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Limelight Lands $130M

The broadband delivery platform company Limelight Networks Inc. (Nasdaq: LLNW) Wednesday announced a monster $130 million funding round led by Goldman Sachs & Co. (See Limelight Raises $130M.)

It's a big bet that comes with plenty of risks. Limelight’s core technology is a content delivery platform that caches bandwidth-hungry media like video and gaming in servers at the edge of the network to speed delivery times. With it, it will be making a run at the much higher profile Akamai Technologies Inc. (Nasdaq: AKAM)

Sources familiar with the details say the deal was shopped to many places, including several top-tier VCs. One concern that kept coming up is active patent litigation with Akamai. Another was the CEO's 2001 run-in with the Securities and Exchange Commission (SEC) .

Despite legal challenges, Limelight’s business appears to be doing well, as Internet distribution of all kinds of high-bandwidth media becomes more in demand. The company says it just had its twelfth consecutive profitable quarter, in which it reported more than $14 million in revenues.

Limelight co-founder Michael Gordon says the company intends to use the new funding to add capacity (more servers) to its broadband content delivery platform.

Gordon says Goldman contributed “the majority” of the $130 million but wouldn’t say exactly how much. Our sources say Goldman contributed around $100 million for a 53 percent share of the company and some seats on the board. The Limelight management team and current investors, the source says, will retain a 47 percent share of the company.

Goldman Sachs declined comment.

As for the rest of the $130 million, Gordon says other institutional investors are participating but could not be announced because Limelight is still “dotting its I’s and crossing its T’s” on the funding agreements. He stresses, however, that the round is funded as of July 12 and is now closed.

Sources say other VCs including Accel Partners , Charles River Ventures , Red Point Ventures, and Sequoia Capital considered the deal.

Gordon says the round was oversubscribed, leaving no room for more investors. A Charles River spokeswoman backs up that claim. The others declined comment.

Report: QOS Fees Could Net Billions.)

Akamai filed its patent infringement lawsuit in the District Court of Massachusetts on June 26. The technology under patent was developed at MIT, which licenses it exclusively to Akamai. Akamai, in turn, is responsible for defending the patents when necessary and has done so twice in the past, each time successfully.

Analyst Frank Dzubeck, president of Communications Network Architects, tells Light Reading Akamai is likely to come after Limelight aggressively in the courts. Still, he says, these things often take years to conclude. In fact, even while the court proceedings are playing out, Limelight may be able to expand its technology and customer base significantly, Dzubeck says.

Limelight insists that it has not violated Akamai’s patent. Gordon points out that Akamai did not file a preliminary injunction against Limelight, which could have stopped Limelight from doing business even before a determination had been made on the question of infringement.

In the end a number of outcomes could occur, Dzubeck says. A licensing deal could be reached, or Akamai could even eventually decide to acquire Limelight, In short, the Goldman Sachs team understands the legal threat to Limelight, and still sees favorable odds of making healthy returns on the company.

There's also the matter of Limelight’s CEO Bill Rinehart. Rinehart, while VP of North and Latin American sales at the San Francisco-based email automation company Critical Path Inc. was investigated by the SEC for “fraudulent revenue recognition” practices, according to documents at the SEC Website.

The SEC, according to the document, found that Rinehart and two members of his sales staff had arranged two fictitious $2 million software sales, arranged for the backdating of two other contracts (one for $2.2 million and one for $146,000) and later misled the company’s auditors on the matter. The charges led to Rinehart’s ouster from the company in 2001.

The Northern California district court, at the request of the SEC, levied a fine and barred Rinehart from acting as a director or officer of a publicly traded company. Rinehart later agreed to the bar for a period of five years and also agreed to pay an undisclosed cash penalty.

An industry source says Goldman Sachs asked that Rinehart be removed from the management team at Limelight as a condition of the sale. Again, Limelight’s Gordon neither confirms nor denies this, saying: "Bill Rinehart is still our CEO,” he says. “There may over time be additions or changes to the management team.”

Limelight is headquartered in Tempe, Ariz., and employs 100 people. — Mark Sullivan, Reporter, Light Reading

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Honestly 12/5/2012 | 3:46:42 AM
re: Limelight Lands $130M Mike Gordon, Limelight Co-Founder had nothing further to say when challenged by LR readers. We made our points and it is clear that Gordon and Limelight are wanna be's that must have gotten spanked by the new owner Goldman Sachs. Too many truths in the message discussion and Mark/LR wrote a great story.

Good luck Goldman Sachs, you will need it with this team.
Honestly 12/5/2012 | 3:46:59 AM
re: Limelight Lands $130M Sorry, want to make this easier. for SEC watchers

Http://www.sec.gov/litigation/...
Honestly 12/5/2012 | 3:46:59 AM
re: Limelight Lands $130M Seven,
you clearly put this into perspective.
Thank you for a great post.

