VONAGE GETS $105 MILLION SERIES D ROUND

I've been meaning to post this up for a few days, but we got into Chicago a couple days ago after winding down in NYC. Now my girlfriend and I are preparing for our move to the Bay Area, but also taking time to celebrate our one year together tonight.

Anyways, Vonage received $105 million in venture capital last week, so this was interesting to me since VoIP has been making a revival. During the boom times, Dialpad, a Korean company which I believe is based in the U.S. now, was getting attention from a lot of Koreans and other foreigners calling their relatives in the U.S, but the quality of their service was mediocre at best and their primarily user-base was small. Also Net2phone was receiving investment from Yahoo! and AT&T in 2000, so VoIP was getting a lot of hype back then. This is clear in my memory because my old company, HeyAnita, was striking up a partnership with them when all these deals were occuring.

These services never took off because the quality wasn't there yet and the majority of users weren't comfortable talking over a microphone attached to their PC. Over the past couple years, VoIP quality has become great and new companies have been surfacing within this space, such as Skype. Vonage was a company that made a slight innovation on the user's end to give a phone jack on top of a person's Internet connection. This is great for Vonage since it used the existing IP infrastructure while some previous VoIP companies used a mix of IP and the old public telephone network, which was more costly.

VoIP services are great especially for those looking to cut down on their long-distance bills. A couple weeks ago, one of my friends brought to Korea a new phone he got from Vonage with a Bay Area telephone number and used it from there, so when I called that number from my home in Chicago I got billed domestic long-distance rates while he was in Korea. Anyway, here's is another clip on Vonage's recent capital raise:


VentureWire Alert
By Scott Austin

August 26, 2004

Vonage, a company that enables customers to make phone calls using a touch-tone phone over an Internet connection, undoubtedly ruffled a few feathers Tuesday in the traditional phone business. Vonage doubled its venture capital backing with a $105 million Series D round, as investors race to pour money in a space with no clear leader and ripe for competition. Lead investor New Enterprise Associates injected $40 million to make it the company's second largest shareholder, under founder and technology pioneer Jeffrey Cintron; 3i said Vonage is now the firm's largest U.S. investment; and Meritech Capital Partners claimed its investment is one of the largest deals in the fund's history.

Why such passion? The old telecom industry is dismantling quickly as U.S. households rapidly adopt high-speed broadband connections and the technology involving Internet calling becomes remarkably cheaper. Throw in easy access to a glut of fiber-optic capacity, and suddenly you have dozens of companies all clamoring to knock down the traditional consumer phone business. The regional phone companies are seeing the number of local phone lines droop for the first time since the Great Depression. Vonage is certainly one of the top in the Internet phone business, already signing up nearly 250,000 paying customers in just two years. But it will face a stiff fight from big carriers such as AT&T and cable operators like Time Warner in the effort to bring inexpensive VoIP services to the world. "Vonage is swimming in the same waters with some pretty sizeable sharks," as NEA's managing general partner put it.

UPDATE: Debates on Vonage's Growth Strategy

Fred Wilson, at Flatiron Partners, has links and comments here. Bill Burnham has a good analogy here. His post reminds me of Tellme, our primary competitor at HeyAnita. Vonage now raised $208 million in venture capital. Tellme in 2000 raised about $238 million, the most out of any startup that year, and an amazing $125 million during the end of the boom cycle at the end of 2000.