UPT Scores $50M With China Proposal
The Beijing-based startup has attracted a $50 million Series A funding round from a group of investors that includes Doll Capital Management (DCM), Intel Capital, New Enterprise Associates (NEA), Jerusalem Venture Partners, Morgenthaler, Sycamore Ventures, Walden International Investment Group, and Sumitomo Corp.'s venture arm, Presidio Venture Partners (see Sumitomo, Walden Invest in UP-Tech).
The money alone is impressive. In the past several years, the median amount raised during startups' first rounds has been between $5 million and $6.5 million, according to VentureOne.
UPT's proposal is as intriguing as its backing: First it plans to acquire its own telecom equipment technologies; then it will forge joint ventures with other startups to develop future versions of their technologies for the Chinese market.
"[UPT] is meant to be a platform that would both aggregate and own various products for the telecom space... It will focus on a few areas, like wireless and metro and one or two additional areas," according to investor Erel N. Margalit, managing partner of Jerusalem Venture Partners.
Margalit says UPT's already got the ball rolling, having acquired one wireless startup and one networking/provisioning software startup. Margalit won't name the companies, and UPT didn't respond to inquiries made about its business.
UPT was founded by Walden chairman Lip-Bu Tan, who serves as UPT's chairman. Also on the board are Chareleson Zheng, the former chief operating officer of China Netcom Corp. Ltd., and David Chao, managing general partner of Doll Capital.
In its funding announcement, UPT spelled out why it will focus on the Chinese market. The company cites the restructuring of China Telecommunications Corp. (NYSE: CHA) into two companies; the anticipation of China Telecom and China Netcom Corp. Ltd. being granted full mobile licenses soon; and the expectation of new network buildouts in preparation for the 2008 Olympics. "We're now seeing a lot of new requests for proposals for new networks being built, now that [China's telecom] deregulation is complete," Margalit says. "The question is: Who's going to be enjoying all that?"
Of course, building a telecom equipment startup in China is risky business. The incumbent carriers there prefer to deal with companies they know and companies that can provide more than just one product at a time. "We've learned the hard way that it's all about partnering there. It's very difficult (rare) for a carrier to deal directly with a new Western startup," Margalit says.
At the same time, many North American and European startups aiming for the Asian markets find that their products need additional work to bring down manufacturing costs and add different technical specifications. UPT believes its business model will address both the carriers' wants and the startups' needs in a way that will allow it to compete against such established equipment vendors as Datang Telecom Technology (DTT), Great Dragon Information Technology (GDT), Huawei Technologies Co. Ltd., and Zhongxing Telecom Equipment (ZTE) Corp.
Besides competing with Chinese equipment makers, UPT will also go up against established multinationals such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and UTStarcom Inc. (Nasdaq: UTSI). Also, competition notwithstanding, the startup faces a challenge in building a company out of disparate parts and then selling the whole kit as a complete network.
That's a tall order. UPT's cash infusion is a first step, but much more will be needed for the venture to succeed, including some lean manufacturing operations and key relationships with Chinese carriers. According to Margalit, the company is up to the challenge. "Instead of just going after products and selling boxes, this company is going after projects," Margalit. "If China Unicom Ltd. wants to connect 1,000 buildings to Ethernet in Beijing, they will take on the whole project. It's about owning the customer in very different way."
"There needs to be a modern, managed Chinese communications platform that competes in this market," he concludes.
— Phil Harvey, Senior Editor, Light Reading