GroundWork Belts A Triple

by George White

March 30, 2005

The Series B round, led by new investor Mayfield and including participation from existing stakeholder Canaan Partners, both of Menlo Park, Calif., gives GroundWork $11.5 million overall in venture financing. The open-source IT management firm closed a $3 million round in January 2004 led by Canaan.

The company will use the new money to "scale up operations, including the hiring of support staff, add intellectual property to the software and establish distribution channels in the U.S., followed by Europe and then Asia," CEO Robert Fanini said.

Though Emeryville, Calif.-based GroundWork expects this round to sustain the company until it reaches profitability — now targeted for third-quarter 2006 — Fanini said the startup may decide to seek yet more venture funding to help manage its growth. He cites a customer influx as motivation for seeking a second funding round.

"The adoption rate of open source is very high," Fanini said. "We've gained 35 customers in just one year as more and more people are exploring how to use open source to save money."

Open-source software allows companies to monitor their IT infrastructures, including servers, network equipment and vital applications such as e-mail. The technology is designed to keep systems continually operating by providing companies with status updates and giving immediate notification when problems occur.

GroundWork has more than 40 customers primarily spread across small to midsized businesses in the financial services sector and state and local governments, Fanini said.

According to Robin Vasan, a Mayfield managing director and new GroundWork board member, "As enterprises continue to embrace open source for more mission-critical applications, we believe GroundWork has the potential to capture a significant portion of the $7 billion worldwide IT management market."

GroundWork estimates that in three years, Linux will power more than 20% of corporate servers worldwide. That prospect has got venture capitalists salivating at the market potential of open source-based businesses such as GroundWork that complement Linux's operating system.

Fanini cited a combination of factors, including the fact that "[c]ompanies like Redhat [Inc.] and Sourcefire [Inc.] are doing very well, and the fact that the software industry is changing to be more service-oriented," which make them attractive to VCs.

"The challenge, until recently, has been monetizing open source," Fanini said. "We believe the market is now ready for companies like GroundWork that take unsupported open-source components and integrate them into cost effective, enterprise-ready applications that include enhancements, support and services."