September 15, 2008

VentureWire

Packet Design Draws In $12M, Eyes Break-Even

In what investors say is likely to be its last round of venture financing, Packet Design Inc. has secured $12 million in Series D funding to further its plans for international expansion.Existing investors Advanced Technology Ventures, Masthead Venture Partners and Mayfield Fund led the round, with participation from Juniper Networks Inc., a new investor.Packet Design makes routing and traffic analysis equipment that is used for monitoring, troubleshooting and planning large Internet protocol networks. The Santa Clara, Calif.-based company has more than 300 customers, split evenly between large corporations and communications service providers, said Jack Bradley, the company's chief executive. Bradley declined to disclose a valuation or the company's revenue.The company last raised venture capital with a $7.5 million Series C in late 2006. That round helped the company land most of its customers, which have been signing up for ever-larger deals."The number of deals over [$500,000] keeps growing every quarter" as Packet Design's current customers buy more of its products, said Steve Smith, general partner with Masthead and member of the company's board.The proceeds of the new round will be used to expand the company's international sales. It landed in Europe with the money from the previous round and opened an office in the U.K. It recently opened a sales office in Hong Kong and soon will open one in Dubai, Bradley said.Although the company's customers are split between the two target segments, Bradley said he sees it trending toward communications service providers because the value of the offering is more obvious to them.Bradley said Packet Design's competition is spotty, and its own products provide a deeper level of analysis than previously has been available. Packet Design provides complete visibility across an entire network. The tools offered by networking equipment companies and network management companies tend to focus on particular devices or points in the network.Packet Design, which first was financed in 2003, has taken a long time to generate strong sales, and investors expect this to be the last round for the company."When you're creating a new market segment, it takes time for people to get what you're talking about," said Wes Raffel, general partner with ATV and member of the company's board.Packet Design expects to reach break-even by the end of next year, Bradley said.An acquisition "is the most likely outcome with the IPO markets the way they are," Raffel said.Packet Design Inc. was spun out of Packet Design LLC, a venture-backed company funded to generate ideas for multiple networking equipment companies. That company was backed by Foundation Capital and individual investors, all of which hold a stake in Packet Design Inc.The company has about 70 employees, Bradley said.