By Allan Maurer

MORRISVILLE, NC—California-based Azure Capital Partners and Bridgescale Partners have bought out Raleigh-based rural broadband services provider NeoNova Network Services from Digitel Inc. for an undisclosed sum. The net result, says Azure Partner Ray Carey, resembles a venture deal in a high-growth startup, but the investors “get a more mature company.”

Carey tells TechJournal South that San Francisco-based Azure Capital “has a unique investment philosophy.” When it looks for companies in a certain space, “We sometimes start a company from scratch. But other times, we find a platform company inside another company that is for sale and we buy that and insert capital and ideas.”

In this case, Digitel was looking for capital, but the California investors told the company they were more interested in buying its NeoNova subsidiary. NeoNova was already profitably selling its broadband services offerings to 65 customers, primarily rural telecommunications companies.

“We’ve spent a lot of time in rural telephony,” explains Carey. “We have a history in it and understand it really well. We were the first institutional investor in Calix, a telecom equipment supplier of access solutions for broadband service delivery.” It also invested in World Wide Packets, which just sold to Sienna, and has backed other companies that do business in the broadband market.

Unprecedented opportunity
So, an Azure project was looking for other deals in the space. NeoNova, Carey points out, “has been doing this at a nice growth rate and profitably for seven or eight years. We think we can broaden the service set under a new capital structure and help them grow at a faster rate.”

“With the divestiture complete and the new ownership structure in place, NeoNova is better positioned than ever to expand our product and service offerings to existing customers and to grow our customer footprint nationwide,” said Warren Lee, CEO of NeoNova.

Lee added, “We have an unprecedented opportunity to bring a breadth and quality of world-class services to our customers not before seen in this market. We will be able to leverage the experience our new owners have had in serving outstanding companies like Calix, Proofpoint, and World Wide Packets.”

Room for Growth
NeoNova is the leading Internet service provider serving the U.S. rural telephone and cable service providers. NeoNova provides Internet services, data hosting, email, spam and virus filtering, web design and storage, customer care and billing services to over 60 independent communication service providers.

There’s plenty of room for growth in the rural broadband space. The PEW Internet survey showed that in 2007, only 31 percent of U.S. rural residences had broadband access. NeoNova’s services help rural communications providers close that gap.

“In the rural telecom world, NeoNova is a real brand,” says Carey. “It’s a company that is trusted by these independent rural telecoms.”

Company is hiring
Among other things, NeoNova is working with its customers to help them expand their services and become IPTV providers. Quality of service there is as important as with voice service, says Carey. “If you think they scream when their phone goes down, you should hear them when the TV goes down,” he says.

NeoNova’s services help prevent either from happening. “At the end of the day, these [rural telecoms] see their customers in the Supermarket,” says Carey.

NeoNova, which currently has 25 employees, is hiring and will remain headquartered in Raleigh, Carey says. NeoNova is not Azure’s first venture in the region. It also backs SilkRoad Technology in Winston-Salem, which sells software as a service for managing human resources. Carey, like most VCs these days, sees software as a service businesses as a sector ripe for rapid growth.

“Raleigh is in many ways an undertapped resource,” he notes. “It’s a great place to grow startups.”

Carey says NeoNova will not seek additional capital in the near term. “Over time, as the market evolves, if we see a great opportunity to deploy more capital, we might go out and look for it.”

On the Web: www.neonova.net; www.azurecap.com; www.bridgescale.com

Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
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