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4/1/2005
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Open-Source Upstarts Catch The Eye Of Venture Capitalists

VC investment is flowing to companies that help businesses use open source effectively, rather than tie them to one open-source project.

Kim Polese has a history of spotting a hot tech market and getting venture capitalists to pony up the money to back her ideas. After making a tech-boom splash in the 1990s with Marimba Inc., she now has her sights set on an emerging area of the open-source software market, where venture-capital interest is quickly heating up.

Her new company, SpikeSource Inc., emerges Tuesday from two years of startup incubation funded by Kleiner Perkins Caufield & Byers, and will launch software and services offerings that marry different open-source software with each other and with proprietary packages.

As the market for open-source software matures, a growing number of companies such as SpikeSource are attracting the interest of well-heeled VCs like Kleiner Perkins Caufield & Byers and of IT industry veterans. Several are doing so with a strategy similar to SpikeSource: Rather than tie themselves to particular open-source software such as Linux, Apache, or JBoss, they're trying to help companies integrate these applications into their existing IT infrastructures.

SpikeSource technology is designed to ensure that different open-source software works in unison and to track and analyze the performance of open-source software environments. While these functions can be performed today by a more traditional systems integrator, SpikeSource is looking to provide an automated approach, says Polese, who in 1996 co-founded Marimba, a maker of software management applications that in 2004 was acquired by BMC Software.

SpikeSource packages some of the most popular open-source software, including the Apache Web server, Axis Web-services protocol, Hibernate query technology, JBoss application server, MySQL database, PHP scripting language, and Tomcat servlet container. The company also offers an open-source asset-manager application for tracking use of open-source software.

SpikeSource isn't saying how much venture capital it received from Kleiner Perkins Caufield & Byers, but the company boasts a lot of star power on its advisory board. Ray Lane, a general partner at the venture-capital firm and former president and chief operating officer of Oracle, serves as SpikeSource's chairman. MySQL CEO Marten Mickos, Mozilla Foundation president Mitchell Baker, and Brian Behlendorf, a primary developer of the Apache Web server, all sit on the advisory board.

Like SpikeSource, a number of other companies tied to the open-source software movement have attracted major venture-capital funding.

GroundWork Open Source Solutions Inc., a provider of open-source-based IT management software and services, on March 30 revealed $8.5 million in series B funding, led by Mayfield Fund and Canaan Partners. GroundWork has raised a total of $11.5 million to expand its product and service offerings, as well as build out its marketing and sales programs.

For many open-source software companies, the markets they target already include a number of established vendors and products. The IT management software market is no exception. "We're not foolish enough to think we're going to go in and replace [stalwarts such as IBM Tivoli, Hewlett-Packard OpenView, or Computer Associates Unicenter], although in some cases we have replaced HP OpenView," says Will Winkelstein, marketing VP for GroundWork.

GroundWork's Monitor product is actually a combination of open-source software packages. At the core is the Nagios open-source host, service, and network-monitoring application. On top of Nagios, GroundWork has included PerfParse to facilitate the storage and analysis of binary performance data produced by Nagios. Other open-source components include Network Mapper, or Nmap, a utility for network exploration or security auditing; Cacti network graphing software; Jetspeed portal software from Apache Software Foundation; and the MySQL database.

"A user could go and download all of these things if they have the time and expertise," Winkelstein says. GroundWork's ability to integrate this software is one of the major selling points for the company, more so than the fact that the software is free. The other is that GroundWork employs Harper Mann, a key contributor to Nagios, and Roger Ruttiman, a key contributor to Jetspeed.

The success of SpikeSource and GroundWork in the investor community is just the latest as the open-source market expands. In early March, open-source consulting and systems integration firm Optaros Inc. revealed $7 million in series A funding from Charles River Ventures and General Catalyst Partners. SourceLabs Inc., which, like SpikeSource, offers integrated open-source software stacks, in September secured a $3.5 million investment from Ignition Partners and Index Ventures.

Some question the sustainability of the open-source vendor model. After all, if users have access to the source code, what's to stop them from modifying a program beyond the vendor's ability to support it? Not a problem, Winkelstein says. "Customers like the idea of being able to see and change the code if the want." But, of GroundWork's 45 customers, Winkelstein has yet to come across anyone who's actually gone in and changed the code.

Polese is well aware that companies aren't likely to abandon the proprietary software investments they've made over the years. Instead, they're looking to make co-existence of proprietary and open-source easier. "We don't expect that suddenly the enterprise will use a pure open-source environment," she says.

So is this venture-capital interest all too reminiscent of the dot-com era, when easy money created startups without clear profit or purpose? There's one big difference between the market growing up around open-source software and the market that emerged in the late 1990s around the Internet, Polese says. "Companies are already using open source," she says. "The dot-com stuff was mostly speculative."

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