Virtela expands VPN offerings

VPN services start-up Virtela Communications is beefing up its staff and offering new services such as secure video conferencing and voice over IP, thanks to a major cash infusion earlier this year.

In March, Virtela, of Denver, received $13 million from a group of top-tier venture capital firms including Norwest Venture Partners, New Enterprise Associates and Palomar Ventures. Virtela has raised $88 million since its founding in April 2000, and company officials say this year’s investment should carry the start-up through to profitability.

The Virtela deal was one of the largest venture capital investments in the network industry during the first half of 2003. Overall, venture firms have pumped more than $488 million in 50-plus telecommunications start-ups this year, according to the MoneyTree Survey complied by PricewaterhouseCoopers, Venture Economics and the National Venture Capital Association.

Virtela officials attribute the company’s success in raising so much money this year – $2 million more than it wanted – to the fact that Virtela already has 100-plus corporate customers as well as a burgeoning relationship with channel partner IBM.

“Our biggest area [of growth] is broadband access to corporate VPNs,” says Jeff Phillips, director of marketing for Virtela. “We’re serving the global 2000. Forty percent of our customers are U.S.-based businesses that have international operations. We’ve seen particular success in [such verticals as] manufacturing, software, financial services and healthcare.”

Most of Virtela’s customers are replacing slower, frame-relay connections with high-speed Internet access lines. Virtela doesn’t have its own network. Instead, the company uses multiple ISPs including AT&T, Level 3 and Qwest in the U.S., along with Cable & Wireless and others overseas. Altogether, Virtela manages more than 100 service providers worldwide to meet the demands of its corporate customers.

“`Our model is pay-as-you-grow,” Phillips explains. “We don’t have to lay fiber in the ground. The expenses come when we add customers…That strategy has helped us attract investors.”

Kirk Walden, national director of venture capital research for PricewaterhouseCoopers, says that ISPs like Virtela that continue to raise funding must be solid.

“The business models that underlie these companies is very different than in 2000 or 2001,” Walden says. “They have to be much more practical.”