Benchmark Capital invests in more open-source projects

The venture capital firm that was richly rewarded for its investment in Linux-seller Red Hat is going back to the trough.

Benchmark Capital, one of Silicon Valley's most noted venture capital firms, announced an investment this week in another open-source project, dubbed Collab.net. Collab.net's central feature is SourceXchange, a project initiated by Hewlett-Packard and O'Reilly and Associates that lets companies tap into the talent of open-source programmers across the Internet.

While much skepticism exists about the business opportunity from software that must be available for free under the terms of its license, i.e open-source software, Benchmark is a convert.

The company took a 5 percent stake in Red Hat, the leading seller of the Linux operating system that started selling shares publicly two weeks ago. Those 5,815,910 shares, at today's price of 73.50, now are worth $427 million. Linux is a Unix-like operating system created by Linus Torvalds and a host of other programmers that quickly won industry acceptance in recent months.

"I'm a huge believer in open source," said Benchmark partner Kevin Harvey in an earlier interview. "Communally developed software, as opposed to one company hiring engineers and running the entire agenda, is a much more compelling way to advance the agenda."

Under the open-source model, software blueprints called source code are freely shared among programmers who can do so collaboratively. Under the most open-source licenses, the source code may be freely shared, modified, and redistributed, so long as those modifications are published. The result is that open-source projects, such as the Linux operating system or the Apache Web server, tend to be cooperative rather than proprietary.

Benchmark isn't the only VC firm hoping to get lucky with open-source projects. Kleiner Perkins Caufield and Byers has invested in LinuxCare, a company that provides technical support, training, and other Linux services. LinuxCare supports Dell's Linux computers.

And Sequoia Capital has invested in VA Linux Systems, a maker of Linux computers that's aiming to get more revenue from support and other services offered to corporate customers. VA Linux likely will be the second Linux-related IPO, chief executive Larry Augustin has said.

Linux portal sites also have been booming business. Andover.net has bought two sites that are known for Linux news and software.

Because of the nature of the open-source world, these business ventures are joined at the hip. Depending on your perspective, that linkage can mean either that each company is dependent on all the others or that when another company joins the effort, everybody gains.

Among the different Linux companies, for example, Red Hat has several that work on the core of Linux: SuSE funds work on the Xfree86 graphics system; VA Linux hosts work on the Enlightenment; HP is helping to get Linux prepped for Intel's forthcoming IA-64 chip; and SGI is trying to boost Linux performance on multiprocessor systems.

While it's not surprising to hear that a Red Hat investor boosts Linux, Harvey has some bold predictions for the success of the upstart operating system. It's already displacing Windows, starting with Windows NT and heading toward Windows 98. "How long till it outstrips Windows? I think three to five years," he said.

"It rides the best price/performance curve in the world," he said, referring to the fact that Linux is particularly popular among computers powered by the nearly ubiquitous Intel chips. "It's not encumbered by any of the problems that Apple or proprietary flavors of Unix had," operating systems that run on comparatively rare chips.

More details for programmers
As previously reported, SourceXchange is a site where programmers will be able to bid on open-source programming projects that companies want accomplished. The site will offer more formalities, such as project deliverables and deadlines, that have often deterred companies from free-wheeling open-source efforts in the past.

SourceXchange isn't the only effort to harness open-source talent. Others include OpenAvenue and Cosource.

SourceXchange will be the site where HP houses its e-speak development project once it makes it out of the proprietary realm and into open source, said SourceXchange leader Brian Behlendorf in an earlier interview. By releasing e-speak as open source, HP hopes to spread the Internet e-commerce software as quickly as possible to as many different computer systems as possible.

O'Reilly declined to describe the amount of the Benchmark investment.