Investors give $435 million to start-up

The Associated Press
Saturday February 24, 2001

SAN JOSE — A start-up telecommunications company that still has no revenues has received about $435 million in venture capital, a huge amount of money in the beleaguered high-tech industry. 

It is the third-largest amount of funding invested in a start-up, and comes despite the Nasdaq’s recent struggles. But investors say they are encouraged by the management of San Jose-based Sigma Networks, and by its product. 

And while many companies have become shy about initial public offerings, that’s not the only way venture capitalists can make money. Getting bought out by another company has a higher potential for making money, said John Taylor, vice president of research for the National Venture Capitalists Association, based in Arlingon, Va. 

“The acquisition market has been very, very strong recently,” Taylor said. “The amount of money’s actually larger for acquisition.” 

The money raised through IPOs in 1999 and 2000 was between $20 billion and $22 billion each year, Taylor said. By comparison, in the first six months of 2000 alone, the money raised through acquisition was around $36 billion. 

Sigma hopes to build a technological bridge that will improve the connections between the elaborate computing network that serves as the Internet’s backbone and the high-speed access providers that cover the last online mile to homes and businesses. 

Those connections currently are managed by phone companies and it often takes months to make them. Sigma’s technology would make it easier, cheaper and faster to make those connections. 

A number of companies are trying out the technology, including Covad Communications, America Online, Enron, Global Crossing, PSINet. 

Silicon Valley entrepreneur Marc Andreessen, a Netscape Communications co-founder who currently is chairman of Sunnyvale start-up LoudCloud, is on Sigma’s board of directors. 

The two top executives at Sigma are its chairman, Reed Hundt, former chairman of the Federal Communications Commission, and CEO John Peters, who joined after leaving Concentric Network. 

Peters has said the $435 million will be sufficient to help make the company profitable. 

The 10 backers of the company include Benchmark Capitalo, Cisco Systems and Salomon Smith Barney.