Editor’s note: This is the first in a series of stories profiling selected companies presenting at the CED’s annual venture conference on May 2-3.
________________________________________________________________________________________rPath, a developer of software appliances for use with Linux open source applications, is one of the hottest companies scheduled to present at the Council for Entrepreneurial Development’s 23rd annual venture capital conference next week in Pinehurst.

rPath, established only a year ago in Raleigh by a pair of former Red Hat executives, has already closed on $6.4 million in Series A financing and launched its first products in February. The company has also received several awards, including the Product Excellence Award for best systems management tools at the recent LinuxWorld trade show in Boston. rPath’s management tool is called rBuilder.

rPath’s rBuilder is a platform for the building and maintenance of software appliances. A software appliance combines an application with an operating system that installs on standard hardware or runs as a virtual machine file. (A virtual machine is a self-contained operating environment that behaves as if it is a separate computer, according to Webopedia.com.)

The company was founded by Erik Troan, a former vice president of engineering at Red Hat, and Billy Marshall, a former vice president of North America Sales at Red Hat.

rPath executives discussed their company in a recent Q&A with WRAL Local Tech Wire:

The momentum has picked up over the past year in many segments of venture capital. Are you finding more interest among potential investors?

We are frequently approached by various firms and that is likely due to a combination of the potentially disruptive nature of our technology, which makes the operating system disappear in the eyes of the end user, and the publicity we have been getting in the national press since launching our products February 14th. In just the last 6 weeks alone we have received multiple awards and honors including:

  • LinuxWorld’s Best Systems Management Solution

  • Finalist for LinuxWorld’s Best Virtualization Solution

  • We were one of the 3 startups selected as “Ones to Watch” by OSBC (Open Source Business Conference)

  • Finalist for Red Herring’s Top 100 in North America
  • Why should investors be interested in your firm?

    Software Appliances will change the very nature of how software is delivered. This is only possible now through our unique ability to leverage several hot trends in the market including Open Source, Linux, Software as a Service, and Virtualization. We will allow people to pick an application based solely on which feature set is best suited for their needs. We remove the restriction of having to care which operating system it runs on. In fact for end users we make the operating system and all the hassles associated with installing maintaining and upgrading it disappear. End users get to focus on the application which is where the real value of software is anyway.

    What’s your “elevator pitch” in a paragraph or a few sentences?

    rPath provides rBuilder and rPath Linux, the first platform for creating and maintaining software appliances. Using rPath’s technology, application developers can evolve their business from delivering an application to providing a complete solution via software appliances. For customers, software appliances bring the simplicity and value of Software as a Service (SaaS) to on-premise application deployments.

    What is the “pain point” (or points) you address for your customers?

    The proliferation of software packages (both infrastructure and applications), hardware components, and unique customer requirements has created an impossibly complex integration problem for application providers. Conflicting maintenance streams, release schedules, licensing terms, and service conditions create customer service headaches and higher engineering expenses. We call this problem the “Matrix of Pain”. For Linux appliance vendors that already provide an integrated solution, the rapid pace of open source innovation makes maintaining and updating the system software images a daunting challenge.

    What makes your company unique?

    The license freedom provided by open source infrastructure offers application providers the opportunity to deliver a complete solution to their customers — freeing their application from the “Matrix of Pain”. Using rBuilder, developers can wrap their application with rPath Linux and related open source components in a tightly integrated, high performing manner. The resulting software appliance includes an installer and maintenance mechanism that simplifies deployment and management to literally a few mouse clicks. Customers get the benefit of the application without dealing with the hassles of operating system installation and maintenance. From the perspective of the IT shop, rPath makes the operating system disappear. The application provider manages the relationship between the application and the operating system, providing the customer a single, certified maintenance stream with no integration hassles.

    Do you have a proprietary and/or a patented technology? Please explain why it is unique and what the status is of any patent filings.

    We have filed a provisional patent last year and we are now in the process of filing a complete patent on the claims in that provisional patent.

    What makes your product(s) and/or services unique vs. your competition?

    rPath is focused on providing a platform that makes it easy for application developers to provide software appliances. The traditional Linux companies are focused on providing a “least common denominator” operating system on which application developers may build their application. Our model allows the application developers to provide their customers with more value and greater ease of deployment and management.

    We think our primary competition is labor and expertise within the application development companies that is being applied to the task of tailoring open source software for a particular application’s needs. Our goal is to provide these developers with a platform that simplifies this tailoring process and gives the developers the ability to deliver their application as a software appliance.

    Other companies that have similar offerings include Timsys and Progeny. Timsys is focused at the small-device, embedded market and uses an RPM based solution. Progeny uses a Debian implementation based on the dpkg technology, with much of the customization effort being done on a contract engineering basis.

    The bottom line is that we are the first and only company to provide a platform to automate the building, deployment and maintenance of Software Appliances.

    Does your company already generate revenue? If so, how much? Are you cash flow positive?

