Venture capitalists bet big on open source companies

Venture capitalists invest millions in Fonality and GroundWork Open Source

Linux & Open Source Newsletter  By Phil Hochmuth, Network World, 02/14/07

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Investors showered over $21 million collectively on two open source start-ups last week: Fonality, an Asterisk IP PBX vendor, and GroundWork Open Source, a network management firm. Venture capitalists are betting these companies will challenge larger vendors such as Avaya or Nortel in telephony, or HP or IBM in network management, with lower-cost, open source-based products.

GroundWork Open Source, which received $12.5 million from investors JAFCO and SAP Venture, makes the GroundWork Monitor, which allows IT administrators to view performance and operations data on multiple servers and applications across a network. The product ties together several open source tools, including the Nagios network management tool, with Apache, PHP and a MySQL database to provide a complete monitoring system, the company says. The software itself runs on Red Hat Linux and SUSE enterprise servers or workstations, as well as CentOS. GroundWork offers the source code and software on which its product is based, as well as professional subscription-based services for companies using the code in production.

Meanwhile, Fonality, which makes an open source-based VoIP system for small businesses, received a $7 million investment from Azure Capital Partners, which previously invested in the company. Like GroundWork Open Source, Fonality takes a popular open source platform - in this case, the Asterisk IP telephony system - and packages it into a product, including management tools and support offerings. Fonality's PBXtra is a small-office phone system. It also sells a hosted VoIP service which uses the PBXtra device as a customer premise box to terminate calls.

We may be almost a decade past the time when venture capitalists threw money and firms such as VA Linux and Red Hat, in the hopes of a lucrative IPO payday. But clearly investors still believe there is value in companies that repackage freely available software with support and services offerings for businesses.

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