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Vonage Rings Up Another $40M

Consumers aren't the only ones betting on Vonage.

As demand for VoIP moves forward and regulators increasingly step back, investors are calling the Edison, N.J., VoIP company with cash. The development is quite a switch from the last two years when venture capitalists steered clear of telecom firms.

Today, less than three months after banking $35 million in venture capital, Vonage announced $40 million in new financing from 3i, Meritech Capital Partners and other backers.

"There was so much interest when we did (the November) offering we were pulling people away from it," CFO John Rego told internetnews.com. "We came up with a stronger valuation and went out for more."

The new money will pay for expansion. By year's end, Vonage expects to offer service in all 50 states (it's in 40 now), push into Canada and debut in the United Kingdom and Switzerland.

The privately held firm will pump even more money into its already substantial marketing budget. Rego said a portion of the round will also go toward developing new broadband telephony services.

For most of its existence, founder Jeff Citron, a serial entrepreneur who previously had success with online brokerage Datek, has bankrolled the company. But investors have taken notice of late.

Vonage this month signed its 100,000th customer -- doubling its base in five months. It offers flat-rate phone service cheaper than traditional carriers because voice traffic over the Internet isn't subject to regulatory fees (at least for now).

Over the last year, large service providers watched as privately held Vonage built up its business through direct Web site sales and through partners like ISP EarthLink and online retailer Amazon .

As the number of broadband connections in the U.S. continued to rise (a high-speed connection is a requirement for VoIP service), cost of equipment fell and federal regulators indicated a hands-off approach, the big players finally jumped in.

Most major telecoms and cable providers -- including AT&T, Qwest and Time Warner -- have outlined plans for VoIP service, although many are still determining how fast to implement them and how much to charge. But Vonage believes it has a jump on them.

In the late 1990s, telecom firms that raised the kind of money Vonage couldn't wait to go public. But Rego said Vonage, which has been offering its service for about two years, isn't rushing.

"We have no plans for an IPO right now," Rego said. "There's no compelling reason to do it."



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