Investors seek network-management innovation

Start-up companies looking 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 care for their networks without the cost and dedicated staff demanded by CA's Unicenter, IBM's Tivoli and HP's OpenView - typically considered the leading products in this market.

Start-ups Cittio, Splunk and GroundWork Open Source Solutions have received a combined $35 million in the past 13 months, and a fourth company called LogLogic says it will soon announce a third round of investment, following the $13 million it received in September 2004 (see graphic). Attracting investors to companies such as these is the promise of a new generation of network-management tools that may be innovative and nimble enough to eventually supplant the incumbent.

Importance of solid net management

Broadly defined, network management is a $3.5 billion market, says Benjamin Nye, managing director of venture capital with Bain Capital in Boston. As networks become more distributed physically and populated with devices, network management is more important than ever, he says.

"Think about the distributed organization today; it's the norm, not the exception," Nye says. "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, which sells software that monitors and reports on network events for security and compliance purposes.

Managing the increased complexity in the network calls for a new breed of simpler, sleeker tools, some investors say.

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 or the customer just didn't need all those features."

At the end of March, JK&B invested $8 million in 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 taken a seat on the board of directors of both companies.

Cittio breaks out of the traditional network-management mold by offering a critical management function, monitoring, that's relatively inexpensive and easily integrates with third-party products, Sokol says.