Fiberlink Snares $50M
The company, which offers a remote access VPN service for enterprise customers over dial-up, broadband, circuit, and wireless access technologies, has been profitable for seven consecutive quarters and is expected to generate revenues of about $70 million this year, says Steve Zarrilli, CFO of the company.
The latest round consisted of only one investor, Technology Crossover Ventures, a $2.5 billion venture firm that specializes in later-stage companies. Previous investors, including Goldman Sachs & Co., General Electric Capital Corp., Edison Venture Fund, and NewSpring Ventures, did not invest in this round.
“TCV wanted a certain ownership that precluded the other investors from adding to this round,” says Zarrilli. “They gave some of the previous investors some liquidity.”
What makes Fiberlink’s funding round somewhat unique is that the company claims it doesn’t really need the cash. It’s already generating more revenues than some companies that went public during the bubble, notes Zarrilli.
Indeed, it's an interesting example of what can happen in the post-bubble world.
The company has quietly and successfully competed against the likes of AT&T Corp. (NYSE: T) and MCI (Nasdaq: MCIT). Its strength is in its breadth of offerings and worldwide reach, according to John Girard, vice president and research director for networking at Gartner Inc. in a report published in March 2003.
If Fiberlink is in such a good financial and competitive position, why is it raising more cash?
“Actually, we didn’t want the money at first,” says Zarrilli. “We said no to them three times. But as we continue to expand in the market, the additional capital could be useful for acquisitions. It’s also helped us buy back some preferred shares.”
Part of the $50 million funding has been used to buy back about 10 percent of the company's preferred shares, which were allocated to earlier-round investors.
With this latest round, TCV becomes the largest shareholder, with a 30 percent stake in the company. Goldman Sachs, which had been the largest shareholder when it invested in the second round in 2000, has reduced its holdings from 30 percent to about 25 percent. TCV has added a board member, but GE and Edison also still have board seats.
The company also says it might use the additional funds for acquisitions of smaller companies or key technologies. One area it might be considering is Secure Socket Layer (SSL) technology, says Ray Keneipp, vice president and service director at the Burton Group. Because SSL is built into browsers it can be used to access VPNs from any Web-enabled device. SSL appliances are used to front-end VPNs to allow these SSL browsers to access non-Web-based applications like email (see Nokia Sweetens SSL ).
Zarrilli says the company is already working on an SSL solution with an unnamed partner. Neoteris Inc. and Aventail Corp., the two best-known vendors in the market, are likely to be top candidates for a partnership. Zarrilli says the company will reveal details of this partnership sometime this month.
But in terms of an acquisition, Neoteris and Aventail are probably too expensive for Fiberlink to buy (see NetScreen SSL Move Likely).
“Fifty million dollars isn’t that much money,” says Keneipp. “I’m not sure you can buy any startup for that. But these are tough times; maybe they could find someone.”
— Marguerite Reardon, Senior Editor, Light Reading