A New England-based independent digital subscriber line (DSL) provider’s
struggle to redeem its business just got a boost with $15 million in
investments Wednesday.
DSL.net officials, who have spent most of 2001 either
cutting
jobs or reducing
their presence in central offices throughout the nation, take that as a
good sign, though they are definitely not out of hot water yet.
David Struwas, DSL.net chairman and chief executive officer, hopes the
investment will help speed the company’s way to cash flow positive sometime
next year.
“Being able to secure this level of new investment from leading firms such
as Columbia Capital, Charles River Ventures, Hunt Private Equity Group, and
National Investors Group in an extremely tight capital market, is a strong
expression of confidence in our unique business model,” Struwas said. “With
this new infusion of capital, we are positioned to accelerate our smart
growth strategy both through potential acquisitions and through the ramp-up
of our internal sales efforts.”
For most of 2001, the struggling business-class DSL Internet service
provider (ISP) wasn’t much in the minds of investors or mainstream
corporate America; in fact, many expected the company to fold quietly like
so many other independent DSL providers have done this year.
But like Covad Communications, which just emerged
from bankruptcy court last week, the New Haven, Conn. ISP has managed to
wheel-and-deal itself some breathing room. Wednesday’s $15 million cash
infusion comes fresh on the heels of a $15 million investment from
VantagePoint Venture Partners Dec. 13.
DSL.net provides symmetric DSL (SDSL), which is capable of
consistent up and download speeds of 1.5Mbps for applications such as videoconferencing, to customers around the country.
Unlike residential asymmetric DSL (ADSL) service, which brings home user’s
inconsistent Internet speeds, SDSL brings a potentially large cash return
on investment to DSL providers. Telephone companies, who own the DSL
infrastructure around the U.S., set rates for DSL provisioning the same,
regardless of DSL type.
Margins for ADSL are at an incredibly low level, forcing companies to hope
to make a profit by signing on as many consumers as possible. SDSL is
pricier however, companies are willing to pay the expense for consistent
service.
DSL.net, flush with venture funding a couple years ago, took a residential
ADSL approach to their SDSL service, quickly deploying nationwide and
padding their extremely high cash burn with additional funding. Once
funding ceased, though, officials were left holding the bag of a business
that couldn’t support itself.
Officials quickly abandoned their deployment and looked to shore up their
losses, though at a price from which they still might not eventually free
themselves.
The ISPs earnings before interest, taxes, depreciation and amortization
last quarter were a negative $15 million. While much better than the
second quarter of 2001 (negative $48 million), the company has a long way
to go before it sees positive cash flow.
Investors remain confident the company can pull it off and have backed it
up with cash.
Columbia Capital, and the members of our syndicate, were impressed with
DSL.net’s unique business model, experienced management team and its
ability to execute quarter after quarter,” said Harry Hopper, Columbia
Capital managing partner. “We are confident that the new dollars will be
used effectively to capitalize on the significant growth opportunities that
exist for well funded companies in today’s business broadband arena.”
