Centerpoint 's Appeal: Sooo 1999?
What's stunning about Centerpoint's funding pitch, sources say (other than the fact they would call Light Reading to help them find money), is that it harkens back to 1999, when momentum was everything, name-dropping was chic, and Titanic was the number one movie in America (go figure!).
"The whole thing was a tout. They said, '[Kleiner Perkins Caufield & Byers partner] Vinod Khosla says this is a great deal, [ComVentures partner] Cliff Higgerson says this is the hottest thing in his portfolio. And Goldman Sachs & Co. says it’s really likely to go public this year,' " says one investment manager who was pitched.
Centerpoint, which makes broadband wireless equipment and metro optical networking systems, is seeking up to $90 million in new funds by selling Series E convertible preferred shares, sources say. The company is also teasing investors with the idea that it may consider spinning off or selling its broadband wireless unit sometime in the near future.
The investment adviser who called Light Reading even pitched some exotic features such as a "discounted valuation" and "retractive financing," saying the deal was sweetened in the case of an the IPO. [Ed. note: Sounded nifty, but we passed.]
The company announced its most recent funding -- a $130 million round -- in October 2000 (see Centerpoint Closes $130M Round). It used some of that money to acquire Zaffire, another optical equipment startup that, during its turbulent life as an independent company, had raised more than $100 million in venture investments (see Centerpoint Scoops Up Zaffire).
Those close to the deal say Centerpoint's stated revenue goals for 2002 were $25 million for its optical networking business and $45 million for its broadband wireless division. However, with only two named customers and no talk of trials with large carriers, those presented with the opportunity to invest were skeptical. "They didn't give me a clear picture on what the quarterly progression would be like to make their numbers," one source says.
Centerpoint sells broadband wireless equipment to Fujitsu Ltd. (KLS: FUJI.KL) and optical networking systems to FLAG Telecom (Nasdaq: FTHL; LSE: FTL).
"Centerpoint is still a provider to FLAG," says Peter Boland, FLAG Telecom's VP of network planning and engineering. "We have been quite impressed with both their equipment and their support. The equipment they supplied to FLAG worked first time and has been running without faults ever since."
It is not clear how much money Centerpoint has secured during its most recent fund-raising efforts. What is clear, though, is that after four funding rounds and the stock swap for Zaffire, the company's original investors have seen their stakes diluted considerably. Those investors will see their stakes diluted again when and if Centerpoint takes in any new funds.
Zaffire's investors included Azure Capital Partners, Banc of America Securities LLC, Broadband Office (now defunct), Carlyle Venture Partners, Integral Capital Partners, J&W Seligman & Co., JT Venture Partners, Juniper Networks Inc. (Nasdaq: JNPR), Kinetic Ventures, Kleiner Perkins, MRV Communications Inc. (Nasdaq: MRVC), Morgan Stanley Dean Witter & Co., Octane Capital Management, Oppenheimer Funds, Pilgrim Baxter & Associates Ltd., Sand Hill Capital, and Williams Communications Group (NYSE: WCG).
Centerpoint's backers include Amerindo Investment Advisors Inc., BancBoston Ventures, Cisco Systems Inc. (Nasdaq: CSCO), ComVentures, Essex Investment Management Co. LLC, SBC Communications Inc. (NYSE: SBC), Menlo Ventures, Pilgrim Baxter, U.S. Venture Partners, and Viventures Partners.
— Phil Harvey, Senior Editor, Light Reading