(Updates with additional details starting in paragraph
seven.)
By Scott Denne
Of DOW JONES VENTUREWIRE
Dell Inc. (DELL) is paying $700 million in cash for Force10
Networks Inc., a maker of high-speed Ethernet networking equipment
that had plans for a public offering, according to two people
familiar with the deal.
Force10 was a pioneer of 10 gigabit Ethernet network switching
and routing whose products were too far ahead of what was needed
when it was founded in 1999, and the company had to raise
significant amounts of capital while it waited for its market to
emerge.
The San Jose, Calif.-based company, along with Turin Networks
Inc., a carrier networking company it merged with two and a half
years ago, had raised more than $630 million in venture capital.
Its most recent round was a $30 million funding shortly after the
merger that gave the company a valuation in excess of $200 million,
VentureWire reported at the time.
Advanced Equities, Crosslink Capital, DCM, Meritech Capital
Partners, Morgenthaler Ventures, New Enterprise Associates,
Pacesetter Capital Group, RWI Ventures, Tudor Ventures, U.S.
Venture Partners and Worldview Technology Partners had all invested
in the company, but the returns for different investors will vary
significantly, according to a person familiar with the company.
Shortly after the merger with Turin, the company's board decided
that there was a more profitable opportunity in growing its
data-center products, rather than the carrier Ethernet products
that Turin had brought with it.
Force10 was founded at a time when many start-ups and venture
capitalists thought the transition from 1-gigabit-per-second
networking speeds to 10 gigabits was certain and impending, and
hundreds of millions of dollars were invested into systems and
component companies anticipating the transition.
Few of those resulted in a successful outcome for investors.
But now, with the growing amounts of data stored in data centers
and the popularity of online video causing a need for more
bandwidth, revenue for the company's data center products was $34.4
million in the last six months of 2009 fiscal year and rose
consistently to $67.1 million in the six months that ended in
March, comprising over two-thirds of its revenue in that period.
Revenue from its carrier products fell to $74.7 million in its most
recent fiscal year from $155.9 million two years before.
Force10 had been flirting with an IPO since the fall of 2005
when it raised a $40.6 million Series C, and it filed for its IPO
early last year. J.P. Morgan Chase & Co. and Deutsche Bank
Securities were leading the offering.
The company had revenue of $174.0 million in its most recent
fiscal year, up from $119.1 million the previous year.
Its board of directors included Keith Daubenspeck of Advanced
Equities; Dixon Doll of DCM; Dick Kramlich of New Enterprise
Associates; Steven Krausz of U.S. Venture Partners and Paul Madera
of Meritech Capital Partners.
(This story was also published in Dow Jones VentureWire, a daily
publication that covers news about start-ups and venture
capital.)
-By Scott Denne, Dow Jones VentureWire;
scott.denne@dowjones.com