Megabucks for Gigabit Ethernet

A surge of venture capital funds have flowed to Gigabit Ethernet companies like data packets down a network backbone during the past two quarters, a research firm said today.

Six companies received funding during the second quarter and four were slated during the third quarter that just ended, according to Russell Snipes, research director with Venture One.

"Every once in a while, you get a surge like this in a particular technology area, but it doesn't happen often," he said. "Usually you have two or three in a quarter, but not six with more in the pipeline."

Snipes speculated that investors have rushed this market as Gigabit Ethernet technology is seen as the next thing to overtake ATM (asynchronous transfer mode) networks because it can be cheaper to run and easier to use over the Internet.

Some of the companies that snapped up funding included StarRidge Networks in Sunnyvale and Rapid City Communications in Mountain View, both of which are based in California.

StarRidge received $5.75 million in its first round of funding from such venture capital firms as CrossPoint and IVP.

Meanwhile, Foundation Capital in Menlo Park was the lead investor for Rapid City. The company raised about $6 million from its collection of investors.

"I was interested in the next way of networking, and I think ATM and LAN are dead," said Kathryn Gould, a partner with Foundation. "Gigabit Ethernet companies are hot things, but if people didn't invest in the first quarter its too late."

She said companies that are starting out now will get to market too late. Bobby Johnson, founder and chief executive of StarRidge, agrees.

"If you just got a business plan today, forget it. There are already [10 to 20 companies] that have been funded and product is ready to hit the market in the next 3 to 6 months," he said.

Joe Kennedy, founder and chief executive of Rapid City, said venture capitalists had talked about funding Gigabit Ethernet companies for over a year, but it wasn't until the early part of this year that VC money began coming in.

"There had been a lot of discussion of the technology in the venture community, so the climate was easy for us to get funding," he said.

Following are some of the deals that were funded in the second quarter:

Extreme Networks: $4.85 million from AVI, Norwest, and Trinity;

Packet Engines: $7.55 million from such investors like Battery & Mayfield;

Prominet: $6 million from Menlo, Matrix, and Charles River;

Rapid City: $6.25 million from Foundation, IVP, Matrix, and Mayfield;

StarRidge Networks: $5.75 million from CrossPoint, IVP, and Dixon Doll;

XLNT Designs: $9 million from Venrock, Enterprise Partners, and BankAmerica Venture.