Canaan Sets Up GroundWork

Advocates of open source software will say that a little bit of cash can go a long way. Case in point is GroundWork Open Source Solutions. The Oakland, Calif.-based provider of IT management services has managed to attract 20 customers and interest from Canaan Partners, which last week announced it invested $3 million in the company’s Series A round.

The founders had funded the company with their own money until they set out to raise less than $3 million. They closed the deal earlier this year with a post money valuation on the higher end of between $5 million and $10 million. GroundWork will likely raise a Series B round for between $8 million and $10 million in 2005.

GroundWork CEO Robert Fanini, who founded the company last year with COO David Lilly, says that his company’s use of open source software enables it to offer more flexible services at lower costs.

Skip Glass, a venture partner with Canaan Partners, was already a believer in open source. “This is an opportunity to affect a sea change in the management arena,” says Glass. “Open source allows us to add value above and around the open source that currently exists.”

Glass knew Fanini through previous work together when Glass was an advisor to SiteRock, a remote IT service provider that Fanini started. He and Canaan general partner Deepak Kamra are on GroundWork’s board of directors along with Fanini and Lilly.

The company will add an outside independent board member by the end of Q4, says Fanini.

GroundWork will use the funding to expand its growth with a focus on customer acquisition. Glass expects the company will have passed the 100-customer mark by the end of 2004. With 18 employees now, Fanini expects to have about 30 in a year.

The privately held company reported $650,000 in revenue from the first quarter of 2003 through the end of the first quarter this year. Fanini expects GroundWork to bring in close to $2 million in revenue in 2004.

The company focuses on serving customers with between $500 million and $1 billion in revenue. GroundWork has 20 customers, including Milpitas, Calif.-based semiconductor designer LSI Logic and Foster City, Calif.-based construction contractor Rudolph & Sletten.