Investors seek network management innovation

Network World - Start-up companies that want to challenge the dominance enjoyed by expensive, complex network-management suites are attracting second and third rounds of funding from venture capitalists eager to get in on the next big thing.

In particular, investors are putting money into companies with network monitoring and troubleshooting products that are attracting customers who want to actively care for their networks without the cost and staff demanded by CA Inc.'s Unicenter, IBM's Tivoli and Hewlett-Packard Co.'s OpenView -- typically considered the Big Three in this space.

Start-ups Cittio Inc., Splunk Technology and GroundWork Open Source Solutions have received a combined $35 million in the past 13 months, and a fourth company, LogLogic Inc., said it will soon announce a third round of investment, following the $13 million it saw in September 2004. Attracting investors to these and similar companies is the promise of a new generation of network-management tools that may be innovative and nimble enough to eventually supplant the incumbents.

Importance of solid net management

Broadly defined, network management is a $3.5 billion market, said Benjamin Nye, managing director of venture capital at Bain Capital LLC in Boston. As networks become more distributed physically and populated with devices, network management is more important than ever, he said. "Think about the distributed organization today; it's the norm, not the exception," Nye said.

"Whether you're big or small, if you're running a mission-critical network, look at how many different devices are resident on the network. ... There's much more dependency that rides on that network."

In February 2005, Bain invested $12 million in Network Intelligence Corp., which sells software that monitors and reports on network events for security and compliance purposes.

Managing the increased complexity in the network calls for simpler, sleeker tools, according to some investors.

Despite his extensive background in network management, Marc Sokol, CA's former vice president of marketing and now a partner at venture capital firm JK&B Capital in Chicago, waited six years before investing in a network-monitoring start-up.

"It's because the big guys -- Unicenter, Tivoli and OpenView -- commanded such market control," he says. "But today there's a large market of customers that for lots of different reasons consider the Big Three not to be options -- either the license fee priced them out of the market, or the cost of implementation for the customer just didn't need all those features."

At the end of March, JK&B put $8 million into Cittio, maker of network-monitoring and operations software called WatchTower. In January, the firm invested $10 million in Splunk, which creates a search engine that helps troubleshoot systems by navigating through the logs they create. Sokol has a seat on the board of directors of both companies.