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Sendmail nabs funding, expands

The company, which sells proprietary enhancements to the open-source e-mail software of the same name, secures $14 million in funding and expands into calendar software.

Sendmail, a company that sells proprietary enhancements to the open-source e-mail software of the same name, has secured $14 million in funding and has expanded into calendar software.

The funding, a new round from existing investors, will give the company more of a cash cushion and let it acquire technology that's now very cheap as start-ups struggle to survive, said Chief Executive Dave Anderson. The funding will help carry the 133-person Emeryville, Calif.-based company to profitability, expected in the first quarter of 2003, said Anderson, a veteran of now-extinct computing stalwart Amdahl who took over Sendmail in 2000.

"Our plan was such that we wouldn't have run out of cash, but we would have been flying so close to the ground we would have gotten grass stains," Anderson said. "We got the money to grow the business, add working capital, and to do acquisitions of small companies and technologies...That was one of our primary thoughts. In this unprecedented market there is an opportunity to add capabilities to our portfolio at a very low cost."

One way in which the company is growing is by moving from e-mail software to calendar server software, which keeps track of employee appointments and can be accessed not only by computers but also by cell phones and other wireless devices, Anderson said.

Sendmail already competes with Microsoft, Sun Microsystems and IBM with its e-mail server software, which handles tasks such housing e-mail boxes, screening attachments for viruses, and routing e-mail to different servers. The calendar package will increase that competition.

Sendmail's e-mail software has at its heart the open-source project of the same name. The calendar software, though, is a proprietary product Sendmail licensed from an undisclosed company, Anderson said.

Sendmail's continued existence is noteworthy in a thinning open-source business field.

Open-source programming, the shared and public model at the heart of Linux and several other successful projects, won entrepreneurial enthusiasm during the Internet hype years. While some projects remain influential, several open-source software companies, including ArsDigita, Akopia and Great Bridge, didn't survive. Open-source companies that have survived thus far include Red Hat, SuSE and Covalent Technologies.

Sendmail sought funding from outside investors, Anderson said, and could have obtained it at terms that wouldn't have been very favorable to existing investors. With so many companies desperate for funding, investors now have leverage to negotiate terms such as requirements that earlier investors' preferred stock is converted to common stock.

Sendmail was able to use that reality as a bargaining chip with existing investors, Anderson said.

He told investors, "'Here's what the market looks like. We can do this kind of a deal (with outside investors), or we can...structure it so it is more friendly to existing investors.'"

The existing investors decided to go in on another round, and the funding round closed about a month ago, he said.

Earlier investors, who already had put $35 million into the company, included Morgan Stanley; Adobe Systems; Network Appliance; Red Hat; Intel; Novell; Network Associates; Chase H&Q; Allen & Co.; Sun Microsystems co-founders Bill Joy and Andy Bechtolscheim; former Compaq Computer Chairman Ben Rosen; Google CEO and former Sun Chief Technology Officer Eric Schmidt; former Hewlett-Packard Chief Operating Officer Dean Morton; and former Sun Chief Operating Officer Owen Brown.

However, with the business climate more skeptical than in the go-go Internet years, the "value of the company did go down," Anderson said. "That puts us in with everybody else."