Chart Venture Partners
PacStar closes on $12.3M - Chart, Steelpoint lead round for maker of fail-safe communications software
Red Herring 07/16/2007
Ken Schachter
PacStar, whose software ties together redundant voice, video and data networks for troops and first responders operating in areas with no infrastructure, has raised $12.3 million in fresh funding, the company will formally announce Tuesday.
New investors Chart Venture Partners and Steelpoint Capital Partners joined a syndicate that includes prior investors Fluke Ventures, Invest America, Benaroya Ventures, Frank Jungers and PacStar Board Chairman George Stroemple.
Matt McCooe, managing partner at Chart Venture Partners and a new member of PacStar’s board of directors, said the funding is designed to nudge the company from low-margin system integrator to high-margin provider of communications software housed on servers.
PacStar’s IQ-Core software helps squeeze 10 to 15 pieces of communications hardware “the size of a couch” onto two or three servers that can be hauled by a Humvee, an unmanned aerial vehicle or even a burly Marine, Mr. McCooe said.
The software also simplifies training—15 minutes for a trained technician—and ensures redundancy, he added.
“If the satellite goes down, you still have wireless; if wireless goes down, you still have WiFi,” Mr. McCooe said.
Portland, Oregon-based PacStar was founded in 2000, but the revised business model as a software provider remains a work-in-progress. In 2006, only $7 million in revenue came from PacStar software and appliances, while $39 million came from its legacy value-added reseller business.
In 2007, closely held PacStar forecasts that software revenue will double to $14 million out of a total of $60 million, said Robert Frisbee, PacStar chief executive. Within three or four years, the company expects three-quarters of revenue will come from the new business.
Current software customers include the Afghan Army, the U.S. National Guard and the U.S. Army’s Fifth Infantry in Europe. The company will use the funding to continue developing the software and seek additional markets, including first responders.
“If you send someone into a mountain pass in Afghanistan, they need sophisticated communication where there’s no infrastructure,” Mr. Frisbee said. “That’s exactly what you’d find in a Katrina.”
PacStar also has sold its system to Saudi Arabia and Kuwait and is seeking further sales in foreign markets, though Mr. Frisbee noted that the company has to “detune” parts of the system depending on whether the buyer is a close ally, falls in the middle ground or is “one of the evil seven.”
Though PacStar works with satellite companies to deliver its secure, Internet protocol-based system, satellite providers like Hauppauge, New York-based Globecomm Systems also can be competitors.
The attraction for Chart, which specializes in companies with products that can be sold to both the military and civilian markets, is PacStar’s entry as a competitor for contracts worth $100 million and more, Mr. McCooe said.
PacStar’s legacy VAR business makes it an unusual investment for Chart, which usually makes early stage investments, Mr. McCooe said. “We’re used to investing in two guys and a dog.”
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