Entone Inc., a company that reformed last year after selling its video-on-demand technology to focus on internet protocol television, has raised $12 million in new capital.

In August, Entone Technologies Inc. agreed to sell its video networking software business and other assets to Harmonic Inc. for $45 million. Investors Menlo Ventures and BA Venture Partners, now known as Scale Venture Partners, provided an exit for that part of the business. Those two firms have come back to fund the Series A for Entone's spin-out business.

"As a firm, Scale always looks at the market and whether companies are addressing a large market to gain revenue," Scale Managing Director Jim Jones said. "This market is shaping up to be a large opportunity."

Chief Executive Steve McKay said the company's IPTV business is generating revenue and shipping "tens of thousands" of products.

San Mateo Calif.-based Entone has agreements with Consolidated Communications, Hargray Communications and Fairpoint Communications to provide residential gateways and set-top boxes with digital-video recording and home networking capabilities.

Jones said telecommunications companies spend the most money on set-top boxes because every home that receives content must have a box. As a manufacturer of those boxes, Entone is in position to generate a lot of revenue, he said.

On Friday, more than 90% of shareholders in Norway's Tandberg Television accepted a reported $1.2 billion takeover bid from Ericsson. Ericsson has said the acquisition of Tandberg would help make it a leader in IPTV.

But Jones said his firm is not looking for a quick exit despite the a hot market for IPTV mergers and acquisitions. "It's a market with a lot of activity, but because of the large revenue opportunity this could become a public company," Jones said.