For those that want to know more about Bill Rinehart up close and personal go to

Http://www.sec.gov
/litigation/complaints/comp17701.htm
paolo.franzoi 12/5/2012 | 3:47:00 AM
re: Limelight Lands $130M
Dear Mr. Gordon,

You should re-read the article.

1 - The comment about the patent litigation notes the date that the suit was filed.

2 - The comment about the preliminary injunction should have been deferred by you. You should have just answered the facts and referred them to your general council on legal matters.

3 - The comment about the CEO is attributed to an outside source. You, in fact, have stated that you did not answer the question. I would not have answered it either. You are now pounding the table that you did not answer the question. The question was not who your CEO was, the question was did a VC ask for your CEO's resignation as part of the round.

You clearly should get some counseling before talking to the press. Short answers like at a deposition are best.

seven
Honestly 12/5/2012 | 3:47:01 AM
re: Limelight Lands $130M Mike, don't know you, but a few things are very clear from your response. You no nothing about journalism, the fact that Rinehart will remain CEO, would scare the hell out of any investor that knows his history and the fact that you comment at all about the law suit, as an attorney pal of mine said, makes you an "ass clown". LL, needs a general council with a brain, add that to the hiring list. Also heard that one of your big customers is moving its hosting to Equinix. Guess you are now at 599.

A no comment would have made your position partly believable, your comments make you look desperate, amaturish and really concerned about the law suit. Should we be concerned that the deal is not real.?
Michael Gordon 12/5/2012 | 3:47:05 AM
re: Limelight Lands $130M Mark,

A couple of clarifications to your story, plus a comment:

You referred in your story several times to "active" patent litigation, as if the litigation filed by Akamai has been going on for a long time. Actually, the lawsuit was just filed by Akamai on June 23, 2006. So it is very, very new. A number of the posts in response to your story seem to suggest that Akamai's filing of this lawsuit automatically means that Akamai is right. Actually, the whole point of the court system is that when two parties do not agree on something, we have the courts to sort it out. It seems to me that at the very least your readers might not want to pre-judge the merits of this lawsuit.

Similarly, you asked me during our interview to explain to you when and how an injunction can be issued in patent litigation. Although I am not a lawyer, I explained to you my understanding, which is that an injunction can be issued before a trial - this is called a preliminary injunction - or it can be issued after a trial has concluded (assuming that the patent-holder has won) - this is called a permanent injunction. There may well be other kinds of injunctions, but these are the two kinds of which I am aware. You then asked me if Akamai has asked for a preliminary injunction against Limelight, and I told you that Akamai has not. I want to be clear about this, however. I only answered your question; I did not mean to imply that Akamai not having asked for a preliminary injunction somehow speaks to the merits of their position. The way you reported my comment could leave a different impression, and I would like the record to be clear on this.

In another similar vein, during our interview you asked me if the terms of the investment required that Bill Rinehart, our CEO, leave Limelight. I answered that no, Bill is still our CEO. Nevertheless, you reported that Goldman "asked that Rinehart be removed from the management team as a condition of the sale" and that I would not confirm or deny this. Let me set the record absolutely straight: as I told you during our interview, this simply is not true. Bill Rinehart is our CEO. We expect him to be with the company for the foreseeable future. The way you reported this exchange, and particularly the way you excerpted and stitched together my various comments, could leave a very different impression, one that is not accurate. Yes, as I said, we do plan to add to our management team, including hiring a CFO (we don't even have one today). And we probably will add other executives - maybe even, at some point, a new Chief Strategy Officer. This is perfectly normal for a rapidly growing company.

Finally, I was surprised at some of the vitriolic comments posted by your readers. I believe that if you ask any of Limelight's more than 600 customers about us, you'll find that we are very well-regarded by those that matter the most: our customers. This has been the foundation of our success to date, and is our focus going forward.

I wish you and your readers well.

Mike Gordon
Co-founder and Chief Strategy Officer
Limelight Networks, Inc.
Mark Sullivan 12/5/2012 | 3:47:10 AM
re: Limelight Lands $130M Correct. I have copies of the patents, if anyone wants to see them. -M
Honestly 12/5/2012 | 3:47:10 AM
re: Limelight Lands $130M Good find. Patents 703 and 413 are issued to MIT and excvlusively licensed to Akamai. "Limelights willful conduct provides a basis for this court to award enhanced damages and makes this an exceptional case within the meaning of 35 U.S.C. /285 District Court, Commomwealth of MA.

Wonder If Goldman Sachs thinks MIT will not take the witness stand, they have on three occasions and they with Akamai have successfully enforced and been awarded permanent injunction. Weak diligence Goldman Sachs
Mark Sebastyn 12/5/2012 | 3:47:10 AM
re: Limelight Lands $130M Nice job LR. Great Article.
lightwork 12/5/2012 | 3:47:11 AM
re: Limelight Lands $130M Nevermind, I answered my own question:
# 6,108,703 and # 6,553,413
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