Blue-chip VCs plow $120M into backhaul network builder

New investors Columbia Capital of Alexandria, Va., and Battery Ventures of Menlo Park, Calif., led the deal, which includes DCM of Menlo Park and Dallas hedge fund Hillside Capital Management as new investors, as well as previous backers Ignition Partners, Trilogy Equity Partners, Rally Capital and SeaPoint Ventures, all of the Seattle area.

The new round gives Seattle-based Telecom Transport Management immediate access to $55 million to continue initial development in two markets in Virginia and expansion into the Minneapolis and suburban Philadelphia markets. It calls for $65 million in additional capital to fully fund the company in 2008.

TTM founder and CEO Mark Hamilton did not disclose a valuation on the new investment but said it came at an increase to the company's $13 million round led by Rally a year ago and that the second tranche of the investment will have the same pricing.

The deal is expected to fully fund the company as it pursues its two identified new markets as well as three additional markets yet to be determined, but Hamilton said a target for profitability would depend on how quickly it pursues additional development.

TTM is building telecommunications backhaul networks to allow cellular carriers to bypass local carrier networks to carry traffic on high bandwidth fiber optic transmission lines managed with equipment owned by TTM. Hamilton said veterans of McCaw Cellular Communications and the competitive local exchange industry founded the company in July 2003 to serve the rising demand for cellular bandwidth to eliminate problems carriers encountered with infrastructure.

"The opportunity was to give carriers another alternative for transporting data around their network, where most backhaul was leased from local carriers," Hamilton said. "With increasing traffic and greater bandwidth requirements, carriers were starting to be concerned about capacity associated with copper going to cell sites."

TTM's network uses mostly leased fiber-optic lines within its network but makes great use of point-to-point microwave wireless transmission from individual cell sites. The company believes that microwave transmission is more efficient and more reliable than wirelines in maintaining continuous operation of each site.

The company's business model is to provide its network to multiple carriers as a group to reduce the cost of scaling individual backhaul networks.

Tom Huseby, managing partner of SeaPoint Ventures, said he initially put up seed investment in TTM in 2003 based on assumptions he said are now obvious but were not so clear at the beginning. He said the company built out its technology while watching the market develop, then sought to raise a very large round that would give the company additional credibility with carriers as it rolls out its networks.

"The leap of faith was in assuming that carriers would share backhaul, and it wasn't at all obvious that they would," Huseby said. "But we also assumed that network requirements would grow, and we were pretty confident that they would increase as rapidly as they have."

Huseby said the company wanted to have enough money in this round to fully fund the company to demonstrate to carriers its ability to complete networks, but the deal was structured to allow investors to follow the progress before putting up the remainder money.

"The new funders wanted to see the cards as they were played -- like Texas hold 'em," Huseby said. "We've obviously been in the game a little longer, and we know what's in the deck, so that worked out."

Hamilton said TTM worked with bankers Sanjay Jain, Ben Freeland and Ryan McBride at J.P. Morgan in San Francisco to identify investors with experience in the wireless industry, and particularly to add investors outside the Seattle area and investors with potentially deep pockets.

The company had legal work on closing the round from Stephan Coonrod and Jessica Pearlman of K&L Gates LLP in Seattle. Eric Grossman and Mark Spodo of Cooley Godward & Kronish LLP in Reston, Va., represented investors.