Arroyo Closes $12 Million to Accelerate Its Growth in Advanced Video Services.

PLEASANTON, Calif. -- Funding Led by Matrix Partners, With All Prior Investors Participating Kim Kelly Steps Down as CEO, Remains on Board of Directors; Paul Sherer Named Interim CEO

Arroyo Video Solutions, Inc., developer of a unique video platform that enables operators to deliver advanced video applications, today announced the completion of a $12 million Series B round of expansion financing, bringing total venture capital investment in Arroyo to more than $25 million. The round was led by Matrix Partners, a top venture capital firm, with participation by all existing investors including: DCM - Doll Capital Management, Foundation Capital, Time Warner Investments and Comcast Interactive Capital. The new financing will be used to accelerate Arroyo's growth in advanced video services by addressing new strategic opportunities and markets.

The company also announced that Andrew Verhalen, a partner at Matrix Partners, has been appointed to its board of directors.

In addition, Arroyo's board of directors announced that Kim Kelly has stepped down as CEO, and Arroyo's Co-Founder and CTO Paul Sherer has been named CEO on an interim basis. Kelly said, "Arroyo has tremendous traction due to its superior technology and commitment to customer service and partnerships. I've been blessed to have been part of Arroyo's growth and look forward to continue supporting Arroyo as an active director." The board has begun the search for a new CEO immediately.

"We have great respect for Kim, and her contribution to Arroyo over the past seven months. We are looking forward to her continuing to contribute to the company as a board member," Sherer said.

Commenting on the funding, Sherer said, "I am thrilled to welcome Andy Verhalen, one of the most respected and successful venture capitalists in Silicon Valley, to our board. This round, led by Matrix with all of our existing investors participating, is a tremendous vote of confidence in the company. It underscores that these financial and industry leaders understand the strength of the Arroyo team, the tremendous value our solution brings and how very well positioned Arroyo is."

"Matrix has invested in Arroyo because it has a world-class team, market changing technology and strong traction with key customers. Extensive due-diligence with leading operators confirmed the confidence they have in Paul Sherer and the Arroyo team, and their enthusiasm for the company's unique open architecture products," said Matrix Partners' Andrew Verhalen. "This funding will help Arroyo to realize its vision of enabling video operators to drive advanced services into every home faster."

"Over the 15 months since our last investment, Arroyo has proven the team's ability to conceive, engineer and sell a bold new vision and an exciting product set," said DCM's Carl Amdahl. "Having successfully transitioned from development stage to a company with revenues and several major customers, Arroyo is positioned for tremendous growth."

Arroyo has tremendous market momentum, having just unveiled its first product, Arroyo OnDemand, which started shipping in October 2004 and is already in trials or deployed with three top North American operators. Leading the market with first-to-market solutions, Arroyo also recently announced the industry's first 10 Gigabit Ethernet solution for VOD, and a 65 percent boost in its server performance, bringing the number of 3.75Mbps streams per 3RU servers to a best in class 5,000. Arroyo's open platform solutions deliver unprecedented levels of scalability and performance for VOD delivery.

About Arroyo Video Solutions

Headquartered in Pleasanton, California, Arroyo Video Solutions offers video operators a unique, network-centric, on-demand architecture that uses 100 percent open-standard hardware platforms. The company's flagship product, Arroyo OnDemand, separates storage and streaming into different industry-standard servers and employs Arroyo Video Accelerator(TM) technology, which improves performance ten-fold.

Arroyo is a privately held company funded by leading Silicon Valley venture firms Matrix Partners, DCM- Doll Capital Management and Foundation Capital; and by Time Warner Investments and Comcast Interactive Capital, the investment arms of two of the nation's largest media companies. For more information, please visit http://www.arroyo.tv.

About Matrix Partners

Since its inception in 1977, Matrix Partners has been dedicated to helping outstanding entrepreneurs build industry-leading technology companies. With offices in the two major technology centers -- Boston and Silicon Valley -- Matrix has developed an exceptionally strong network of contacts and entrepreneurial know-how. Companies that have gone public out of the Matrix portfolio, where Matrix played a founding role, have generated well over $100 billion of market value. These include Veritas (Nasdaq:VRTS), Tivoli (acquired by IBM), ArrowPoint Communications (acquired by Cisco), Alteon Web Systems (acquired by Nortel), Openwave (Nasdaq:OPWV), SilverStream Software (acquired by Novell), Sonus Networks (Nasdaq:SONS) and Sycamore Networks (Nasdaq:SCMR). Matrix has enjoyed one of the highest rates of return in the industry over the past 20 years. Matrix Partners is online at http://www.matrixpartners.com.