New Edge Pockets $77.5 Million

At a time when digital subscriber line companies have trouble giving their business away, New Edge Networks raised nearly $80 million in private equity and debt financing, it was announced Monday.

Officials expect to use the money, $40 million in private equity and $37.5 million in loans, to fund its nationwide marketing and sales campaigns and finish deployment of digital subscriber line access multiplexers (DSLAMs) in 50 central offices (COs) throughout the U.S.

New Edge, since its inception in 1999, has garnered more than $380 million in equity financing and loans from investors. Several, including GS Capital Partners III, L.P., Crosspoint Venture Partners and Accel Partners, have bought an increasing stake through the various funding rounds.

The addition of First Union National Bank, however, marks the company’s ability to draw new buyers in today’s mainly tight-fisted market.

A mark of their confidence, he said, is that they keep putting more money into our company.

According to Sal Cinquegrani, New Edge spokesperson, finding money in today’s market isn’t difficult if you have a sound business plan.

“Any smart investor is going to invest in a plan that ultimately proves beneficial to them,” Cinquegrani said

He said investors saw three key indicators that convinced them to go with New Edge:

  • Broadband demand is hot. Investors are predicting a “stunning” demand for broadband in the coming year, Cinquegrani said.
  • Market position. By marketing and deploying to second- and third-tier cities (called the ‘Digital Divide’), they’re avoiding competition with many other providers and the telephone companies, who don’t see those smaller markets as worth the effort.
  • Diverse revenue sources. New Edge, a company providing business-class bundled services and DSL service to tier two and tier three cities (populations between 20-50,000), has remained relatively unscathed in times that saw the collapse of a multitude of Internet service providers and its providers.

It hasn’t always been an easy sell for the company, however. At the nadir of its operations, in November, 2000, the company laid off 135 employees to bankroll its operations until more funding could be found, despite $140 million raised in its third round of funding in October, 2000.

It’s a great deal better than the fate that befell competitor NorthPoint Communications, which was unable to garner funds after Verizon Communications’ nixed its $800 million merger deal. The company was forced to sell its equipment at cost to AT&T Corp. and couldn’t give away its DSL customer base, stranding more than 100,000 customers.

New Edge is similar to companies like NorthPoint and Covad Communications Group in that it resells DSL service to Internet service providers, who go on to sell the service to its customer base. The company has 180 ISPs signed up to date.

But where the company differs from the others, and seems to derive the majority of its success, is its bundled services for businesses, including wide area networking (WAN), frame relay and virtual private networking (VPN).

Dan Moffat, New Edge president, chief executive officer and co-founder, sees the company as one of the surviving companies in the DSL provider shakeout.

“We’ve survived the ‘Perfect Storm’ in the broadband industry,” Moffat said. “It’s very similar to what happened in the early days of other telecom infrastructure businesses including wireless.”

According to its figures, said one company official, New Edge isn’t dependent on ISP revenues like other DSL providers, and collect more than 50 percent of its revenues from business services.

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