Close
  • Latest News
  • Artificial Intelligence
  • Video
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
Read Down
Sign in
Close
Welcome!Log into your account
Forgot your password?
Read Down
Password recovery
Recover your password
Close
Search
Logo
Logo
  • Latest News
  • Artificial Intelligence
  • Video
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
More
    Home Applications
    • Applications
    • Database
    • Servers

    Open-Source App Firms Draw VC Funding

    Written by

    John Pallatto
    Published October 21, 2005
    Share
    Facebook
    Twitter
    Linkedin

      eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

      Open-source application software companies have grown to the point where they are starting to catch the attention of venture capital firms looking for new places to put their money.

      Previously, open-source operating systems, development tools and database developers had received the lion share of investment from major VC firms.

      But this week SugarCRM Inc. announced that New Enterprise Associates, a major Silicon Valley capital firm based in Menlo Park, Calif., has granted it $18.77 million, in what is by far the largest of the three rounds of venture funding the open-source software company has received.

      NEA took an interest in SugarCRM because it is demonstrating that it has a successful business model for successfully developing and selling commercial open-source application software, said Scott Sandell, NEA general partner.

      “Open source has been a successful way to develop software for some time. But there havent been that many successful business models,” particularly in the application software space, Sandell said.

      That has been why most of the venture capital investments have gone to companies such as open-source operating system company Red Hat Inc., the MySQL AB database company or to a development tools companies like JBoss Inc., Sandell said.

      But SugarCRM has shown that customers will be willing to pay a premium to access the features of its enterprise CRM (customer relationship management) software after they have tried the open-source software on its Web site for free, he said.

      “They have developed an outstanding product and they have a world-class management team that has resulting in very rapid adoption of their product,” which is apparent from the number of developers who are using the product and posting extensions to it in the sourceforge.net community, he said.

      /zimages/1/28571.gifClick here to read about why the venture capital community has been slow to support Microsofts .Net development platform.

      Open-source application software is particular attractive to China and other developing nations that cant afford to pay the license fees charged on most proprietary applications software developed in the United States, Sandell said.

      The company has invested in at least two other open-source companies including Pentaho Corp. of Orlando, Fla., which develops business intelligence applications, and XenSource Inc. of Palo Alto, Calif., which develops virtualization technology,

      There is a huge potential market in the developing world for open-source software, he said, because most businesses in that sector have few or no computerized business systems. This could change if they had access to more affordable open-source applications, he said.

      Furthermore, the “open-source business model allows local systems integrators and other VARs to modify the product to the local language or to add features that are attractive to the local market” at a much lower cost than is possible with proprietary software, he said.

      NEA sponsored an open-source software conference in China this month that attracted “many of the leaders of Chinese open source community,” Sandell said. “Chinese software developers are very interested in the open-source approach because it is an affordable way for companies [in China] to gain access to software they need to prosper.”

      “They see that China can play a role in developing these products, which is typically not the case for proprietary products developed in the United States,” he said.

      Next Page: The developing world values open source.

      The Developing World Values


      Open Source”>

      Open-source software “is rapidly maturing as part of the overall enterprise applications market and it is becoming more integrated” with an overall market “that used to be just focused on Linux and development tools,” said Stuart Williams, an analyst with Technology Business Research Inc. in Hampton, N.H.

      “Thats why the VC money is willing to start jumping in,” Williams said.

      But the quality of the technology is not the only factor that is attracting venture capitalists, Williams said.

      “The number one criterion in venture funding decisions is not necessarily the product but the team of people that are bringing that product to the market and their market,” he said, echoing Sandells view.

      Additional evidence the software industry is taking open-source technology seriously lies in the fact that the biggest technology companies, including IBM, Oracle Corp. and SAP AG, are “investing in and supporting the open-source movements or community as part of defining their entire ecosystem,” he said.

      /zimages/1/28571.gifClick here to read about how BitTorrent, the peer-to-peer file sharing company, received its first infusion of venture capital money.

      IBMs involvement with the Eclipse development tools community and Oracles decision to buy the InnoDB Oy Inc. open-source database engine shows that the big companies understand both the opportunities and challenges that the open-source technology poses to their own business models, Williams said.

      It was clear that Oracle acquired the InnoDB technology to have some access and control over a technology that threatens to encroach on its own proprietary database technology, he said.

