Kagoor Lands Another $9M

Session border controller vendor Kagoor Networks has banked $9 million in a new round of funding that will help the company keep pace with current market growth, says the firm's CEO Opher Kahane (see Kagoor Raises Further Funds).

The cash, which takes Kagoor's total funding to more than $40 million, will be used to hire more staff to help the company manage existing accounts, including Tier 1 carriers such as Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY), and deal with new leads, says the CEO (see SingTel Picks Kagoor ). The firm's headcount will increase by about 50 percent to around the 100 mark, though Kahane is reluctant to share the exact number.

It should come as no surprise that Kagoor, and its main rivals, are experiencing increasing demand for their session border controllers, which interconnect multiple IP networks and manage IP sessions across those networks. VOIP traffic volumes are growing on carriers' trunk and access networks and will continue to do so as more and more carriers phase out their traditional TDM voice equipment and offer IP telephony services across broadband connections.

So while the market for session controllers is currently small -- total revenues in the second quarter of this year were just $13 million for the niche sector, according to Infonetics Research Inc. -- it is set to grow rapidly in the next three years (see Report: Session Controllers in Demand). Infonetics reckons carriers will spend $434 million on session controllers in 2007, while other analyst firms project even greater growth (see UTStarcom Updates Guidance).

That potential has attracted investors, and some of Kagoor's closest rivals have also landed fresh funding in recent months (see NexTone Raises $10M and Netrake Rakes In $20M Funding ).

One of the main reasons for Kagoor's current growth spurt is the level of activity being generated by its partners, says Kahane, who notes that his firm's recent SingTel deal was brokered by Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702). (See Kagoor Partners With Fujitsu.)

Kagoor already has a number of other high- profile relationships, and is set to announce more (see NEC Selects Kagoor, Siemens to Resell Kagoor Controllers, and Kagoor Enhances Avaya Security). "More companies are realizing they need to provide the capabilities a session controller offers and that they need a partner to deliver those capabilities," says Kahane.

He adds that the Asia/Pacific region has been the core adoption market for Kagoor's technology (see Kagoor Goes Cable Crazy), but that interest is now growing in the Americas. Even Europe, where Siemens AG (NYSE: SI; Frankfurt: SIE) is proving a useful ally and where the vendor recently opened an office, "is waking up." (See Kagoor Opens European Office.)

The next phase in the market's development will see a core group of specialists break away from the pack, reckons Kahane, who claims there are a number of technically challenged companies hiding behind a veneer of media exposure and marketing smarts. "There are companies that are sending out a marketing message without anything to back it up. There are some pure-play firms that are true competitors and others that have had decent exposure but nothing to back up their claims."

Brave words. So who are these charlatans? Kahane becomes a little more shy at this point but says Kagoor is butting up mainly against Acme Packet and that Netrake Corp. sometimes surfaces in a bid to win carrier business. He believes these two will pose the greatest threat.

And he adds that Kagoor is not seeing NexTone Communications Inc. or Newport Networks Ltd. (London: NNG) during the competitive process.

Suggesting that NexTone has little to offer would come as a surprise to the company's 100-plus customers and to those analysts that believe NexTone, which is shifting its focus more towards call control functionality, has a measured approach to a changing market (see VCs Pump $10M Into NexTone ).

In addition, Infonetics noted that the top three vendors by revenue in the second quarter of this year were Acme Packet, Netrake, and NexTone.

And the dissing of Newport may be a little premature, as the company, which recently raised its growth capital with an IPO, has just launched its 1460 session controller, built specifically for large carrier networks (see Newport to Ship Session Controller and Session Controller IPO Scores Success).

So while Newport builds some market traction, Kahane is hoping to put his company's latest cash injection to good use and become part of a small breakaway pack of two or three market leaders.

To do that, the CEO will be aided by former Cisco Systems Inc. (Nasdaq: CSCO) executive Joe Golden, who joins Kagoor's board from Accel Partners, which led the latest funding round. The other main investor this time around was Concord Ventures, though Kahane says all the vendor's previous investors were involved.

Kagoor's previous cash injection, announced a year ago, was led by Siemens Venture Capital (SVC) (see Siemens Invests in Kagoor).

— Ray Le Maistre, International News Editor, Light Reading

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