CoreExpress Nets $573 Million in VC Funding

SAN FRANCISCO (06/15/2000) - After lying low for almost a year, CoreExpress, an Internet infrastructure-services company, announced Tuesday that it has received a mind-boggling $573 million in financing since the start of the year.

The amount is somewhat overstated, as company officials say that only about 30 percent was in equity and the remainder was in debt. A good portion of the loans came as vendor-financing deals, in which Cisco and Nortel lent millions of dollars to CoreExpress so it could purchase their equipment.

Still, the roughly $172 million that the company has received as a straight-equity investment makes it one of the largest recipients of venture financing this year. Its roster of backers include Benchmark Capital and Morgan Stanley Dean Witter, with Andy Rachleff, a Benchmark partner, and Christopher Harlan, a Morgan managing director, having seats on CoreExpress' board of directors.

CoreExpress says its funding will be used to develop "a pioneering new service" that would create a network of 22,000 miles of dark fiber for nine cities. The service would allow businesses to move their "mission-critical data" off expensive private networks and build an Extranet, which operates on top of the Internet, to conduct such critical transactions.

At present, said CoreExpress CEO Michael Gaddis, most businesses don't feel that the Internet is reliable enough for transmitting such high-priority information. CoreExpress is counting on a flow of money from customers who are willing to pay the ISPs for CoreExpress's "Authorized Express Service" provider program. This will be half as expensive as the current frame-relay method that many companies use.

The platform for the new express service is CoreExpress' new Internet data-exchange system, which permits data to move among ISPs with different protocols. "We do the conversions for the ISPs so they don't have to solve that problem," Gaddis says.

The company is taking some big risks. "It's an interesting model for a business, with great potential, but a lot has to be done to make it work and to get customers to buy it," remarks Roland A. Van der Meer, a partner at ComVentures, which was not involved in the deal. And the big sum CoreExpress has garnered is typical of many new carrier-service companies, which investors increasingly see as a safe place to park their money.

"It doesn't mean that's right, but it's just that people believe it," Van der Meer adds.

Still, Rachleff, the Benchmark partner, says that the investment is merited, in part, because of the size of the b-to-b infrastructure services market, which he estimates to be at least $10 billion.

"We're pursuing a great market, and we're creating an entirely new category," he insists. "To date, there's no one who can offer a mission-critical Extranet service using Internet technologies."

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