Ooma raises $14M more amid tough round

June 29, 2009 | Matt Marshall | Comments |

updated

ooma.jpgOoma, the much-hyped company that sells an expensive VoIP box ($249) that you can install in your homes to make free land-line calls, has raised another $14 million in venture capital, we’ve confirmed.

TechCrunch reported the story earlier, but loosely reported that financing “wiped out” earlier investors who chose not to participate in the round. However, we’re hearing it was not a wipe out. Rather, existing investors that did not participate were converted into common, so they did lose certain rights, including board representation and something called a “liquidation preference,” which guarantees a minimum payout to investors in the event of a sale. They also lost their pro-rata rights, so they will not be able to protect their investment against future dilution. One major early investor, Draper Fisher Jurvetson, effectively got forced out.

[Update: The company is raising at a valuation of $20M pre-money, and could raise a total of up to $20M, meaning there will be at least a 50 percent dilution. There will then be more when employees and management are given more shares from an enlarged option pool.]

This round was led by existing investor Worldview Technology Partners, a firm that itself has had trouble raising fresh funds lately and is likely to wind down after it dispenses its remaining funds.

Ooma has raised a total of $56 million. It is not profitable. One of our former writers used Ooma, and generally liked it. However,  the challenge is that Ooma generally makes a one-time sale of its device, and so has trouble making recurring revenue. It also requires people to pay for yet another telecommunications service, when they already have a broadband connection and a fixed line. With free services like Skype becoming more popular, the competitive landscape is likely to remain extremely tough for Oooma.

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  • Convert to common = wipe out
  • PeeKay
    The facts are simple and clear: Worldview's feud with DFJ led to their squeezing out the latter in this "ready made, engineered to benefit Worldview" round of financing at Ooma. If Ooma gets bought out, Worldview benefits enough to recover their money (DFJ doesn't; nor will employees for that matter which the savvy have figured out and therefore left...) and if Ooma fails (as is likely, given their track record, Worldview's, and the competitive landscape) Worldview can blame it on industry conditions and poor execution by management. Either way they win.
    View this in the full context of their investments in OnStor, Force10, Cemaphore and other companies that they ran into the ground by feuding with competent founders and executives, engineering crises and "guiding" those companies to raise money that gave Worldview an edge (temporary as it turns out; for they only killed those companies...)

    Can someone ask Forbes how they concluded Mike Orsakk was a Midas Investor? Do a little investigative reporting on him, talk to the companies he was on the board of/ran into the ground and...
  • Alain
    When a company you invested in has raised $56 million+ and you loose "something called a liquidation preference", and the round double the number of shares, as an investor, you are in practice pretty much wiped out as TechCrunch mentioned (unless the company valuation suddenly jumps to $100M+).
  • Matt Marshall

    We are interested to speaking with Venture Beat. We are raising our next finance raise.

    Several fortuned 500 companies have built this solution & are spearheading the push for
    secured multimedia communication solultion. We have proof of concept - we can demo live on here
    via your blog if you are interested. to seeing it live in real time. how can I reach you here is my emal
    ashie.s@asitainformatica.com
  • Mo
    "However, the challenge is that Ooma generally makes a one-time sale of its device, and so has trouble making recurring revenue."

    You have a lot of information about Ooma funding but it doesn't sound like you know much about the product. Ooma has a new hub ("VoIP box") that is launching for the holiday sales season along with new cordless handsets that extend the use of the hub. Panasonic makes money selling cordless phone base units and expansion handsets so why can't Ooma? Ooma will offer a cordless phone and VoIP all-in-one product as a more appealing option to a regular cordless phone.

    They have also expanded their sales to numerous retailers such as Amazon.com, BestBuy, Target, WalMart, Staples, Radio Shack, Costco and so on. Ooma doesn't charge for base services which is appealing to cost conscious people looking to cut landline costs over time. They currently have a premier product many Ooma users buy with a monthly fee. These services include a second line and with the new hub will tie into a GoogleVoice account among other services. Ooma plans to branch out to home automation and security/video products that tie into the Ooma hub. There are many current and potential revenue streams in additional to the initial hub purchase.

    "It also requires people to pay for yet another telecommunications service, when they already have a broadband connection and a fixed line."

    Ooma can be a landline ("fixed line") replacement similar to Vonage or VoIP services but more affordable. The key to sales is the savings through free US phone calls without any landline monthly bills. All that you need is broadband which is also required for Skype or any VoIP to be a landline replacement.

    "With free services like Skype becoming more popular, the competitive landscape is likely to remain extremely tough for Oooma."

    Skype requires a computer to run, a smartphone or the purchase of a Skype phone ($100). You can't easily use a home phone with cordless extension handsets with Skype making it hard to be a home landline replacement. Plus Skype charges $3/month to make unlimited calls to a US landline so its not free. While Skype is a competitor the call quality is not as good as Vonage or Ooma and it has many drawbacks for a consumer looking for a plug and play VoIP landline replacement solution.

    To think Ooma can't make money has me guessing you were looking at their business from 2007 instead of their business in 2009. While I agree the competitive landscape is tough you must recognize the value add of Ooma over the competitors & the other revenue generating opportunities for Ooma.

    http://blog.tmcnet.com/blog/rich-tehrani/voip/o...
    http://blog.tmcnet.com/blog/rich-tehrani/ip-com...

    On another note, what happened with TD Funds investment in Ooma during this dilution? The FCC investing in this Telcom product is a great sign for Ooma.