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It's not that Matt Mosman has an easy job. As Linux continues its march deeper into Corporate America's racks and racks of servers, his small Silicon Valley company, Levanta, is one of many trying to help companies install and manage all those servers—a big, complex problem that's not being solved very well right now. Still, Mosman has one thing going for him: He can't do much worse than his predecessors.
Don't let Levanta's nondescript, prescription drug-sounding name fool you: There's some big-league dirty laundry here. This is the old Linuxcare, one of the poster children of the 1999 Linux corner of the dot-com bubble, a time when Red Hat (RHAT
) and VA Linux had blockbuster IPOs, only to crash months later.
After a long, painful slog, Red Hat reemerged and is now a superstar. VA Linux on the other hand, is now VA Software (LNUX
) and has a market cap of just $250 million.
FORGOTTEN, BUT NOT GONE. But back in those go-go days, Linuxcare was a darling of the prestigious venture-capital firm Kleiner Perkins Caufield & Byers, with a board that boasted Valley celebrities like Regis McKenna of Intel (INTC
) and Apple (AAPL
) marketing fame. On its way to chewing through some $70 million in venture capital, Linuxcare once ran a tongue-in-cheek full page Wall Street Journal ad advocating Linux inventor Linus Torvalds for president.
Fresh off VA's December, 1999 IPO—which set a record for the biggest one-day pop, shooting up nearly 700%—Linuxcare filed to go public in January, 2000, despite some $20 million in annual losses. But it was a little too late. By the spring of that year it had pulled its offering amid a softening market and the abrupt resignation of its Chief Executive Fernand Sarrat and Chief Financial Officer Doug Nassaur.
That's where most people stopped hearing about Linuxcare, but the company didn't go under. Now it's back, renamed Levanta in 2004, and positioning itself as a Linux system administrator's best friend. And, in a sign that Levanta has returned to the land of the living, BusinessWeek.com has learned that the company is announcing a new round of venture capital of between $13 million and $15 million in the coming weeks that management expects will bring it back to profitability. That's almost triple the average size deal for an open-source company these days.
TECHIE-HEADACHE PREVENTION. Linuxcare started out as a service company offering Linux support by telephone, a business that Red Hat and Novell (NOVL
) would grow to dominate as the primary Linux vendors. Today, it's a product company. In simple terms, Levanta sells a box that connects to all of a company's Linux servers. The customer's software and applications actually run through that box, not individually on each server. That means that if a server crashes, there's a backup for that data. Or, if administrators need to switch an application from a test server to a more reliable one, it's just a few mouse clicks away.
Levanta's product also automates the process of adding new servers. In real-world terms, it's an ally for a Linux administrator who needs to rapidly expand Linux servers, troubleshoot around failing servers, or get the most out of limited hardware resources—all things that system administrators have been able to do with Windows servers for years. Companies like Red Hat have some tools to manage this, but companies with a lot of Linux, and a lot of complex software running on top of that, need something better, says Jonathan Eunice, principal IT advisor at research firm Illuminata (see BusinessWeek.com, 1/31/05, "Linux Inc.").
Arty Ecock, manager of enterprise systems for the City University of New York, was an early customer. He says he has already recouped the cost through the manhours he has saved managing such headaches. "You can't do this with any other technology," he says.
GRUELING EXPERIENCE. Levanta's resurrection is almost unbelievable to Arthur Tyde, Linuxcare's original CEO and founder. He had been pushed aside in the late '90s but returned to running the company after the market crashed, personally pink-slipping some 180 people, and overseeing Linuxcare's slow, gradual decline into obscurity. But unlike much of the disgraced class of 1999, Linuxcare never went under.
Tyde managed to get several million more dollars from new investors and to bring in fresh management by the beginning of 2001. Then, drained, exhausted, and deeply frustrated, he walked away. In an interview with BusinessWeek.com, he described the experience as "watching someone borrow your car that you'd built and [then] watching them tear around the track in it, and you're up in the bleachers and there's nothing you can do."
Linuxcare quietly slogged on, continually one step ahead of getting shut down. Akmal Khan, the acting CEO, hit on a software program to help Linux run on mainframes, keeping the company afloat until January, 2005, when the board brought in Mosman to figure out how to build a real, growing business, shifting Khan back to his role of president and chief operating officer. By that time, the engineering team had written software to manage Linux for regular Intel hardware—by far the most prevalent use of the open-source operating system.
SELLING FLEXIBILITY. But for a small company, a big enterprise-software sale was a slow, expensive, and uncertain way to build a business, particularly in the shadow of RedHat and Novell, which had bought the second biggest Linux distributor, SUSE, in 2003. So Mosman & Co. wrapped the software into a piece of inexpensive hardware and took a risk on selling it as a cheap, easy-to-install system to help Linux administrators automate slow manual tasks.
There's some overlap between what Levanta does and what Red Hat and Novell do, as the biggest distributors of Linux. But as an independent company not selling its own flavor of Linux, Levanta can manage Red Hat servers, Novell servers, and a variety of other lesser-known versions. Uncertainty abounds in the Linux world about Red Hat amassing too much market share and becoming another Microsoft (MSFT
Mosman says Levanta helps provide a hedge on this, but whether that's a compelling sell to customers who want the ease of using one vendor remains to be seen (see BusinessWeek.com, 10/31/05, "Cold Realities for Novell").
OVERSEAS OPPORTUNITY. It's still early, and some in Silicon Valley quip that the company may be back from the dead only to remain in intensive care. Even Eunice says the company's best bet is to get bought by a giant like Hewlett Packard (HPQ
) or EMC (EMC
). But the future certainly looks far brighter than anyone could have expected a few years ago.
The company started shipping the current product toward the end of 2005, and bookings for the first quarter of 2006 exceeded the entire previous year. The second quarter doubled that number. "All of a sudden people are actually paying us money to do what we do," Mosman says. Business has been brisker overseas, where companies have much broader Linux deployments and Red Hat is less prevalent. Levanta doesn't disclose revenue figures.
Mosman struggles with the plusses and minuses of playing up the Linuxcare heritage. At a time when venture investors are again pumping hundreds of millions into open-source companies, lessons from the bubble can be a valuable asset (see BusinessWeek.com, 12/28/05, "A Watershed for Open Source"). And Linuxcare was always known for deep industry technical chops. And for Mosman, the chance to be the guy to turn around a disaster as big as Linuxcare was pretty irresistible.
"LIKE THE BOSTON RED SOX." But until sales of the new product started ramping up this year, fundraising was a challenge, even though as a former startup CEO and head of mergers and acquisitions of Oracle (ORCL
), Mosman was well-connected in the venture scene. "They said, 'Yeah, Matt, I know you're a different guy, but this is the company that used to be Linuxcare,' " he says. "Like the Boston Red Sox, we just had bad mojo and all the talk in the world couldn't help until we had customers to talk to them."
Mosman has won at least one skeptic: Tyde. He's back on the payroll developing Levanta's business in Southeast Asia. He has some stock options, but all his initial ownership in the company has been long since washed out by plummeting valuations. The bitterness lingers, but it has greatly diminished.
In fact, one reason Tyde took the job is because his therapist said it'd be a good way to "deal with his demons." He says walking into the same offices he left back in 2001 was "creepy." But now it's almost like working at a new company. "It feels good," he says. "I'm proud to be part of it now."