NexTone gets 4th round of funds

$35 million expected to last until firm is self-sustaining


NexTone Communications, a Gaithersburg maker of hardware and software products for the Internet, will announce Monday that it has obtained $35 million in a fourth round of venture financing.

The capital represents the largest single infusion of cash into the company and brings total venture investment in NexTone to $67.5 million, the company said.

Malik Kahn, NexTone's chief executive, said the latest deal provides the company with enough money to execute its business plan until it becomes self-sustaining. "With this financing, we've removed the access-to-capital issue [as an impediment to growth]," Kahn said. "We are now very well financed."

One Equity Partners, the private equity affiliate of J.P. Morgan Chase & Co., was the lead investor. Other participants included existing NexTone shareholders BCE Capital, Core Capital, Mid-Atlantic Venture Funds and Safeguard Scientifics Inc. "We've been with the company since its [first] round of financing," said Pascal Luck, a managing partner with Core Capital, a Washington venture fund. "We believe they are the industry leader," he said.

Founded in 1998, NexTone makes "session-management" products that are akin to air-traffic controllers for Internet-based communications, including voice over Internet protocol, or VoIP, phone service.

NexTone's technology plays three key roles for VoIP: It manages digital traffic flow across a network, facilitates traffic flow between dissimilar networks and provides security.

Unlike conventional telephone networks, traffic on an Internet protocol network - whether voice, data or video - can move across any line that's open at that moment.

Even the lulls, or downtimes, between music- or video-file downloads create split-second openings for other traffic to shoot through - a technical capability that boosts the carrying capacity of Internet protocol-based networks and also makes them cheaper to operate.

In addition to managing traffic flow across a network, NexTone's technology also operates between Internet protocol networks, enabling them to communicate with each other even if their technology is incompatible.

NexTone's products also provide perimeter security as information moves from one network to another, blocking intruders from gaining access to valuable, proprietary information about the network and its users, Luck said.

Although there are rivals in the "session-management" niche, none offer the breadth of products that NexTone provides, said Jon Arnold of Arnold & Associates, a Toronto information-technology researcher.

However, some rivals' technologies may be better suited to the major networks built by the largest carriers, chiefly the conventional telephone companies that are moving aggressively into the VoIP arena, Arnold said.

That still leaves plenty of business for NexTone, in both the commercial Internet protocol sector, and for companies that are building proprietary IP net- works for corporate use, Arnold said.

The firm employs 120 people in the United States, including 100 at its Maryland headquarters. Another 60 work for an affiliate company in India.

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