Vidyo Scores Monster $25M Funding Round

Just so you know, this is not an April Fool’s joke: video conferencing startup Vidyo — the same company that powers the ultra-popular Google (s GOOG) Talk video chat client — has raised a $25 million Series C round of financing, it announced today. With the new cash, Vidyo plans to aggressively expand its sales and marketing efforts to take on networking giants like Cisco (s CSCO) in the desktop and room-based telepresence market.

All of Vidyo’s existing investors, including Menlo Ventures, Rho Ventures, Sevin Rosen Funds and Star Ventures, came out for the financing round, which was led by Four Rivers Group. The new cash follows a $15 million funding round that Vidyo closed just over a year ago. With the latest round, the video conferencing firm has now raised a total of $63 million since being founded in 2005.

At a time when financing is hard to come by, a $25 million investment is virtually unheard of. So how did Vidyo manage to raise so much cash, and what does it plan to do with it all?

Vidyo senior vice president of marketing Marty Hollander says that the size of the financing round makes sense when you consider the size of the opportunity available to the startup — and also when you consider that it is going up against some very large legacy vendors in the video conferencing space. Essentially, it will need all the funding it can get to compete with them. “Now’s the time to invest big,” Hollander said in a phone interview. “We have a new architecture that delivers higher quality at a lower cost in a market that’s made up of giants. We can’t play as a startup anymore.”

Vidyo has built out a video conferencing solution that handles each participant’s video feed differently based on upstream and downstream bandwidth, enabling the video quality to seamlessly scale up or down based on network conditions. In October, Vidyo was awarded a patent on its VidyoRouter architecture, which uses H.264/SVC video compression technology. As a result, the startup says its videoconferencing software can be used over any IP network, whether it be over the Internet, or on LTE, 3G or 4G networks.

The company has about 100 employees today, but it has plans to aggressively ramp up personnel, particularly in sales and marketing. Already Vidyo announced it brought on two new sales executives to handle U.S. and Asia-Pacific sales this month. While expanding its sales presence around the world, Vidyo is also aggressively targeting certain industry verticals, including education and health care, Hollander said.

In addition to direct sales, Vidyo operates an OEM business for companies that want to license its video conferencing technology and build their own services around it. The OEM business could grow rapidly, particularly as the Vidyo technology is used to enable mobile video conferencing, through a partnership with Intel (s INTC) to be integrated with the chipmaker’s Moorestown chipset for mobile handsets and smartphones. It also targets service providers with its routing technology to help them release new video products.