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Summary:

By now Vonage was supposed to be on track for an IPO, that would have helped the company raise $400 to $600 million from public markets, and help fight a good fight with cable providers, phone companies and others with VoIP ambitions. Well, that (IPO) did […]

By now Vonage was supposed to be on track for an IPO, that would have helped the company raise $400 to $600 million from public markets, and help fight a good fight with cable providers, phone companies and others with VoIP ambitions. Well, that (IPO) did not happen, so for now the company is going the route of raising convertible debt – a whopping $250 million – according to a report in the Wall Street Journal.


With this round of financing the company has raised a whopping $658 million from private investors. Is this proof that the company continues to burn cash as it competes with the giants? This is the last round before IPO, a line I have heard before.

The report indicates that the VC funds previously invested in the companyBain Capital, Meritech, 3i Group, NEA and a whole slew of others – and some hedge funds are investing in the company. Apparently, the value being put on Vonage is about $2 billion. Apparently that was the price tag when Sprint-Nextel was kicking the tires at Vonage and smartly, decided to walk away.

I don’t buy the $2 billion valuation, and anyone who is coming up with these numbers, and those buying into it ought to check the brand they are smoking. The math works out to about $2000 per subscriber, since Vonage has publicly said that it has about a million subscribers. The per-subscriber valuation could be lower if Vonage has increased the total number of lines to over 1 million.

The $2000 per line works out to about 80 months of revenue, or about 6.6 years of total revenues. And that’s using $25 a month plan as standard, which we all know is not sustainable. Given the recent price declines and the incessant commoditization of voice minutes, along with successful and aggressive rollouts from the cable companies, most Internet Voice Service Providers (aka SunRocket and Vonage) are facing heavy weather in the future. Another big issue hanging over the independents – an increasingly unfriendly FCC.

PS: Further thoughts later today.

  1. Wow. Between that (the total so far) and the EBay/Skype deal … I’m left just shaking my head.

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  2. Personally, I think the ship sailed on Vonage. they should have been the first mover in finding a buyer.

    Their whole advantage in the marketplace was price, add in e911 (if they bother to actually provide it) and additional taxes if the FCC gets their way (which they usually do) and Vonage will be toast.

    Voice is trending to zero, and the only advantage for VoIP will be as an additional service, not as a standalone product. Cable co’s and the big boys will provide voice for free as long as they can include bigger ticket items such as data and video.

    Personally, I believe their entire business strategy has been to do a customer land grab and sell out to the highest bidder. Now, an IPO wouldn’t be taken serious, and the players who would consider buying them can offer VoIP themselves, so why throw Vonage a bone?

    As a first mover, I think they could have made some money, but now…..good luck.

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  3. Vonage Needed More Money

    Om has an article on Vonage bringing in more money, while they were purportedly gearing up for an IPO. With this round of financing the company has raised a whopping $658 million from private investors. Is this proof that the…

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  4. I’m sure most of Vonage’s valuation is based on growth, and thus comparing a +/-$2000 per sub valuation for Vonage subs to Cable/DSL or other slow growth subscriber businesses is not very useful or relevant.

    That said, the points about Vonage having missed the easy sale, facing increasing competition, voice trending to zero and everyone just providing their own solution are dead on.

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  5. Vonage Valuation Ridiculous

    Om Malik has an interesting post on the recent round of debt financing at Vonage. Om points out that the valuation being placed on Vonage by some is not realistic.

    Those sorts of valuations are difficult to come by in the wired world (though lately …

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  6. Who said the “bubble” was deceased

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  7. Vonage dials up $250 million more of VC funding

    Despite being a satisfied customer for nearly two years now (March 15, 2006), I must admit having greater hopes for Vonage (affiliate). We still use them for most of our residential and business phone needs but it concerns me when I read that they ar…

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  8. If Vonage is worth $2 billion, then Skype was cheap!
    Seriously, though, Vonage is plateauing at best, they are not going to get significant growth and at $650/customer acquisition costs, I’d rather be in 3G…
    Sad.

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  9. The valuations depend on not only the number of subscribers they have but also at what rate they are adding new customers. So guess VCs have lot more data than we do and hence they decided to open their wallets.

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  10. I suspect they need this kind of money to create an MVNO. As a first step, this month they started selling Wi-Fi enabled phone with an ability to use not only at home, but at numerous WiFi hotspots. But, obviously, in order to sustain in business they need to offer a wider area connectivity (they need wireless). WiFi’s coverage is patchy and WiMax is still a couple years from now, so the only option left is to go MVNO’s path. Don’t you think they can actually go the VoIP/Mobile Convergence route?

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