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Ellacoya Gets $13M More

Light Reading
News Analysis
Light Reading
4/26/2007

Deep packet inspection (DPI) and traffic management specialist Ellacoya Networks Inc. announced today that it has closed a $13 million round of growth funding. (See Ellacoya Gets Funding.)

The funding was an inside round led by Atlas Venture , BCE Capital , Canaan Partners , Lightspeed Venture Partners , and Presidio Venture Partners LLC . These investors had also participated in a $13.5 million round of funding in July 2005. (See Ellacoya Gets $13.5M More and Ellacoya Finds Deep Packets Up North .)

Ellacoya says it will use those funds to further investment in research and development. The company is also looking to expand sales and marketing efforts worldwide.

Ellacoya has raised more than $145 million to date, though most of that came before a recapitalization in 2002. Since that overhaul, the company has raised approximately $48 million in four funding rounds. (See Ellacoya Stands Alone, Ellacoya Snares $7M, and Is Ellacoya on the Comeback Trail?)

DPI is becoming a hot market as broadband traffic has grown rapidly due to increased online video and peer-to-peer (P2P) file sharing. As a result, carriers are looking to companies like Ellacoya, Allot Ltd. (Nasdaq: ALLT), and Sandvine Inc. to help manage traffic peaks and improve overall quality of service (QOS). (See Surveys: Internet Traffic Touched by YouTube and Insider: P2P Drives Use of DPI.)

Ellacoya CFO Don Pratt says, "The Internet is finally starting to deliver real-time voice and video, and service providers can no longer throw bits at the problem trying to overbuild. Networks are starting to get saturated."

BCE Capital managing director David McCarthy says, "When we invested earlier, we thought DPI had a lot of potential. We thought it was the wave of the future and would add value to a lot of carriers. Since then, this has become a real out-of-the-park opportunity."

Pratt predicts that "this is the year the [DPI] market will double, and this is the time to capture share in that market," and he is optimistic that his company will capture a big part of that growth. "We believe '07 revenues will be double those in '06."

Ellacoya has made a big push to improve its DPI products over the past year. In October, it announced an upgrade for its IP Service Control System software to add application detection and classification functionality for encrypted applications, including P2P services such as Skype Ltd. and BitTorrent Inc. And earlier this year, Ellacoya introduced its e100 product, which it says is the first platform of its kind to support line-rate DPI functionality at 20 Gbit/s and up to 500,000 active subscribers. (See Ellacoya Intros Platform and Ellacoya Bolsters DPI Tech.)

Meanwhile, in the time between Ellacoya's last two funding rounds, its main competitors, Allot and Sandvine, have both gone public. (See Sandvine AIMs for IPO, Sandvine Leaps on London Listing, Allot Plans IPO as Sandvine Profits, and Allot Leaps on Nasdaq Debut.)

Ellacoya won't be joining them anytime soon, Pratt says. "We just closed our second funding round in one-and-a-half years, for a total of $27 million. There's no need to rush to IPO." For now, Pratt says, the company is "focused on its business and continuing to build revenues."

He added, "We have Tier 1 telcos on every continent using our products, and they are comfortable with our technology and our financial position."

— Ryan Lawler, Reporter, Light Reading

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