VC Money Continues To Flow To Open SourceVC Money Continues To Flow To Open Source

Companies building their business models on top of open-source software continue to attract the attention of venture capitalists on the lookout for the next big thing. The latest success story is JasperSoft Corp., a provider of support and services around the open-source JasperReports business-intelligence project. The company Wednesday closed an $8 million series-C round of funding led by Partech International, an early investor in Business Objects SA.

JasperSoft's deal came a day after ActiveGrid Inc. pulled down $10 million in series-B venture-capital funding from Worldview Technology Partners, Hummer Winblad Venture Partners, and Allegis Capital. ActiveGrid's Grid Application Server software is an application server built atop the open-source ActiveGrid project, which is tuned to run applications in grid environments populated by servers running the Linux open-source operating system.

Both funding announcements highlight a growing trend that has Silicon Valley venture capital flowing to companies that promise to transform open-source projects into business-ready applications. JasperSoft and ActiveGrid will do this by selling support services to users and by contributing code and features that advance the basic open-source offerings.

JasperSoft's latest round of funding includes investors Doll Capital Management and Morgenthaler Ventures, which already contributed to the company's $5.3 million series-A and $10 million series-B funding. IDC projects the market for business-intelligence software will exceed $4 billion in sales this year. Using open-source JasperReports as its foundation, JasperSoft is looking to push reporting capabilities out to end users, allowing them to easily present their data in charts, dashboards, and tables.

For JasperSoft to be successful, the respect of the open-source programmers working on JasperReports is crucial. The company earlier this month hosted three online chats with a total of 75 open-source programmers working on the JasperReports project in Asia Pacific, Europe, and the United States. The company plans to do this every six weeks and to add a component to the JasperSoft Web site that outlines the company's plans for the software and requests feedback from the developers.

"One of the challenges in open source is establishing relationships with programmers who are essentially anonymous," says Paul Doscher, JasperSoft's CEO and former general manager for the Americas at Business Objects. The company has been doing this by soliciting JasperReports programmers in the open-source community for their success stories. "We did this in celebration of JasperReports being nominated for program of the month for July on Sourceforge.net," he adds.

The sales process for JasperSoft's software upgrades and application-management services requires a different approach than the proprietary software world. "You're much more focused on lead generation with open source," Doscher says. "And they're much higher-quality leads because these are people who are already using or interested in using the product."

One of the keys to successful funding for commercial companies supporting open-source projects is to convince investors that a lot of downloads of the software from Sourceforge and other open-source code repositories will translate into a certain number of support contracts, Doscher says. It also helps to be able to attract top programming talent, which JasperSoft did when it hired JasperReports creator Teodor Danciu as its chief architect.

Another key factor to successful funding is to support an open-source project that's in demand. "Everyone we spoke to felt that business intelligence was the next logical step in open source," Doscher says.

The company has raised $23 million in venture-capital funding since its inception in 2001, the same year JasperReports emerged in the open-source community. With the latest round of funding and plans to develop partnerships with open-source database provider MySQL AB and application-server provider JBoss Inc., Doscher expects his company to be profitable by early 2007. "In order for enterprises to gain more confidence in open source, they want to see the vendors come together," he adds.

ActiveGrid's strategy is to deliver capabilities previously unavailable to grid-computing environments. "We lower the learning curve for building applications on top of LAMP," says ActiveGrid CEO and founder Peter Yared, referring to the increasingly popular practice of deploying applications in IT environments running the Linux operating system, Apache Web server, MySQL database, and/or PHP, Perl, Python programming languages. Yared spent five years with Sun Microsystems and served as chief technology officer of the Liberty Alliance project. Before that, he was chief technology officer of NetDynamics Inc., which Sun bought in July 1998 for $180 million.

ActiveGrid specializes in grid data-center environments, where companies add x86-based servers to their existing systems in order to enhance computing performance. "We've built everything such that it can scale horizontally as you add machines," Yared says.

ActiveGrid launched in May 2003 and in June 2004 received a $3 million series-A round of funding let by Hummer Winblad Venture Partners. The company in the fall will begin selling a proprietary version of its software in addition to support services for the open-source version of ActiveGrid. The proprietary software will package additional features such as identity-server integration and dynamic data caching around the base ActiveGrid application.

The availability of open-source components has helped ActiveGrid quickly become competitive in the application-server market, Yared says. "In two years, we're shipping a platform that's competitive with BEA [Systems Inc.] because we use a lot of open-source pieces," he adds. "The product-development curve has been shortened, as has the ability to develop innovative technology. If I was building a next-generation application server according to the old model, I would be spending all of my time building I/O capabilities. Instead, I built it on Apache."

This story was modified July 21.