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Ooma, 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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