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Startup telco lands $225 million

Venture capital funds fiber-optic acquisitions

Jeff Smith, Rocky Mountain News

Published August 30, 2007 at midnight

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A Colorado telecommunications startup has secured $225 million of venture capital and has quietly snatched up four fiber-optic networks in the eastern U.S. in recent months.

Louisville-based Zayo Bandwidth said it will have $125 million in annual revenues and 300 employees nationwide when the most recent deals are completed this year.

The access to nearly one-quarter of a billion dollars of investment capital represents one of the biggest venture capital commitments to a Colorado company in recent years. It also reflects confidence in the demand for bandwidth that transports Internet and data traffic.

"Every company is going to need more of it," said a bullish Dan Caruso, who co-founded Zayo with John Scarano last November. Both are former Level 3 executives. Caruso most recently headed ICG Communications, which was sold to Level 3 for $163 million in 2006.

Lead investors in Zayo are Oak Investment Partners, Columbia Capital and M/C Venture Partners. Other investors are Colorado-based Centennial Ventures and Battery Ventures. The holding company is called Communications Infrastructure Investments LLC.

Caruso, Zayo's CEO and chairman, said Wednesday the company's goal is to sell bandwidth services to telecommunications carriers and Internet providers and companies. He said Zayo plans to look for additional fiber networks to acquire, rather than set itself up to be acquired.

"Our priority is to make sure we offer good services . . . and let the future take care of itself," he said.

Since May alone, Zayo has acquired Pennsylvania-based PPL Telcom, a small Memphis, Tenn., communications network, and is in the process of completing acquisitions of Minneapolis-based Onvoy and Indiana Fiber Works.

All told, Zayo will operate 8,400 fiber route miles, with core markets in Indiana, Minnesota, Pennsylvania, New Jersey, New York, Tennessee, Virginia and Washington, D.C. Zayo will have direct fiber or wireless connections to 830 buildings.

Competitors include Level 3 and Douglas County-based Time Warner Telecom.

The company has only 20 employees at its Louisville headquarters, but that number is expected to grow over time, Caruso said.

Donna Jaegers, a telecommunications analyst with Janco Partners in Greenwood Village, said the most "startling thing" is the amount of capital Zayo has access to. She agreed that demand for bandwidth is still strong.

But given that Zayo essentially is owned by venture capital firms, Jaegers said she wouldn't be surprised if it "rolls" up a number of fiber networks and "flips" the operation to somebody else for a profit in two to three years. The key, Jaegers said, will be Zayo's ability to integrate the companies it buys into one operation and sales force.

Zayo Bandwidth

• Founded: November 2006 by former Level 3 executives Dan Caruso, and John Scarano

• Headquarters: Louisville

• Business: Sells broadband services to communications carriers, Internet service providers and corporations

• Investors: Access to $225 million of equity from Columbia Capital, M/C Venture Partners, Oak Investment Partners, Colorado-based Centennial Ventures and Battery Ventures

• Acquisitions since May: Pennsylvania-based PPL Telcom, Memphis Networx. In the process of acquiring Minneapolis-based Onvoy and Indiana Fiber Works.

or 303-954-5155