PeerApp Ltd. has raised another $3 million to keep up with what it claims is growing service provider demand for peer-to-peer (P2P) caching gear.

The funding round, PeerApp's second, came from prior investors Cedar Fund , Evergreen Venture Capital , and Pilot House Ventures . PeerApp hasn't disclosed the size of its first round.

Frank Childs, PeerApp's vice president of business development and marketing, says the funding will be used to ramp up operations in the fast growing company, which has expanded to 40 employees from 22 at the beginning of 2007.

The bulk of that headcount increase has come in engineering. Investments in research and development have led to the company's addition of new features to its gear, including support for streaming video and P2P protocols, such as that used by Pando's content delivery network. (See Pando, PeerApp Partner and PeerApp Supports Streaming.)

The company is also focusing on sales and marketing as it expands into the U.S. and Europe. Asia and Latin America have traditionally been its strong markets.

Customer demand has been healthy. Childs says the combination of new deals and follow-on orders caused a quadrupling of revenues from 2006 to 2007, and the company is expecting revenues to triple in 2008.

That growth is being driven by service providers looking for ways to deal with P2P traffic. (See Startups See More Cache in Carrier P2P and Cache-ing In on P2P.)

While some carriers use deep packet inspection (DPI) equipment to block or slow P2P traffic, PeerApp says it has an alternative. PeerApp locally stores P2P content, letting the service provider avoid traffic congestion over peering points while serving P2P files more quickly to end users.

PeerApp says its gear is complementary to traditional traffic management tools from companies like Allot Ltd. (Nasdaq: ALLT), Ellacoya Networks Inc. , and Sandvine Inc. . As a result, Childs says the company "sells its equipment in conjunction with DPI devices on most of its accounts." (See Perfect P2P Partners?)

In P2P caching, PeerApp's closest competition is Oversi Networks Ltd. , which last year received a round of funding headlined by telecom equipment heavyweight Cisco Systems Inc. (Nasdaq: CSCO). (See Cisco Invests in P2P Video Vendor.)

Childs says the company expects to raise one more round of financing in 2008, which should bring it to profitability.

— Ryan Lawler, Reporter, Light Reading