Newcomer Zayo Bandwidth on Thursday said it has amassed a $225 million war chest from five VC firms to buy companies around the United States that own fiber-optic networks.

Zayo hopes to acquire fiber at bargain prices and sell it wholesale to carriers, businesses, government, ISPs, and educational institutions.

The Louisville, Colorado-based fiber optic services startup said it has already acquired two regional fiber-optic networks, and has agreements to acquire another two.

Fiber has had a tumultuous history in recent years.

At the height of the technology boom of the late 1990s, investors spent billions of dollars on dozens of fiber-optic startups that built high-capacity networks to accommodate the expected, Internet-induced, explosion of demand for bandwidth.

That explosion never happened. Instead the “dotbomb” explosion went off, obliterating many of the companies that were expected to generate the demand.

That left thousands of miles of so-called dark fiber in the ground in what was then called the “fiber glut.”

“There was a lot of money thrown at fiber but not enough people bought bandwidth to pay for the investment, so the business collapsed under its own weight,” said Brownlee Thomas, an analyst with Forrester Research.  “I think we’ve now learned that you don’t build a field of dreams in every town.”

But the popularity of Internet video and other bandwidth-hungry services has finally increased demand for network capacity and all that buried fiber is suddenly attractive.

Zayo, which was founded by telecom industry veterans Dan Caruso and John Scarano, plans to acquire fiber capacity primarily in “second cities,” that are under-served by the carriers.

The company has so far acquired PPL Telcom, a 4,600 fiber-route-mile network based in Allentown, Pennsylvania, and Memphis Networx, a 200 fiber-route-mile network serving the greater Memphis area.

Zayo is also in the process of acquiring Indianapolis, Indiana-based Indiana Fiber Works, and Minneapolis, Minnesota-based Onvoy.

The company will continue to buy more of the installed fiber in “second, third, and even fourth tier cities,” where capacity can still be bought at a bargain price.

“It’s an interesting dynamic particularly for our VCs and private equity firms where we believe we can enjoy continued acquisitions at current market rates for some time to come,” said Mr. Scarano.

“The current owners are kind of tired,” he said. “They are happy that the market’s turned to where they can get a lot more today for their assets than a few years ago.”

The VCs bankrolling Zayo include Columbia Capital, M/C Venture Partners, Oak Investment Partners, Battery Ventures and Centennial Ventures.

“I think Zayo’s business model is workable because while there is still a glut of fiber in many urban centers, there is not a glut everywhere,” said Forrester's Ms. Thomas.

Zayo has to pick its spots carefully, according to Ms. Thomas, by focusing on towns such as Allentown where consolidation has shortened the list of options businesses have when they are looking for bandwidth.

“Today businesses have AT&T, Verizon, and Qwest and no one else to choose from so this is an opportunity to create another option,” she said.

“And the fact that Zayo is led by telecom veterans who have lived through the wars will help them make the necessary adjustments,” Ms. Thomas said.