The global telecommunications market is crumbling into dust, which has not prevented a small Israeli startup that develops advanced communications equipment from raising a tremendous $24 million in its first financing round.

Dune Networks, established in October 2000, announced the funding today. The money had been collected in several stages, starting with $18 million at the end of 2001, from three Israeli venture capital funds Pitango, JVP and Aurum-SBC Ventures. Two foreign funds, Elwin Capital Partners and Alta Berkeley Venture Partners, kicked in during the second stage.

How did Dune do it? How did the startup, which hasn't even finished developing its first product, raise so much money in these tight times?

It was a combination of two factors, says Pitango partner Rami Beracha, who has joined Dune's board: innovative but not exotic technology, that suits the market's needs; and an experienced group of entrepreneurs with a record of success.

Dune is a fabless that designs chips for enterprise communications networks, DWDM optic communications metro-environment networks, and for the network cores of national service providers. Its chips also serve for data storage systems.

Dune is coy about the substance of its solutions, but that's how Eyal Dagan, its founder and CEO, prefers things.

Covert technology, overt history

Its technology may be covert, but the history of Dune's team is right out there. The top team began its career at MRV Communications, an equipment company launched in the States by Israeli founders Noam Lotan and Shlomo Margalit. Dagan served as VP R&D of its switches division in Israel.

Later, Dagan was part of the team that established Charlotte's Web Networks, which developed a fast router competing with products from Cisco (Nasdaq:CSCO) and Juniper (Nasdaq:JNPR).

Dagan left Charlotte's Web in August 2000, on differences of opinion with MRV's management. He reportedly objected to selling the company, thinking it should remain independent and go public as originally planned, in the third quarter of 2001.

Three months later, he launched Dune, bringing along two other senior managers he knew from MRV, who had meanwhile set up another company, Zuma Networks. One, Ofer Iny, today serves as Dune's CTO, while the other, Moti Weizman, who had served as Zuma's CEO, is today Dune's chief operating officer. The company's marketing manager, Michal Kahan, originated from Comverse Technology (Nasdaq:CMVT).

Beracha says Dune's technology will enable equipment providers to overcome problems in building future products that improve data communications at low cost. The product will be launched soon.

The players know the global communications market, and how to reach the right addresses in the world's giant companies. That is helping Dune establish relations with strategic players, in order to design its product to the market's needs - and to start selling in early 2003.

For the time being, Dune has evidently managed to persuade its backers that it can differentiate its product for the switching sphere. In a few months we'll see if it can persuade the phone companies too of the efficacy of its solution, which Dagan promises is a breakthrough. He's been proven right before.