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For the exclusive use of Y. Luo, 2020. UV6569 Rev. May 15, 2017 OutReach Networks: First Venture Round Phillip P. “Pete” Perez, CEO and founder of OutReach Networks, Inc. (ORN), was evaluating an offer in November 2011 that he had recently received from a venture capital (VC) firm. Perez had founded ORN in 2007 and had served as its CEO ever since. Prior to that, he had worked as a wireless engineer at Qualcomm, Inc., where, while researching broadband connectivity and signal strength issues, he had discovered an unlicensed radio frequency (RF) spectrum that could extend wireless signals across a much broader area than the licensed spectrum could. He believed he could design a product that could tap this unlicensed spectrum and provide Internet access to areas that currently had little or no access. With this idea in mind, he had cashed out his Qualcomm options and founded ORN. Currently, he was ORN’s largest stockholder and owned 75% of the company. The VC firm, Everest Partners, had a successful track record developing technology companies; it had offered to invest $30 million, which would significantly enhance ORN’s ability to grow and pursue several promising market opportunities that would otherwise take far longer to develop. While Perez was pleased to have the offer, he was concerned that the valuation offered by the VC firm was too low. Everest Partners had offered $30 million in exchange for 30% of the company. He believed that amount of funding should be worth no more than 15% of the company based on its profitability and success without VC funding. The Company OutReach Networks sold wireless networking products and solutions for the unlicensed RF spectrum, including high-performance radios, antennas, and management tools. It targeted populations that had little or no Internet access. In 2011, it was estimated that only about 25% of the world’s population had access to the Internet. Even in developed countries such as the United States, where approximately 70% of the population could access broadband, the remaining 30% had limited or no access. Providing universal access was feasible from a technological perspective, and after 15 years, urban areas had achieved a high degree of access, but reaching the rest of the population had proven difficult. In developed economies, the main challenge was boosting the speeds of installed telephone and cable connections, whereas in emerging economies, the challenge was reaching users in any form. The so-called last mile from core networks to individual homes had been bridged by a range of proposed technologies, each expensive to implement. Traditionally, service providers had favored wired networking solutions to connect end users to the Internet. Over time, consumers’ bandwidth needs increased and fiber had replaced copper, leading to expensive buildouts and long lead times. These two factors had limited the deployment of wired access networks in underserved and underpenetrated areas in both developed and This case was prepared by Professor Susan Chaplinsky. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2012 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. This document is authorized for use only by Yawen Luo in Entrepreneurial Finance - FIN 335 Spring taught by Raymond Liguori, Drexel University from Apr 2020 to Jun 2020. For the exclusive use of Y. Luo, 2020. Page 2 UV6569 emerging markets. As a result, wireless solutions were gaining traction as a cost-effective way to address lastmile connectivity in these markets. Using commodity hardware coupled with proprietary software, ORN solutions greatly reduced the upfront capital expenditures required to build out a last-mile network, enabling Internet service to be provided to a wide range of currently underserved or poorly served markets. Traditionally, Wi-Fi carriers had been large, deep-pocketed companies (e.g., AT&T, Comcast), but ORN’s products had sparked the growth of entrepreneurial wireless Internet service providers (WISPs). Typically, a WISP started because broadband connectivity was needed where it currently did not exist or the existing service was poor or expensive. Decreases in equipment costs had lowered barriers to entry, allowing these entrepreneurial-minded ISPs to enter. WISPs needed elevated sites for their equipment as well as access to commercial-grade Internet. With that, and about $5,000 of ORN gear, individuals with basic networking skills could build a network that covered 100 subscribers. WISP customers could realize 15 Mbps to 20 Mbps download speeds, compared to DSL, which topped out at 3 Mbps to 4 Mbps. It was estimated that with as few as 20 customers spending $50 per month on service, the hardware cost, including the customer premise equipment (CPE), could be covered in the first five months of operations. The idea for ORN grew out of Perez’s experience at Qualcomm,