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DCL Tests Positive for Growth

Data Connection Ltd. (DCL) got funding to accelerate growth and expand beyond its traditional customer base.

Data Connection, parent company of softswitch specialist Metaswitch Networks , received an infusion of capital from Francisco Partners and Sequoia Capital that it says will help it to capture opportunities in the market that it wouldn't otherwise be able to fund. (See Data Connection Funded.)

The investment is a bit of a departure for DCL. The company has a long history of being self-financed and employee-owned, with 26 years of profitable growth, says MetaSwitch COO John Lazar.

Lazar stressed that the capital did not come out of necessity, but that certain opportunities available in the market led the company to consider a number of strategic options for raising capital.

"We don't need to take on this capital, but when you have a number of opportunities in front of you, you have to think about your ability to go out and invest. It's just about limits. We can go after a few more of these opportunities now," Lazar says.

One such opportunity is the company's expansion beyond its traditional customer base in North America to pursue business in Europe and CALA (Caribbean and Latin America). (See MetaSwitch Eyes CALA.)

The company will also continue to invest in research and development, particularly in the MetaSwitch softswitch and MetaSphere service delivery platform (SDP) product lines, Lazar says. (See MetaSwitch Intros SDP.)

"We already have substantial R&D investment. This [financing] gives us the added impetus and capacity to continue to invest in the MetaSwitch portfolio we have already."

Morgan Keegan analyst Simon Leopold says the investment is the classic case of an employee-owned firm looking to raise capital to grow more quickly than it would otherwise be able to.

"Rather than building up a cash base and growing slowly, they see opportunities now and want to be able to seize them while they are there," Leopold says.

The analyst believes that of the options available, venture funding was probably preferable to a public offering in the current market. "No one wants to do an IPO in this sort of market, which is why they did this sort of cash raising instead," he says.

— Ryan Lawler, Reporter, Light Reading

bollocks187 12/5/2012 | 3:49:59 PM
re: DCL Tests Positive for Growth I would suspect they need the cash to buy-seed customers with switches after all the hardware is not cheap so a healthy cash position is required to grow the base. With the other softswitch vendors crumbling then they will need to put out a lot more "hardware" to replace them this requries hard cash terms.

Can we expect to see DCL getting bought or going IPO begs to be answered ?
Venturewatcher 12/5/2012 | 3:49:58 PM
re: DCL Tests Positive for Growth So, after 18 months of trying to sell the business and bleeding, there was no other choice but to give up dilution to the VCs and see what they can do. By the way, great quote, GÇ£We didnGÇÖt need the money, thatGÇÖs why we diluted our position.GÇ¥
FatherTime 12/5/2012 | 3:49:58 PM
re: DCL Tests Positive for Growth What kind of business plan would that be? Why would someone provide cash to buy customers that are stuck with Taqua and CopperCom? Granted these cusotmers need a new platform but I don't see why MetaSwitch would have to eat that. A larger footprint of 1 switch customers doesn't "get 'r done".
HalfFull 12/5/2012 | 3:49:41 PM
re: DCL Tests Positive for Growth 18 months?

They've been burning cash for loads of years.
The waste is worse than it looks cos they don't have to pay the going rate for the software they use as that comes from the parent company.

Your right. If you don't need to cut your leg off, why do you do it?

HalfFull
bollocks187 12/5/2012 | 3:49:38 PM
re: DCL Tests Positive for Growth Perhaps the deal is they are planning to spin-off Metaswitch as a private compnay leading to IPO.

In order for them to do this they must give up some fraction of ownership in the "metaswitch" business unit, since the value is held by DCL.
IBanker19 12/5/2012 | 3:49:20 PM
re: DCL Tests Positive for Growth Honestly guys...did you read the press release or any of the other related news that came out?? Last time I checked Francisco wasn't doing VC investing...they're a private equity shop. FP and Sequoia have along relationship of co-investment and this looks like a majority deal. I think FP sees an oppty to take these guys to the public markets in 18-24 months and wanted a seat at the table. Furthermore, you may want to check the DCL website and get your facts straight on how much they're burning. DCL has been profitable for over 20 years.

Amateurs...
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