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RGB Gets More Green

Digital video specialist RGB Networks Inc. has raised $20 million in a fourth round of funding -- enough, the company believes, to shelve any IPO plans until the middle of next year.

RGB, a Light Reading 2007 Leading Lights winner, talked about a possible spring 2008 initial public offering soon after Motorola Inc. (NYSE: MOT), one of RGB's key sales channel partners, sealed a deal for another digital video tech firm, Terayon Communications. At the time, rumors also swirled that RGB might become the next coveted acquisition target in this product category. (See RGB: Ripe for Aquisition? and Motorola to Buy Terayon for $140M.)

Intitutional Venture Partners, a new investor, led RGB's latest round. Previous investors, including Accel Partners , Comcast Interactive Capital , Kleiner Perkins Caufield & Byers , and Focus Ventures , also participated.

With the latest round included, RGB has raised more than $57 million. Of that, more than $28 million is still in the bank, according to Jef Graham, RGB's chairman and CEO. The new financing "is an insurance fund, in a sense," he says.

Graham says RGB opted to close the round early in 2008 before the housing and credit crunch worsened and to avoid the tanking IPO market, citing the rough seas one of its closest competitors, BigBand Networks Inc. (Nasdaq: BBND), has encountered since going public last March. (See BigBand IPO: Boing! and BigBand Looks to Resolve BigProblems.)

That confluence of factors "put the kibosh on going public this year," Graham says, noting that the company may look at the public route again in mid-2009. "We think the IPO market will come back by then," he says.

RGB expects to use the latest infusion to expand into new markets aggressively and to build toward sustained profitability.

On the market front, RGB is expanding into Europe and Asia, and into sectors beyond cable, including telcos, broadcasters, and satellite companies. The vendor plans to start shipping an MPEG-4-capable IPTV platform for telcos by the back-end of this year. Although Verizon Communications Inc. (NYSE: VZ) buys some RGB gear for its FiOS TV service, most of the vendor's customer roster is made up of cable operators.

But RGB wants a bigger share of the cable pie as well. According to Graham, both Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) approved RGB's new flagship product, the Broadcast Network Process (BNP), in the first quarter, and some shipments are already underway.

The BNP is a digital insertion and video multiplex platform that competes directly with CherryPicker, the key piece of technology Motorola picked up via its acquisition of Terayon. (See RGB Takes On Terayon .) To avoid product overlaps following the Terayon acquisition, Motorola now resells only RGB's Simulcast Edge Processor (SEP). RBG is selling most of its products directly to operators, says Graham, estimating that "less than 10 percent" of RGB's sales still come by way of Motorola.

RGB claimed to have more than 80 customers around the end of last year. Charter Communications Inc. was the largest, representing 20 percent of sales; Time Warner Cable represented about 16 percent.

For a private company, RGB, which has about 125 employees, isn't shy about sharing its revenue figures, mostly because they are heading in the right direction. According to Graham, RGB generated $18 million in 2006 and $31 million last year. He expects RGB to pull down about $50 million in 2008.

― Jeff Baumgartner, Site Editor, Cable Digital News

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