    We just launched the commercial products February 14th, 2006 yet we already have several customers. At the same time we have been building a community of thousands of users for our free rBuilder Online website and have generated 10,000 downloads through that community site this year alone.

    What is your target market? What is the size of that market in terms of dollars? What share of that market do you believe you can win?

    The Linux Server Market continues to experience double digit growth according to IDC’s Quarterly Server report. “Linux servers posted their thirteenth consecutive quarter of double-digit growth, with year-over-year revenue growth of 34.3% and unit shipments up 20.5%.” (IDC Server Tracker Report- November, 2005)

    In parallel to server growth, the Linux packaged software market will be $8B in 2006, $10.5B in 2007, $14B in 2008, with a CAGR of 44% over the 5 year period from 2003 to 2008. (IDC Report)

    What will you do with the invested funds?

    Expand in all areas including Engineering, Marketing, Sales, and Business Development.

    What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

    We launched all of the products February 14th, 2006. We will have another update to those existing products in the August timeframe.

    What do you want from an investor other than money?

    You are always looking for more than just a checkbook. You are looking for a track record of fostering successful software companies in their portfolios. You want the partners to have industry operational experience they can share with your exec team. Last you want them to have deep connections in the industry that can make finding customers and business partners easier.

    Why will investors be impressed with your management team?

    We have a marquee management team across the board as you can see —

  • Billy Marshall, Founder and CEO: Prior to founding rPath, Billy served as Red Hat’s Vice President of North American Sales, during which time Red Hat’s enterprise business experienced extraordinary growth. Prior to his sales position, Billy conceived and oversaw the launch of Red Hat Network, the platform that enabled Red Hat’s subscription revenue model.

  • Erik Troan, Founder and CTO: Prior to founding rPath, Erik served in multiple roles at Red Hat including Vice President of Product Engineering for several years as well as the Senior Director of Marketing and chief developer for Red Hat Software. During his tenure with the company, Erik was responsible for leading development for Red Hat Linux, RPM and Anaconda. Erik has coauthored two editions of Linux Application Development.

  • Keith Boswell, Vice President of Marketing: Keith Boswell has over 20 years of experience in software marketing, business development and engineering. Prior to joining rPath, Keith served as Vice President of Marketing & Business Development for TogetherSoft, a provider of application development tools that was acquired by Borland Software for $210M.

  • Dave Cotten, Vice President of Sales: Dave has over 10 years of experience in selling technology-based business solutions. Prior to joining rPath, Dave was the Regional Vice President of Sales for Red Hat. In this position he was responsible for managing all of Red Hat’s enterprise accounts for the western half of the United States.

  • Dave Welker, Senior Director of Finance: Dave Welker has twenty two years of professional experience, with ten as an entrepreneur and twelve in public accounting positions. His public accounting experience includes early stage, middle market and Fortune 500 companies in information technology, life science and manufacturing disciplines.
  • What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

    Our technology should allow us to pursue all of these types of potential exits. We are talking to several companies about strategic alliances and at the same time we are aggressively pursuing the growth of our customer base in order to create a self sustaining company.
    _________________________________________________________________________________________

    FACT BOX: rPath

    TYPE OF COMPANY: Software Appliance Company

    ADDRESS: 1121 Situs Court, Suite 290, Raleigh, NC 27606

    PHONE NUMBER: 919.851.3984

    WEB SITE: www.rpath.com

    BOARD MEMBERS:

  • Michael Skok, Director, North Bridge Venture Partners. Michael Skok joined North Bridge Venture Partners in 2002. Prior to this, Michael had been an entrepreneur and CEO in the enterprise software business for over 20 years. Michael founded, led and attracted over $100M in private equity to his investments in several successful software companies ranging from CAD/CAM, Document Management, Workflow, Imaging and Collaboration, Security to Analytics and spanning the Mini Computer, Workstation, PC, Client Server and Internet eras. Six of these companies were successfully acquired by Siebel, Platinum, Filenet, Banyan and IBM and two went Public, including Symantec for whom he built Symantec UK into their most profitable international business.

  • David J. Orfao, Director, General Catalyst Partners. As a Managing Director of General Catalyst Partners, David concentrates on deployment infrastructure, tools, application development and packaged applications within the enterprise software sector with a general interest in creating new methods of distributing software IP, such as open source and software on-demand, among other areas. Most recently, David led Allaire Corporation from 1997 to 2000 as President, CEO and Board Member. During his tenure, Allaire grew from a venture-backed start up to a $119M public corporation trading on the NASDAQ. The company pioneered the Internet Application Server market with industry leading products such as ColdFusion and JRUN.

  • Billy Marshall, Founder and CEO

  • Erik Troan, Founder and CTO
  • INVESTORS (and amounts raised): North Bridge Venture Partners and General Catalyst Partners are investors in rPath. The company received $6.4 million in a Series A round.

    REVENUES: No disclosed.

    YEAR ESTABLISHED: April 2005

    NUMBER OF EMPLOYEES: 25