Software firm SWsoft, which competes with VMware and Microsoft in the x86 server virtualization market, this week announced it has closed on $12.4 million in new funding, the first cash infusion from outside the company.

The cash comes from Insight Venture Partners, Bessemer Venture Partners and Intel Capital, which also inked a technology and marketing collaboration agreement with SWsoft for future 32- and 64-bit Intel platforms.

“This round of investment represents an important milestone for our company in moving to the next stage,” said Serguei Beloussov, chairman and CEO of SWsoft, in a statement.  

SWsoft’s Virtuozzo product, which runs on Windows and Linux, competes with offerings from VMware and Microsoft. SWsoft takes a unique approach, however, virtualizing the operating system so that multiple virtual private servers can be created from a single operating system image.

VMware’s ESX and GSX Server and Microsoft’s Virtual Server products, on the other hand, enable users to run multiple operating systems in virtual machines on a single, physical system. SWsoft had its initial success in the hosting industry, but is starting to be adopted more broadly by enterprise customers, analysts say.

Indeed, the overall server virtualization market is growing. The market reached more than $300 million in 2004 and is expected to grow at a rate of about 18% over the next few years, according to IDC.

SWsoft says its enterprise customers are using Virtuozzo for server consolidation, disaster recovery, business workload and agility, capacity planning and management, smart configuration, patch testing and remote management.

In addition to the funding, SWsoft also announced that Mike Triplett from Insight Venture Partners and Jeremy Levine from Bessemer Venture Partners would join the company’s board of directors.