Venture Capital Streams Into Internet Phone Company

By Matt Richtel

May 9, 2005

Vonage, the Internet telephone company, is expected to announce formally today that it has raised $200 million in new private investments, one of the largest single rounds of venture capital financing in the last decade.
The size of the deal shows the confidence of the lead investors, including several major Silicon Valley venture capital companies, that Vonage, a privately held company, can continue to thrive as an Internet phone company even as regional Bell companies and cable companies enter the business.

John S. Rego, the chief financial officer of Vonage, which is based in Edison, N.J., said the money would be used primarily for marketing. Mr. Rego said the money would be sufficient to get the broadband phone company to profitability in 2006.

 This latest round is tied for the seventh-largest single round of private equity financing since 1995, Mr. Kedrosky said. It is the third-largest round of financing over all and  the largest in a telecommunications venture since the Internet bubble burst in 2000.

 Vonage has nearly double the number of Internet telephone subscribers as its nearest competitors, Cablevision and Time Warner Cable. But the cable companies and traditional telephone companies, like Verizon, are expected to capitalize on their brand names, industry analysts said.

 One factor in Vonage's favor is that the Bell companies, including Qwest and Verizon, have begun to allow consumers to buy high-speed Internet service without paying for telephone service. Consumers who buy this stand-alone Internet access can use Vonage, Packet8 or some other company for broadband phone service.

(Source New York Times/Vonage forum)

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