Speakeasy Network scores $6 million
2002-06-10
by Cydney Gillis
Journal Business Reporter
SEATTLE -- Many firms once pushed loud and hard to sell high-speed Internet service, only to go bankrupt.
Of those left, Seattle's quiet Speakeasy Network continues to gain ground -- and investors.
The seven-year-old company, now ranked as the nation's largest private seller of broadband service over telephone lines, just raised $6 million in venture capital -- its third round of funding since May 2000.
A new investor, Cornerstone Ventures of Denver, led the round, which included previous Speakeasy backers Granite Ventures (formerly Hambrecht & Quist) of San Francisco and Seattle venture capitalist Matthew G. Norton.
Carlyle Ventures, Texas Instruments and Apollo/Ares Capital also invested in earlier rounds of $11 million and $8 million.
Speakeasy founder and Chief Executive Officer Mike Apgar says the company, which started as a cyber cafe and now employs 150, will use the money to expand its national network and build brand recognition.
The company resells broadband service on digital subscriber lines (DSL) provided by Covad, Worldcom and New Edge Networks. It operates 11 data centers that serve 50 metropolitan markets across the nation -- New York and San Francisco being the Speakeasy's largest markets.
Apgar declined to say how many subscribers that includes, but noted business tripled in 2001 largely due to customer referrals, something his investors like because it has kept the company's advertising costs and capital ``burn rate'' low.
``Last year, the Speakeasy experienced a phenomenal growth rate fueled almost solely by word of mouth,'' said Gus Warren, a principal at Granite Ventures. ``The Speakeasy seems to be one of the few private companies that has figured out how to make any money in broadband.''
That includes selling new services on top of the broadband. The services range from $40 a month for home users to upwards of $300 for businesses. Two months ago, the company launched MyFirewall, a hacking protection program that costs an extra $5 per month.
In July, for an extra $10, Apgar said the Speakeasy plans to launch a jukebox service that will stream music on demand from Listen.com, a partner Web site.
To sell broadband to its dial-up subscribers -- those who get their Internet service on a standard phone line -- the Speakeasy also debuted a promotion last Friday called the ``Broadband Bank.'' Under the program, the $20 paid each month for dial-up will be credited to a broadband account if and when the subscriber converts, up to a $250 limit.
It's a move aimed at the 5 million people who are expected to shift from dial-up to broadband in the next four to five years, Apgar said.
With its new investment, the company also plans to market broadband to more small businesses, again through low-cost deals: Seattle-based partners Internap, a Web traffic management firm, and Cognigen, a vendor of telecom products, will sell Speakeasy services.
It's behind-the-scenes marketing approach has served the company well where others spent heavily and failed.
``The guerrilla marketing,'' Apgar said, ``is one reason why we're here today.''