Aquantia raises money to make the Internet go zoom

In the name of making the Internet faster, Aquantia has raised at least $35 million in a fourth round of funding for chips that speed networking in corporate data centers.
The financing was led by New Enterprise Associates, a new investor, and the company may choose to raise as much as $44 million in the round. Other participating investors include Lightspeed Venture Partners, Greylock Partners, Pinnacle Ventures, Venture Tech Alliance, as well as an unnamed strategic investor. The $35 million figure — the biggest chip funding in 2009 — brings the total raised by the company to date to $85 million. It’s rare to see such a Hail Mary play in chips, but analysts predict the company’s market could hit 15 million ports (with as many at 48 ports per chip) in 2012.
The Milpitas, Calif.-based chip design firm is part of an industry-wide effort to accelerate a transition inside corporate data centers, where Ethernet switches connecting computers are shifting from 1 gigabit per second to 10 gigabits per second. This ten-fold increase in bandwidth is necessary because of growing Internet traffic and the trend toward server virtualization, where multiple servers can be programmed to handle many different tasks or just one task, as needed, said Faraj Aalaei, chief executive and president of Aquantia, in an interview.
“The idea is to relieve the bottleneck in shoveling data in and out of servers,” Aalaei said. “It makes the Internet 10 times faster than it is today.”
Aquantia makes 10GBASE-T PHY chips, competing with rivals such as Solarflare, Teranetics, Broadcom and Marvell. Aalaei says Aquantia’s strategy is to try to leapfrog from one generation to the next and thereby bring down the costs and power consumption of the chips dramatically. The goal is to shift the PHY chips from expensive add-on hardware to a single chip on the motherboard of a server.
“Anytime you can put a chip on a motherboard, it’s an inflection point for an industry,” said Aalaei.
The company needs the money to ramp its production of a new generation of chips that will be built by contractor Taiwan Semiconductor Manufacturing Co. with a 40-nanometer process. Aquantia launched its previous generation of chips in 2008 with a 90nm process. The newer process allows the company to make chips with much lower power consumption as well as lower costs. So far, rivals have focused on making 65nm chips, a generation of process technology which Aquantia is bypassing. So far, no rivals have announced a 40nm chip, but everybody has time to do so. Aquantia won’t be shipping its 40nm chips until sometime in 2010.
Aquantia previously raised $25 million in a second round in March, 2008, and it had another unannounced strategic investor round since then. Rival Solarflare raised $32 million in December, 2008, and Broadcom and Marvell are huge chip makers, so there’s more than one deep pocket among the competitors.
With 40nm, Aalaei says the company can create a quad chip with as many as 48 ports, or network pathways, on a chip. And each port consumers only 3.5 watts of power, compared to above 10 watts per port for prior-generation chips. The 40nm chip can be placed on a motherboard on a server.
NEA has invested in other big networking plays in the past, including 3Com, Force 10, and Grand Junction. Rohini Chakravarthy, a partner at NEA, will join Aquantia’s board. Phil Delansay, vice president of business development, said the company can’t talk about its customers yet. But he said the new investment is a big vote of confidence in the company’s latest generation.
It’s rare to see a semiconductor company get so much money these days from investors who appear to be patient. Aquantia was founded in 2005 and it has 60 employees. Technological transitions tend to get stretched out, particularly in a recession, and that’s what made the fourth round necessary. Aquantia started shipping 90nm chips in 2008, but the market is still less than a million chips a year. The chips sell for tens of dollars.
Aalaei said it is a “horrible time” to raise money for a capital-intensive chip business. But he said the round was oversubscribed. He declined to comment on valuation, and he said he hopes this will be the last round the company needs before hitting profitability.