Vonage Awash in Venture Capital

VoIP upstart Vonage has quickly amassed another $105 million
from venture capitalists and is looking to Latin America and Asia to
accelerate an already torrid growth rate.

For most of its existence, Vonage founder Jeff Citron,
a serial entrepreneur who previously ran online brokerage Datek, has
bankrolled the company. But investors have taken notice, pumping $200 million into Vonage’s coffers
in four rounds. And New Enterprise Associates re-upped its commitment to Vonage, contributing
another $40 million.

Vonage spokeswoman Brooke Schulz said there’s money left
from February’s
financing round
.

But since then, an “onslaught of institutions” has approached Vonage with
offers. Vonage eventually retained investment banker Deutsche Bank to weigh
the proposals.

“It was a question of ‘raise money now and solidify your lead by accelerating
existing plans or continue the steady growth by only reinvesting the free
cash and using the existing capital from prior rounds to fund the
expansion,'” Schulz told internetnews.com. “We chose the former
because we wanted to be aggressive.”

Vonage is broadening its footprint in the United States, Canada and the United
Kingdom, and it now plans service in Asia and Latin America. The company
currently has 240,000 lines in service and is adding 25,000 per month.

It’s also readying new features. Within six months, Vonage will introduce
virtual phone numbers from foreign countries, conference bridging, E911,
Wi-Fi phones and wireless routers with embedded phone adapters.

Finally, it will continue its heavy marketing and advertising programs. The
company recently issued requests for proposals to marketing agencies that
earmarked between $50 million and $75 million in billings for 2005, Schulz
said.

Vonage 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). It’s been popular with consumers and small businesses.

At first, 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 United States continued to
rise (a high-speed connection is a requirement for VoIP service), the cost of
equipment fell and federal regulators indicated a hands-off approach, the
big players finally jumped in.

AT&T , Verizon , Time Warner and others are forging ahead with VoIP service. While cognizant
of the growing number of players in the once sleepy space, Vonage officials
say that wasn’t a factor in adding to its war chest now.

“The timing of the fundraising was not materially affected by the advent of
competition in the marketplace,” Schulz said. “We raised the money so soon
after the last round simply because we could.”

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