The company, which was launched last year by veterans of America Online and Apple Computer--two companies known for marketing their services to the average consumer--laid off 40 employees, leaving it with around 35, executives said Tuesday.
"What we're doing is getting our burn rate and business plan more in line with the more sober economic environment," said Brian Croll, Eazel's vice president of marketing.
The cuts fell most heavily in the business development and marketing departments, Croll said. "Very few" developers were laid off.
Eazel just this week completed version 1.0 of its product. The software is available freely under an open-source license, and the company plans to charge for subscription services starting April 30.
Eazel, which raised $15 million in funding from investors led by Accel Partners, said it signed a term sheet with investors for second round of funding. The company is trying to raise the money amid extremely difficult market conditions and with terms that some find disappointing.
"It's a difficult funding environment," said Stan Christensen, vice president and general manager of online services. "We would like it to be different."
Eazel joins other Linux companies having trouble converting the operating system's popularity into profitability. Red Hat, SuSE, Turbolinux, Linuxcare and VA Linux Systems have all laid off staff in recent months.
If the funding round is approved, it will include "several" financial and strategic investors, Christensen said.
Croll sounded an optimistic note about the company's attempt to secure funding.
"We're very confident that this is going to come through," Croll said. "Given the talent and the business plan we have in place, we're going to get funding. But it's a difficult environment."
Several organizations are attempting to popularize Linux on the desktop. Eazel faces new competition--not only for consumers but for funding--in Ximian, formerly known as Helix Code, which scored $15 million in investments in January.
Linux for the average person has been a difficult strategy for several companies struggling with Microsoft's dominance and Linux's complexities. Corel is working on selling its Linux operation after a failed attempt to use Linux to resurrect sales for its WordPerfect program and other office software. French company MandrakeSoft has been shifting away from desktop use in favor of servers.
Meanwhile, the top Linux company, Red Hat, has steered clear of the desktop and aimed for the server market and more recently special-purpose gadgets that hide most of Linux's complexity.
News.com's Stephen Shankland contributed to this report.