VCs Provide Silver Lining for Loudcloud –

SUNNYVALE, Calif.- Though it certainly doesn’t hurt Loudcloud Inc. to have Netscape Communications Corp. co-founder Marc Andressen at its helm, star power is not the only thing keeping the company afloat.

Founded only ten months ago, the Sunnyvale, Calif.-based provider of software infrastructure services for high-growth Internet businesses and application service providers has hit a valuation upwards of $600 million and closed a big deal in the private equity market last month – a $120 million Series B round led by Capital Research and Management.

“It was the people first and foremost,” said Andy Rachleff, a partner at Benchmark Capital and a member of Loudcloud’s board of directors. “It’s the fact that they’re a category creator and the size of the market.” Benchmark is an early-stage investor in Loudcloud, and while Rachleff declined to comment on the terms of its previous investment, he said Benchmark had maintained its equity stake in the company.

Although Capital Research and Management claimed more than half of the equity distributed in the round, other investors included Amerindo Investment Advisors, Aurora Technology Funds, Octane Capital Management, Charter Growth Capital and Integral Capital Partners.

In ten months, the company has raised $200 million of private equity, grown a staff of 250 and signed on nearly two dozen clients, including Internet-based businesses such as Homegain.com Inc. and Skillsvillage.com, and application service providers like E.piphany Inc. Loudcloud will add a retail industry client and a financial services player to its roster of clients in the months to come.

Loudcloud, which provides outsourced network infrastructure solutions to its clients, will use the latest round of financing to grow the company at a similar pace. It will add to its technology infrastructure, continuing to create alliances like those already in place with Sun Microsystems Inc. and Oracle Corp. At the same time, it will begin a global expansion into Europe and Asia.

“At this level of funding and investment you have to have a strong business plan in place and very strong fundamentals, an execution history in place and you have to have a well-rounded management team,” said Martina Lauchegco, director of marketing at Loudcloud. “The star power certainly helps in getting people’s attention, but it’s much more than a name at this point.”

After closing its first institutional round of financing in February, when Morgan Stanley Dean Witter added an undisclosed amount of debt financing to Benchmark’s equity stake, the company was largely focused on rounding out its management team and building its engineering capabilities.

Although Benchmark’s Rachleff said he was already very happy with the investment, he indicated the company would be making several major announcements over the next year or so. The company, however, would not say whether it would soon return to the private equity market.

“We certainly hope this will last us a while,” Lauchegco said.