Recommendation on Which Company Between Electra Networks, Uptal Communications and Cordent Systems to Engage With

Memo to Greenlane Partners

RE: Recommendation on which company between Electra Networks, Uptal Communications and Cordent Systems to engage with.

With Venture Capital being invested increasingly in communications, from $92 million in 1988 to $1.8 billion in 1998, the communications industry remains an excellent area of allocation for our capital. Furthermore, with the migration from centralized computing to client/server computing (both Local and Wide Area) the scope and demand for data-oriented communications services significantly increased. The other major significant change in the communications industry is the shift in supporting technology from circuit based to packet-based architectures.

Recommendation: Electra Networks

Carriers are facing pressure from competition, falling prices and high costs under current technology (circuit based as opposed to newer packet based) all while seeking to meet customer needs that is putting pressure on their top line and bottom line. Electra Networks seeks to deliver telephone services over the internet, allowing companies to migrate from circuit-based technology to packet-based technology – taking part in the industry-wide shift in technologies and standards. Electra Networks delivers IP telephony network equipment that lets carriers achieve major operational savings (by migrating from circuit to packet networks) and build new revenue streams through delivery of new features and services.

Electra is seeking to raise $35 million to accelerate the development of its product line and anticipates an IPO at the end of the year. In their previous fund raise, they had a post-money valuation of $125 million

Electra is one of Data Comm Magazine’s Top 25 Hot Start-ups and has a management team with significant experience at the helm. Electra Networks has a management team with experience in both start-ups and implementation of large networks in companies with a focus on Data, Voice and Multimedia. Electra has already received $23 million in venture funding from Kleiner Perkins, Accel Partners and Mohr Davidow – backing from such top-tier venture groups further demonstrates the company’s reputation and potential.

Electra offers Best-In-Class applications with shorter deployment cycles, as well as differentiated services that help drive its competitiveness in the market. Electra is seeking to further expand given its easily scalable central office IP telephony equipment. Electra already has alliances with different carriers in various telephony applications demonstrating where it has helped them enhance their services by fully leveraging the new converged voice network and the ease of the new technology’s integration into existing services. Electra’s partners include Accord, Ridgeway, VideoServer, eFusion and many more.

As with any venture capital investment there are causes for concern that need to be looked into further during the due diligence process to mitigate the risk.

Electra Networks has an “all-star” management and engineering team that may have led to the lack of specifics caused by maybe overconfidence. The overconfidence can be signalled through the lack of a clear business plan as to how the company plans to translate the market opportunity into products and then into sales alongside all these financial implications. The financials that would need to be carefully considered would be whether the fund raise will sufficiently cover the increase in net working capital and any capital expenditure that the firm will require to follow its business plan, and within what sensitivities it would be a profitable venture.