      However, open source “also becomes a gap filler” for large companies looking for ways to augment their own software technology stacks without spending extra money on their own research and development, he said.

      SugarCRM itself plans to use the money to fund application and infrastructure enhancements to its Sugar On Demand online CRM service and to expand its product support and services organizations, according to John Roberts, SugarCRM CEO.

      /zimages/1/28571.gifTo read more about why companies are factoring open source into their business models, click here.

      Roberts said the company wasnt actively looking for additional venture capital funding when it was approached by NEA. However, it will “enable us to make more strategic engineering investments and solidify the company in terms of just the financial foundation” for future growth, he said.

      What sealed the deal was the experience that Sandell and NEA will bring to SugarCRMs board of directors, Roberts said.

      The cash “certainly gives us the runway to make deeper investments in our product road map,” Roberts said. “As a young start-up it is nice to have as strong a capital base as some larger corporations,” he said.

      /zimages/1/28571.gifCheck out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.

      John Pallatto
      John Pallatto
      John Pallatto has been editor in chief of QuinStreet Inc.'s eWEEK.com since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and computer technology trade journals. He was an eWEEK managing editor from 2009 to 2012. From 2003 to 2007 he covered Enterprise Application Software for eWEEK. From June 2007 to 2008 he was eWEEK’s West Coast news editor. Pallatto was a member of the staff that launched PC Week in March 1984. From 1992 to 1996 he was PC Week’s West Coast Bureau chief. From 1996 to 1998 he was a senior editor with Ziff-Davis Internet Computing Magazine. From 2000 to 2002 Pallatto was West Coast bureau chief with Internet World Magazine. His professional journalism career started at the Hartford Courant daily newspaper where he worked from 1974 to 1983.

      Get the Free Newsletter!

      Subscribe to Daily Tech Insider for top news, trends & analysis

      Get the Free Newsletter!

      Subscribe to Daily Tech Insider for top news, trends & analysis

      MOST POPULAR ARTICLES

      Artificial Intelligence

      9 Best AI 3D Generators You Need...

      Sam Rinko - June 25, 2024 0
      AI 3D Generators are powerful tools for many different industries. Discover the best AI 3D Generators, and learn which is best for your specific use case.
      Read more
      Cloud

      RingCentral Expands Its Collaboration Platform

      Zeus Kerravala - November 22, 2023 0
      RingCentral adds AI-enabled contact center and hybrid event products to its suite of collaboration services.
      Read more
      Artificial Intelligence

      8 Best AI Data Analytics Software &...

      Aminu Abdullahi - January 18, 2024 0
      Learn the top AI data analytics software to use. Compare AI data analytics solutions & features to make the best choice for your business.
      Read more
      Latest News

      Zeus Kerravala on Networking: Multicloud, 5G, and...

      James Maguire - December 16, 2022 0
      I spoke with Zeus Kerravala, industry analyst at ZK Research, about the rapid changes in enterprise networking, as tech advances and digital transformation prompt...
      Read more
      Video

      Datadog President Amit Agarwal on Trends in...

      James Maguire - November 11, 2022 0
      I spoke with Amit Agarwal, President of Datadog, about infrastructure observability, from current trends to key challenges to the future of this rapidly growing...
      Read more
      Logo

      eWeek has the latest technology news and analysis, buying guides, and product reviews for IT professionals and technology buyers. The site’s focus is on innovative solutions and covering in-depth technical content. eWeek stays on the cutting edge of technology news and IT trends through interviews and expert analysis. Gain insight from top innovators and thought leaders in the fields of IT, business, enterprise software, startups, and more.

      Facebook
      Linkedin
      RSS
      Twitter
      Youtube

      Advertisers

      Advertise with TechnologyAdvice on eWeek and our other IT-focused platforms.

      Advertise with Us

      Menu

      • About eWeek
      • Subscribe to our Newsletter
      • Latest News

      Our Brands

      • Privacy Policy
      • Terms
      • About
      • Contact
      • Advertise
      • Sitemap
      • California – Do Not Sell My Information

      Property of TechnologyAdvice.
      © 2024 TechnologyAdvice. All Rights Reserved

      Advertiser Disclosure: Some of the products that appear on this site are from companies from which TechnologyAdvice receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. TechnologyAdvice does not include all companies or all types of products available in the marketplace.

      ×