Souped up with another $25M, Chelsio makes Ethernet gear to turbocharge servers

Other stakeholders that did not participate in the round include Silicon Valley firms Sequoia Capital and Global Catalyst Partners.

Chelsio develops and manufactures network interface cards that enable 10-gigabit Ethernet speeds for computer servers. Ten-gigabit Ethernet, or 10GbE, is one the most recent and fastest of the Ethernet standards. Chelsio's 10GbE Ethernet unified wire technology is used for the retrofitting of high-performance servers and for large server manufacturers looking to incorporate the highest speeds in new lines of servers.

Investor Growth Capital, the venture arm of Stockholm-based industrial holding company Investor AB, will also take a seat on the board, which managing director Jose Suarez will fill. He says his firm decided to lead the round because "ten-gigabit Ethernet is inevitable, but it's always been a question of when, as opposed to if."

"Our view was that 10G Ethernet, at least for high-end applications, is now a reality, as opposed to something datacenter managers are just playing with," Suarez added.

The 10GbE standard is still early in commercial deployment, and Chelsio's target customers are primarily early adopters of Ethernet technology such as storage companies, server makers and builders of massive data centers, and other companies with high-density network infrastructure that require the highest performance levels.

"They've had terrific traction with storage companies, and with the server and high-performance computer market, as well as some of the larger players in WAN acceleration," Suarez said. "If you look out to 2010 there are billion-dollar-plus 'niches' that can support a standalone business."

The Series E gives Sunnyvale, Calif.-based Chelsio roughly $92 million in venture money since its founding in July 2001. An $11 million first round and $19 million second round of October 2002 were used for product development. Following that was a $25 million Series C and $12 million Series D used for the launch of large-scale production of its products. The January 2005 Series C gave the company a post-money valuation of nearly $70 million, which was flat to that of the second, Chelsio founder and CEO Kianoosh Naghshineh said at the time.

Cisco did not return a call seeking comment.

The company plans to use the capital infusion for further development of its 10GbE unified wire adapters and silicon. In particular, the company will increase the engineering, sales and marketing staff.

Naghshineh said in a statement the new funds will also "assure our customers that Chelsio will be a long-term and dominant player in this space."

Suarez says that since Chelsio is in growth mode, it may require another round to fund its business plans. "There are plenty of scenarios where the company is sufficiently profitable so that it doesn't need more capital. But if things really take off, the company is going to need to support its working capital, but I can't say what form of capital that will be."

"We're open to [investing more]; it just depends on what the company needs."

Pillsbury Winthrop Shaw Pittman LLP's Thomas Chaffin represented the investors in the round, while Alan Kalin at Bingham McCutchen LLP was counsel to the company.