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Morrisville, N.C., Developer of Cell Phone Software Receives Venture Capital

Posted on: Tuesday, 13 September 2005, 00:00 CDT

Sep. 13--TapRoot Systems, a Morrisville developer of software for cell phones, won its second infusion of venture capital, this time to help adapt cell phones to make calls over the Internet.

The $6.5 million comes on top of an earlier commitment up to $7 million last year. TapRoot tapped into only $4 million of last year's venture capital, leaving $3 million untouched.

TapRoot, founded in 2000, plans to double its staff to about 100 people by mid-2006. Most will be based at the Aerial Center business park in Morrisville; between 20 and 30 will work in London and Taiwan.

Internet calling already exists for landline phones, popularized by companies such as Vonage, but the wireless version of Internet calling is still in the umbilical stage. The appeal of Internet calling -- called Voice over Internet Protocol or VoIP -- is the ability to send phone calls by the same route as e-mail, thereby reducing the cost.

"If you can bypass the wireless network, then you can make phone calls almost for free," said TapRoot chief executive Hugh Thomas.

TapRoot's customers are handset manufacturers such as Motorola, Nokia, Samsung and Sony Ericsson. TapRoot also sells its software to chip makers, including Texas Instruments, Intel Corp., Royal Philips Electronics and Agere Systems.

About 80 percent of all advanced cell phones -- models with e-mail and Web browsing capability -- run on an operating system called Symbian, for which TapRoot specializes in writing software.

"TapRoot has the largest collection of Symbian-based programmers in North America," said Mitch Mumma, a TapRoot board member and general partner with Intersouth Partners, a Durham venture capital firm that invested in TapRoot last year. "They're building on that expertise."

The company's software products enable these so-called smart phones to connect with wireless networks operated by Cingular, Verizon and other providers.

TapRoot also makes software that enables the phones to connect to WiFi zones for high-speed wireless web browsing and e-mailing. Wireless technology for calling over the Internet is still being developed, Thomas said.

The new round of venture capital came from three sources: Intersouth; Birmingham, Ala.-based Harbert Venture Partners and Bethlehem, Penn.-based Mid-Atlantic Venture Funds. Intersouth and Mid-Atlantic made last year's venture capital investment; the two joined Harbert this year for the second infusion.

As a result, TapRoot is expanding its board of directors from five to six seats to give representation to Harbert Venture. The three venture capital firms each have a seat on the board, as does Thomas, TapRoot co-founder Blane Rockafellow and Greg Pelton, senior director of engineering for Cisco Systems in Research Triangle Park.

Thomas won't disclose TapRoot's revenue, but he said the company has become too successful to draw on the $3 million remaining from last year's venture capital.

Last year's money was raised by issuing company private stock at a set price. Venture capitalists buy company shares, similar to a public stock offering, with the difference that the shares aren't bought and sold to other investors.

The value of TapRoot's stock has increased substantially, Thomas said, making it possible for the company to raise more money by issuing the private stock at this year's per share price.

TapRoot turned down offers of venture capital from the handset makers it does business with, Thomas said. Venture capital investors get a board seat, and letting one handset maker attend TapRoot's board meetings would have soured business prospects with other customers.

"Having a board seat would allow them to view our pipeline and see what their competition is doing," Thomas said. "That's a proposition that could be worth more than the value of their holdings of our stock. We viewed remaining neutral and independent to the industry to be more strategically important."

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Source: The News & Observer

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