A new year has meant plenty of good news thus far for NetOctave.

First, the company began delivering products — security rich chipsets — in January. Then Monday, NetOctave announced a new round of venture funding. The $7.8 million in venture capital is to be used in part for marketing its newly released product line and comes from the same group of investors that gave them twice as much two years ago.

Intersouth Partners of Durham led this latest round of funding with a $2.7-million investment. Intel’s investments arm Intel Capital also participated by using money from the Intel Communications Fund (ICF), a $500 million equity investment fund reserved for companies supporting Intel voice and data communications programs and initiatives. Individual investments from the ICF, which supports 70 plus companies, range from $1 million to $10 million. Intel’s investment in NetOctave is largely due to the fact that their products are compatible.

“You can’t put a microprocessor in the marketplace…there’s no demand…unless complimentary technology is available,” said Laura Anderson, spokesperson for Intel Capital. “We’re always looking to invest money when promising business opportunities arise.”

RTP-based NetOctave, which bills itself as an Internet security solutions provider, could not be happier about Intel’s involvement in its latest round of funding.

“We like to think we’re strategic to Intel,” said Dave Mountain, marketing communications director at NetOctave. “We feel like they see a lot of promise in our company and are very happy to have them as investor.”

Funding for marketing and development

NetOctave will use part of the money to market its first two product families, released in January. They are board-mounted silicon chip sets for both IPsec and SSL network security. For private networks, IPsec is used to encrypt and secure enterprise communications. In e-commerce, SSL (secure sockets layer) is the lock at the bottom of a credit card order screen.

Each product family actually has three separate products. Depending on product and configuration, the SSL product family is priced between $900 and $1500, while the IPsec product family is priced from $800 to $1200.

NetOctave also will use its latest round of funding to develop future products. The company has partnerships with Applied Micro Circuits (AAMC) and Intel (separate from the ICF investment) to cooperate in developing new products. During the third quarter, NetOctave will begin sampling its next security processor, geared toward more traditional networks, and after that, one designed for the IP storage market, Mountain said.

“This gives us the runway to deliver products now, as well as deliver our next product and the one after that,” Mountain added about the almost $8 million in venture capital. “It allows us to execute on our product plan.”

Getting a return on investors

The same group of investors that participated in this latest round of funding also put $15.6 into NetOctave in 2000, when it spun out of Durham-based network security firm Celotek Corp. Other than Intersouth and Intel’s ICF, the group includes Kitty Hawk Capital, MCNC, North Carolina Enterprise Fund and Wakefield Group. The first round of funding was used to more than double NetOctave’s development team by early 2001 and to help expand marketing, sales and customer support teams. Currently, NetOctave employees 61 people in two offices in North Carolina and Massachusetts and projects sales of $20 million for 2002.

The lead investor in both rounds of venture capital has been Intersouth, which dropped around $5 million initially. General Partner Mitch Mumma said Intersouth has high hopes for NetOctave, with its experienced management team and large market opportunity.

“We have been successful in recruiting a terrific management team, and they are very close and have exceeded expectations made under the initial investment, in terms of getting the product to market,” Mumma said of NetOctave, one of Intersouth’s larger investments. “Our hope is that this year, they will gain serious market tractions…that’s where you want to place your bets. It’s the profile of a company that could increase significantly in value. We’re enthusiastic about our investment (in NetOctave), or we wouldn’t continue to support it.”

NetOctave is enthusiastic, as well, with its product shipments and outside funding both on the rise.

“We feel like we’re very-well positioned for a good year, and the markets we’re selling into are showing a lot of growth,” Mountain said. “There’s a lot of opportunity in the space we’re going into…we’re comfortable with where we’re going. You always want more (venture capital), but you’re selling a piece of the company at the same time, so a balance has to be struck.”