December 14, 1999 4:30 PM PST

Linuxcare gets cash infusion, new executive

Fernand Serrat SAN FRANCISCO--Linuxcare may not be among the Linux companies going public, but it seems to have no trouble getting investments or finding new ways to spend the cash.

The latest infusion is a $32.5 million investment that will be used to pay for a major expansion, chief executive Fernand Sarrat said at a news conference today. The company, based here, sells Linux technical support and consulting services, competing with hot start-ups like Red Hat and VA Linux Systems as well as more established companies retooling to accommodate the "open source" operating system, such as Santa Cruz Operation and IBM.

Linuxcare also got a new chief financial officer, as Sarrat replaced Anthony Pollace with Christian Paul, the former CFO of Cloudscape, a Java database company owned by Informix.

Pollace, who was hired in September, lasted just three months. He'll stay on as a consultant, but "there were a couple of tick marks I wanted on the CFO" resume, Sarrat said. "The fit between what he wanted and what I wanted wasn't quite there."

As previously reported, Linuxcare has been focused on the current round of private investments instead of an initial public offering--a strategy that has raised tens of millions of dollars in the last four months for Linux-related companies Red Hat, VA Linux Systems, Cobalt Networks and Andover.Net. With investment offers totaling $300 million, Linuxcare decided to raise the level of investment from its earlier plan of $25 million. "It's kind of hard to say no," Sarrat said.

Linuxcare will use the funding for hiring more Linux talent, expanding operations globally, increasing support for using Linux in gadgets, improving awareness of the company and beefing up its own computing infrastructure, Sarrat said. Patricof and Company Ventures led the investment, which also included funding from Sun Microsystems, Dell Computer, Oracle and Motorola.

The funding and CFO change were but two of many announcements today. Linuxcare acquired three smaller Linux companies, expanded support services for a raft of new software, and announced a deal to help Informix customers with the Linux version of the database software.

Linux is an operating system based on Unix and available for free or very low cost. It's currently popular for use in servers, and many believe Linux competes both with Microsoft Windows and with various versions of Unix. Linux is popular with investors at the moment, most notably exemplified by the record IPO from hardware maker VA Linux last week.

But Linuxcare wants to get its business in better shape before it goes public. The company isn't profitable and won't be for the next year as Linuxcare pays for aggressive hiring and expansion, Sarrat said in an interview. Shunning the method pioneered by Internet companies, Sarrat is focusing on building up the business before Linuxcare goes public, instead of using the proceeds of an IPO to fund that expansion.

"When profit comes, it comes. And it will come," Sarrat said. "Next year is a building-the-company year."

Being unprofitable is nothing new to Linux companies. Red Hat had a net loss of $5.2 million in the six months ended Aug. 31. VA Linux lost $10 million for the quarter ended Oct. 29. Andover.Net lost $5.4 million for the year ended Sept. 30. And Cobalt lost $13 million in the nine months ended Oct. 31.

But will the investor enthusiasm for Linux that led to those companies' powerful IPOs still be around when Linuxcare is ready for its own offering? Fundamentally, Sarrat believes the Linux trend has staying power because it costs far less than Windows and other operating systems and works well to build the infrastructure of the Internet.

Also, Linux has stealthily started taking over within many companies. Linuxcare found that one aerospace company had 10,000 Linux computers on its network but that the top brass weren't aware of the profusion of Linux boxes, Sarrat said. Though Sarrat declined to say which company Linuxcare examined, sources have said it was airplane manufacturer Boeing.

The company's expansion, from 30 employees in May to 120 now, has been partly fueled by acquisitions of three companies announced today. Linuxcare acquired the Puffin Group, a consultancy based in Ottawa that was working on translating Linux to Hewlett-Packard's PA-RISC chips; Prosa, a Linux consulting firm in Padua, Italy, whose customers include Telecom Italia and the Vatican; and Cheek Consulting of Seattle, which has an extensive Linux information database licensed by ZDNet.

In addition, Linuxcare has hired more new programmers, which can be difficult with many different companies trying to woo Linux programmers. Among the notable open-source programmers, well known to the Linux community, that Linuxcare has hired in the last 30 days are Rusty Russell, who has worked on "firewall" software to protect Linux systems from hackers; Stephen Rothwell, who works on power management for Linux on laptops; Phil Schwan, who has worked on making file storage systems better suited to computer appliances; and Rasmus Lerdorf, who has written software for the Apache Web server.

In the longer term, though, Linuxcare won't be just a Linux company. Today, the company announced that it's broadening its service offerings to include other open-source software popular on the Internet. In open-source programming, developers may freely share the underlying programming instructions, making possible a collective programming model that exceeds the confines of the traditional proprietary programming method.

Linux is the best-known example of open-source software, but Linuxcare has begun supporting three other very popular server software packages: the Apache Web server, the Sendmail email software and the Samba software that makes a computer act like a Windows NT machine. In addition, the company will support VMWare software, which lets several operating systems coexist simultaneously within a single computer.

Indeed, Linuxcare likely will change its name at some point to Opencare, Sarrat confirmed. But for now, the company is chiefly targeting Linux.

Linuxcare has set up ties with many companies. It provides the back-end technical support to back up IBM Global Service's Linux services, said co-founder and vice president of marketing David LaDuke. The company has similar deals with Sybase and Oracle.

 

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