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Banks Pile Into Appian

Light Reading
News Analysis
Light Reading
12/18/2000

Appian Communications, a metro-optical startup, this morning announced a third round of funding totaling $60 million.

More notable than the size of the round, however, was the proliferation of investment banks involved in the financing. Along with previous investors like Tudor Investment Corporation and Technology Venture Partners, which led the round, six of Wall Street’s top investment banks -- including Chase H&Q, Deutsche Banc Alex Brown LLC, Goldman Sachs & Co. (NYSE: GS), J.P. Morgan & Co. (Nasdaq: JPM), Robertson Stephens, and Thomas Weisel Partners -- got into the action this go around (see Appian Gets $60M Third Round).

Such a strong showing indicates Wall Street's banking community still has hopes of taking Appian public, despite the recent weakness in the stock market.

The amount of financing is in the same range as many latter-stage financing rounds in the networking market, but the number of banks involved is somewhat remarkable. Caspian Networks, which is now listed on Light Reading's top ten private company list, earlier this month announced it had raised $85 million in its third round with Merrill Lynch & Co. Inc. (NYSE: MER), H&Q Asia Pacific, and SSB Capital Partners (part of Salomon Smith Barney) all investing (see Caspian Prepares for an IPO). Astral Point Communications Inc. announced an $80 million round in July for a total of $113 million, and Geyser Networks Inc. raised $37.5 million in a single round, but neither of these companies had investment banks involved (see Astral Point Raises Another $40M).

So, how is Appian separating itself from the pack of metropolitan access players? Appian's Optical Services Activation Platform is one of the only metro access products that focuses on Sonet as well as gigabit Ethernet, allowing the device to aggregate different types of traffic as well as provide Ethernet services.

“They’ve been able to ride two waves at once -- the next-generation Sonet and metro optical Ethernet wave,” says Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading. “It makes it a very flexible platform that appeals to the widest group of providers.”

While the company pointed out that three of its customer trials are with incumbent carriers, the remaining five are competitive local exchange carriers (CLECs) or building local exchange carriers (BLECs). And this could mean trouble as more and more CLECs find themselves in financial trouble and shut out of cash in the capital market (see ICG's Dark Cloud).

But Mick Scully, Appian’s president, CEO, and founder, said he isn’t worried. The company has avoided unhealthy startup service providers and already has traction in the incumbent market.

“The ones that we’ve been working with are relatively well funded with alternative revenue streams,” said Scully. “We’ve talked to some new players. And we probably could have shipped to a couple more customers, but we decided to hold off because they were under-capitalized. We just thought, what’s the point?”

Scully said he expects to recognize revenue from customer deployments by the middle of 2001. As for a possible IPO date, that is still up in the air.

“The obvious end game for any startup these days is to hit an IPO,” he said. “But it depends on how we ramp our customer deployments and the capital markets. We’ve got enough to last us through 2001.”

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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