Mike Pascoe (photo supplied).

Ottawa-based Meriton Networks, Inc. announced today the largest venture capital deal in Canada so far this year, with a Series C round worth US$54 million.

The oversubscribed round for the provider of optical networking architecture was led by two new prominent investors, VantagePoint Venture Partners and Nomura International.

For new CEO Mike Pascoe, he now has the resources necessary to aggressively pursue the company's business objectives.

"This gives us the opportunity to grow more rapidly," he said, admitting it was an "up" day. "This will allow us to increase profitability and become a major player."

In addition to VantagePoint and Nomura, all of the previous investors in Meriton Networks participated in the round, including Desjardins Venture Capital Group, Newbury Ventures, Primaxis Technology Ventures, RBC Capital Partners (Telecommunications Fund), Sierra Ventures, VenGrowth and Venture Coaches/Skypoint Capital.

Mr. Pascoe said the company would meet with its board to discuss how many employees to hire, but pointed to sales and marketing as key areas. Dozens of new hires are likely globally as well as in marketing and R&D here at home. "So it will be positive for Ottawa, as well," he said.

Meriton is pursuing a market worth an estimated $4 billion a year, but Mr. Pascoe acknowledged a pie that rich attracts many hungry rivals.

"It's a very large market with lots of competitors. That's why R&D is so important. My desk has all sorts of good stuff on it that's the next step in this industry. We have to listen to the customer."

With a focus on making telecommunications networks more flexible, easier to operate and less expensive, Meriton Networks has developed the industry's first end-to-end, fully managed high-speed metro/regional (HSM) services architecture. The architecture consolidates a number of transport capabilities within a single network element, facilitating the delivery of all high-speed services at a dramatically lower cost.

Meriton's growing traction with carrier customers worldwide – including its work with Fujitsu Telecommunications Europe on a huge network contract with British Telecom – fueled this investment round.

"Carriers are looking for a flexible, cost-effective infrastructure that will smooth the migration to a converged IP/MPLS network," said VantagePoint Venture Partners managing director Cynthia Ringo. "Meriton is the only vendor that allows carriers to make this transition entirely through software controls – no card swap-outs, no truck-rolls. It's a winning proposition for carriers – for today and for the future."

For OCRI CEO Jeffrey Dale, the deal is yet another validation of the region's recovering tech sector.

"This is further proof that Ottawa has the right stuff," he said. "There's venture capital being invested into companies here at a tremendous rate. Meriton has strong management and they've worked very hard to be in this position."

Meriton received a Series A round worth $7.85 million in late 2001 and its Series B round worth $26.4 million in December 2002.

"The investors examined the product and the team and they not only invested, but they invested heavily," Mr. Pascoe said of the latest financing round. "They understood the market and believed we could take advantage of it."

He explained that investors see how efficient Meriton is and appreciate how the money is handled.

The local high tech industry in general, which has seen a significant increase in venture capital activity so far this year, has a far more solid foundation than it did during the last boom, he added, thanks to solid dynamics. In the 1990s, it was a bunch of "hocus-pocus." But this is the real deal with real opportunities. "We have a long way to go and a lot of hard work ahead of us, but the opportunity is there."

Should all that hard work pan out, Mr. Pascoe said an IPO would be possible "in a couple of years. The employees see it and we do, too. The exit plan would be an IPO, but there's a long road before that happens."

Mr. Pascoe, who took over the top job at Meriton last March, was formerly CEO at PairGain Technologies of California, which was acquired by ADC Telecommunications in 2000 for $3 billion. He also served at Newbridge Networks as president of the U.S. division, as well as the executive vice-president and general manager of the North and South America business regions.

By Scott Taylor

scott.taylor@transcontinental.ca