Xirrus tries to ease connectivity with souped up Wi-Fi gear

Xirrus Inc. said Tuesday that it closed a $26 million third round of venture capital, as the wireless gear maker works to develop products that replace both traditional wired networks and Ethernet switching systems.

The five-year-old Westlake Village, Calif., company landed Canaan Partners as a new investor in the round, joining previous investors U.S. Venture Partners and August Capital, all of Menlo Park, Calif., and Baltimore's QuestMark Partners. Xirrus did not disclose the total amount of funding the company has raised, but the new round follows a Series B round that had a first close of $16.2 million in January 2006 and an undisclosed amount from new investor QuestMark at the end of that year.

Xirrus director of marketing John Merrill said the capital infusion is intended to be the company's final private round of investment, with plans to reach positive cash flow on the sale of current products. The company's latest line of Wi-Fi arrays is in testing with initial customers. That effort includes a partnership with Carnegie Mellon University in Pittsburgh, which is using Xirrus equipment in replacing Ethernet switches as part of a campuswide upgrade.

Merrill said Xirrus began fundraising about six months ago as the company positioned its new products to allow customers to replace the need for additional connectivity switches at the same time they replace wired networks with more robust Wi-Fi networks based on the emerging 902.1N standard. Xirrus has developed products for existing 802.11 standards for about two years, but adopted a strategy of selling into the connectivity market with its new products.

"Everybody is replacing wired systems with Wi-Fi, but we can do it with our own connectivity, and we started really going after that six months ago," Merrill said.

Xirrus' products replace traditional Wi-Fi access points at a ratio of about six-to-one, and have built-in switching capabilities that the company claims allows it to replace wired workgroup switches connected to a central Ethernet backhaul. Merrill said that allows the company to sell directly into the switching market, which he said is more often a budgeted expense than discretionary spending on wireless deployment.

Victoria Fodale, an analyst with wireless market research firm In-Stat in Scottsdale, Ariz., said Xirrus has a unique position in the market based on the density of radio receivers and transmitters it packs into its array products.

"They have more radios in their wireless LAN infrastructure, so they can offer more coverage for less money," Fodale said. "Because of that density, you can basically leave the Ethernet switching intelligence on the central Ethernet backhaul, without having additional connectivity switches."

In addition to rolling out new products, Merrill said the company will use the proceeds of the new investment to build up infrastructure for international markets, particularly in Europe and Australia. Xirrus also will continue to invest in product development, which relies on proprietary architecture using standard off-the-shelf components.

Merrill would not disclose a valuation for the new investment, but he said it came at a significant increase to the company's previous round. Canaan general partner and new director Eric Young came to the deal based on the company's dual switching and access approach to the market, as well as Xirrus' growth on existing products to date.

Xirrus raised the new round of investment without the aid of a placement agent. It had legal work on the deal from Wilson Sonsini Goodrich & Rosati PC. - Clifford Carlsen