M5 Networks, a provider of outsourced VoIP phone systems for small to mid-sized businesses, today announced its first-ever venture capital investment. The six-year-old company secured a $7.75 million investment from a group of private investors, led by Edison Venture Fund and including Greycroft Partners and Milestone Venture.

The funding will be used to fund expansion from its New York City base to Boston and Chicago, as well as to enhance its core technology and pay for an expansion of an IT consultant partner program, said Dan Hoffman, president and CEO of M5.

“This is the first time we have taken institutional capital,” Hoffman commented. M5 has been succeeding in New York City as a managed services provider, buying local lines at retail and packaging them as part of a hosted VoIP offering.

M5 is already serving offices in cities all over the country for its clients who are headquartered in New York City, Hoffman said. By the end of the year, it will formally launch operations in Boston and Chicago to acquire new clients among companies headquartered in those two cities.

“We already reference client locations in each of those cities,” Hoffman said. “The new offices will enable us to go after a new batch of customers.”

M5’s game plan is to provide hosted voice applications to small and mid-sized businesses and relieve them of the complexity and cost of trying to deploy the technology themselves. The company is competing with incumbent and CLEC services, and with on-premises gear sold by the interconnect industry.

“There is well-documented demand for good VoIP services, but in reality, there are very few providers that have good service offering with this very complicated product,” Hoffman said.

Related Article

M5 charts a different competitive path