spring. While he would not comment on whether or not reducing headcount was part of the deal for securing this new round of funding, he did say that keeping the company’s burn rate down was very important to investors.
”We need to make our cash last,” he says. “The prudent thing to do in times like these is to reduce burn rate. As far as the timing goes, I wanted to make sure that we had the money in the bank, so that I could reassure those remaining that we were going to be okay going forward.”
The company’s previous round of funding closed in December of 2000 when these same investors poured in some $52 million (see Ellacoya Gets a Blue-Chip Backer). Sege says that unlike many other startups in today’s market, Ellacoya went out early in search of capital before it actually needed the money. With the previous round expected to last through the calendar year, Sege says that he hit the funding trail early, starting back in August just to make sure that he would have plenty of time to raise what would be needed to sustain the company over the next year and a half.
This round of funding is expected to take the company through the middle of 2003. Sege says that shipments of the company’s carrier-class product, the SGS 44000, should be trickling in during the first quarter of 2001, with three of its six current beta customers expected to contribute.
While Sege says that the market opportunity has been cut by at least 45 percent to 50 percent over the last year, he is confident that service providers will still see value in the company’s product. But he admits that Ellacoya has had to adjust its sales and marketing pitch to get its foot into many carriers’ doors.
“It’s all about reducing costs for customers now,” says Sege. “We had to look at our product and say what can we do with this software to help our customers do that. So we’ve refined our basic implementation to provide self-provisioning.”
As a result, the company has changed its marketing message to reflect its customers’ needs and wants. Instead of emphasizing how the SGS 44000 will help service providers bundle new IP services like VPNs and video on demand, the company has been emphasizing the self-provisioning features of the software that allow service provider customers to turn up services on their own without the intervention of the service provider.
— Marguerite Reardon, Senior Editor, Light Reading