Profitability still out of reach, wireless mesh company returns to VC well

The five-year-old Kanata, Ontario-based company landed the government-backed Export Development Canada as lead investor, joining previous investors Ventures West Management Inc. of Vancouver, British Columbia, Seattle's Trilogy Equity Partners, Comcast Interactive Capital of Philadelphia, McLean Watson Capital Inc. of Toronto, T-Mobile Venture Fund of Germany, New York-based Panorama Capital LLC (formerly J.P. Morgan Partners LLC), MMV Financial Inc. of Toronto, VenGrowth Capital Partners Inc. of Toronto and BDC Venture Capital of Montreal, bringing total equity funding to $78.9 million. The round also brings in $5 million in debt funding from Toronto-based Wellington Financial LP and will fund working capital and expansion of sales and marketing efforts in several wireless markets.

The round follows a $21.4 million fourth round in October 2006 that the company had hoped to take it to profitability, but investors opted to raise more money to support BelAir's broad product line and pursue a number of specialized applications. The company makes equipment for wireless mesh networks, which features a cooperative communication infrastructure between a massive number of individual wireless transceivers.

The systems can be deployed over wide areas such as campuses or downtown business districts, and they can be much cheaper than traditional wireless networks in which each transceiver must have a wired backhaul connection to the Internet.

Mesh networks can be built with wireless connections using cell-phone networks, Wi-Fi or WiMax. But rather than concentrating on a particular standard, BelAir works with all three and also works closely with cable companies to establish its backhaul to the Internet.

The company launched its first products in 2004 and had originally hoped to reach profitability in 2006 after $45 million in funding from its first two rounds, but Pat DiPietro, managing general partner of VenGrowth, said BelAir continued to expand its product lines to aim for leadership in mesh technology.

"We had wireless routers in 2004, but subsequently we released a wide range of products, including the only products for the cable industry, for networks ranging from small to very large," DiPietro said. "The thing with this Wi-Fi industry is it is taking more money to get there, but we think they are now No. 1 in the market."

BelAir chief financial officer Peter Rose said the company raised the money to fund working capital, primarily to accelerate sales and marketing. He said the company will continue to refine its products but that it now has a complete array of equipment.

"This is all for growing market share and driving the top line," Rose said.

In raising the new round, the company solicited new investors, but Rose said the company was not particularly looking for additional participation from traditional venture capital firms. Export Development Canada is a government-backed venture fund that supports Canadian companies with strong overseas presence, and Rose said that while North America is BelAir's dominant market, it has strong sales operations in Europe and Asia.

Rose said BelAir aims its products at carriers for use in metro wireless backhaul and other applications and enterprise customers for networks ranging from concentrated multiple dwelling units to vast citywide Wi-Fi networks for municipal workers, public safety personnel and public high-speed Internet access, including a 57-square-mile deployment in Minneapolis. He said the company has found a particularly strong niche in public safety applications, which operate on specialized bands reserved for government.

Neither Export Development Canada nor Wellington is joining BelAir's board of directors, and Rose said the company already has wide representation from both financial and strategic industry investors.

BelAir did not use an outside financial adviser in putting the round together and had legal work on the deal from Deborah Weinstein of LaBarge Weinstein LLP in Ottawa. Investors were represented by Ed Vandenberg of Osler, Hoskin & Harcourt LLP in Ottawa.