Procket Stuffing Its Pocket
"We had a first close of funds in late 2003 and intend to have a second close in Q1 2004 in the same series," says Roland Acra, Procket's president and CEO, in a statement provided to Light Reading. "We continue to enjoy significant commitment from our existing investors. At the completion of the fundraising we will announce the funding details."
Procket couldn't be pressed for further funding details, but sources close to the company say the amount in the first close was $30 million. The round was led by U.S. Venture Partners, with Redpoint Ventures, and New Enterprise Associates (NEA) also chipping in, one source says.
With the new $30 million in the bank, Procket has raised more than $300 million since its inception. Adding to its cachet, Procket has to be the only routing competitor that is backed by the same VCs that backed Juniper Networks Inc. (Nasdaq: JNPR) and in which Cisco Systems Inc. (Nasdaq: CSCO) still holds a small stake.
Several sources close to the company say that Series D will be a "down round" for Procket, meaning its valuation has fallen since the last round, but the company's valuation didn't get quite the haircut that other startups founded during the bubble have received.
One source, a Procket stakeholder, says the rate of dilution was 25 percent to 30 percent. To oversimplify, that'd make $100 worth of Procket shares worth about $70. It is a dilution, but nowhere near what Procket's peers have seen.
"They diluted all of us without telling us," grumbles one early Procket backer. Other early Procket backers say the valuation cut is a matter of perspective. "Who doesn't feel burned about the money they put to work in 1999 and 2000?" one asks.
In the last few years, wash-out funding rounds in which investors have been soaked have been synonymous with routing startups. Part of the problem was that routing startups received the highest valuations during the height of the bubble. Procket competitors, such as Caspian Networks Inc., were forced to lower their valuations in order to gain more funds to stay afloat (see Washed Out in the Valley and Caspian Starts Fresh With $120M). "This [funding round] wasn't anything close to that," a potential Procket investor says, referring to Caspian's last down round.
It's not a surprise that Procket was able to get more funding. In fact, the company's financial position was one factor that helped convince the current CEO to leave his post at Cisco (see Procket Gets Cisco Exec).
Procket now needs more validation with incumbent carriers -- in the form of either a distribution deal with an incumbent equipment provider or a key customer win in the U.S.
The continued fundraising shows that investors have faith that Procket could still reel in a big deal or two, giving it time to forge better reseller partnerships.
One Procket investor says the company is close to selling gear into AOL. Another says Procket is close to bagging a U.S. customer but wouldn't name the carrier. And, as one might expect, neither Procket nor AOL comment on unannounced deals.
— Phil Procketbacker Harvey, Senior Editor, Light Reading