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DiggNetwork flow management device maker Anagran Inc. raised $12 million in a third venture capital round as it begins commercial sales of a new type of router design, positioned as an add-on device to allow for greater network traffic on existing equipment.
Previous investors Argon Venture Partners of Redwood City, Calif., ArrowPath Venture Partners of Redwood Shores, Calif., Draper Fisher Jurvetson of Menlo Park, Calif., and Advanced Technology Ventures of Palo Alto, Calif., all returned in the deal, to bring total funding in the four-year-old company to $40 million.
The new money will fund the company as it expands direct sales and builds channel partnerships with systems integrators and value-added resellers. Anagran CEO Kim Niederman expects the company will raise an additional round at the end of 2008.
Niederman, who joined the company in late October, said he did not take the round to new investors, but that previous backers gave the deal a slight increase in valuation. An early sales veteran of Cisco Systems Inc. and Polycom Inc., Niederman said he was attracted to the company by the opportunity to reposition the product as it prepared for commercial launch.
Anagran's product uses vast memory capabilities to identify particular kinds of data traffic and allocate resources to avoid quality of service problems. The product concentrates on prioritizing video content to prevent frame freezes, while delaying less time sensitive traffic.
While performing the functions of a traditional router, Anagran's product takes a different approach, and Niederman said early users of the product found that it was highly compatible with existing products in allocating network traffic. By using it as a network attached device, Niederman said customers can save money by reducing access costs and avoiding the need for additional equipment.
"I love infrastructure products, but this was positioned as a router when what it really does is resolve congestion, so we repositioned the product in December and are moving forward with it as the first product built to manage flow," Niederman said.
Anagran was founded by Larry Roberts, who as head of the U.S. Defense Department's Arpanet program in the 1960s was one of the original creators of the Internet. He went on to found several telecommunications companies, most recently Caspian Networks, which famously spent more than $300 million in investor's money before closing its doors in 2004.
Roberts said router technology has changed little in 40 years, but that products have kept pace with traffic growing needs through faster speeds and better memory. But he said the rapid growth in bandwidth demand created by video created a need for a different approach.
Caspian sought to meet that need using expensive proprietary chip design and software, but by the time Anagran was formed, Roberts said cheaper, faster memory and off-the-shelf flexible programmable gate array, or FPGA, chips made the task considerably easier.
"There is no intellectual property from Caspian, and we actually do things entirely differently, but there are similarities in content," Roberts said. "This is more of an edge device, and the biggest change in developing it was that Caspian had to do all the software and ASICs from scratch and now there are all kinds of commercial products that you just design and load."
Michael Howard, principal analyst with Infonetics Research in Campbell, Calif., said he has known Roberts from his Arpanet days, and that he has been a leader in telecom equipment design for 40 years. In taking the approach he did with Anagran, Howard said Roberts approached a market where there was a need for innovation.
"Larry is a brilliant man, and it is a fascinating product with a value proposition that is very smart," Howard said. "It essentially does what Caspian was doing, and it looks pretty good, but they haven't announced any customers yet so the proof will be in the pudding."
Jason Bross, a general partner with Argon, said the decision to position the product as an edge device for flow management was a key to its success in the market, and he expects the company to establish identifiable return on investment for customers that deploy it to improve traffic without adding more expensive new equipment. He said Roberts had a clear view of the way the product would accomplish its functions from the beginning, but that adding Niederman made the marketing approach clearer.
"If you are going to say, 'We have a new router, and it is a different kind of router,' people are going to ask what it replaces," Bross said. "What we saw was that our product is compatible with every system, and we can prove to network operators that it can drive down costs."
Anagran used no outside financial adviser for the round. It had legal work on the deal from Suzanne Graeser of Morrison & Foerster LLP.
