Caspian Starts Fresh With $120M

Light Reading
News Analysis
Light Reading
2/27/2002



Caspian Networks’ washout round is now official.

Today the company announced that it has closed its fourth round of funding for $120 million. This brings the total amount raised to $262 million since the company was started in February 1999.

Previously, Light Reading reported that the company was working to close a $50 million round, based on a $5 million pre-funding valuation (see Washed Out in the Valley). Dallas Kachan, director of communications for Caspian, says these numbers were off. Although he wouldn’t specifically discuss the company’s valuation, others have indicated that the pre-funding valuation was closer to $20 to $50 million.

"All I can say is that it is many multiples of five," is all he can say.

Kachan did admit that this was a washout round, meaning the company’s capital structure has been reorganized, heavily diluting the previous equity investor stakes as the company prints up massive amounts of new stock.

"Previous investment was squished down and the important players will be given new equity in the company," he says.

The company confirmed that previous investors New Enterprise Associates (NEA), Lucent Venture Partners Inc., U.S. Venture Partners, and Merrill Lynch & Co. Inc. were involved in this round, along with new investors Oak Investment Partners and Morgenthaler.

Kachan admits that some of the company’s previous investors did not participate in this round, but he would not name names. Former investors not listed in the company’s announcement include WorldCom Inc. (Nasdaq: WCOM), Vulcan Ventures, Alloy Ventures, Applied Materials Ventures, H&W Asia Pacific, Salomon Smith Barney, ABN AMRO, Global Technology Group Ventures, Acute Communications, and i100 Optical Asia (see Caspian Closes $85 Million 3rd Round).

While previous investors not contributing to this round will get next to nothing for their investment, Kachan emphasizes that current employees, including upper management and the company’s founders, will be reissued shares in the company based on a formula that takes into account their position and length of time with the company.

The company also says this is the last round of private equity funding it expects to receive. Kachan claims the company has already been in customer trials for at least a year with its core IP router. Sources close to the company say it will likely start generating revenue by mid-year. Steve Kamman, a CIBC World Markets equities analyst following the core router space, says he has talked to at least one of the company’s potential customers.

"I can’t say who it is," says Kamman. "But it is definitely a contract they’d want to win. And the person I talked to at the carrier says they are taking Caspian seriously."

Details about Caspian’s new Apeiro IP Superswitch haven’t been released publicly. Kamman, who says he has been briefed on the product, seems to think that what differentiates Caspian from other new core routing companies is its software: "It is a creative approach and I think in this market, from a customer perspective, creativity isn’t necessarily a bad thing."

But Caspian will be fighting plenty of competition, including routing giants Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR). It will also have to contend with several other startups, some of which, like Caspian, have recently received new funding. For example, Pluris Inc., which has been working on its core router for five years, just got $53 million in funding earlier this month (see Washout Rains $53M on Pluris). Its latest round was also a washout. Chiaro Networks, another possible contender, just announced $80 million two days ago (see Chiaro Lands an $80 Million Round). And Hyperchip Inc. recently announced that it received $43 million in funding back in January (see Hyperchip Lands $43M in Financing).

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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