Investors Stand By Santera
Santera Systems Inc. today announced that it has closed a third round of debt and equity financing totaling about $110 million (see Santera Scores Huge Round 3).
The size of the round suggests that Santera has managed to convince investors that there’s still plenty of potential in its switch, which aims to do double duty: as the equivalent of a “big hummer” Class 5 telephone exchange in addition to providing all of the paraphernalia necessary to also offer users Internet access out of the same box.
On the face of it, that seems surprising, because “God boxes” like this haven't just lost their appeal -- they've become the butt of jokes around here (see God is Dead).
Santera’s original target market, CLECs (competitive local exchange carriers), has gone sour, with some operators going bust and others having to tighten their belts. And at least one other developer of a similar sort of switch -- Tachion Networks -- has already gone belly up after promising the world and delivering very little.
Santera's success in raising its third round (in spite of having a name that calls to mind the ritual slaughter of chickens) suggests that Tachion’s troubles may have cast a disproportionate shadow over this market, which is potentially very large and in which at least one startup -- Sonus Networks Inc. (Nasdaq: SONS) -- has already prospered. Sonus now counts some large carriers as customers and is a public company worth more than Tellium Inc. (Nasdaq: TELM) and Redback Networks Inc. (Nasdaq: RBAK) combined.
Another startup in this field, Convergent Networks Inc., also appears to be gathering momentum. It’s raised $139.8 million to date and says its gear is installed in 11 working networks.
With its new round of financing, Santera could be heading in the same direction. It’s raised even more money than Convergent -- more than $200 million altogether -- and has already got six customers for its gear. Some major carriers are evaluating Santera’s box, according to CEO David Heard. It’s a fair bet that these include the unidentified “international and domestic service providers” that participated in Santera’s latest round of funding, according to the company’s press release today.
Heard acknowledges that he faces a “huge task” in convincing incumbent operators to buy his gear. "The switching network only changes out every 20 to 25 years," he says. Initially, Santera will aim to win business handling some point solutions, such as Internet and Tandem offload applications, while attempting to replace big, legacy boxes.
On that note, Santera says its box is NEBS (Network Equipment-Building System) certified and is well along in its OSMINE (Operations Systems Modification of Intelligent Network Elements) compliance testing. Both NEBS and OSMINE tests are generally required before an incumbent carrier will let a piece of gear into its central office.
What still isn't clear is the price Santera paid for its most recent funding round. Its managers brush off questions about its valuation, saying such matters aren't important in the private company universe. "We weren't too harmed by the [ownership] dilution factor," says Heard.
Santera was founded by Wu-Fu Chen and San-qi Li and is backed by Austin Ventures, Institutional Venture Partners, Meritech Capital Partners, Redpoint Ventures, Sequoia Capital, and others. - Phil Harvey, Senior Editor, Light Reading