VMWare abuzz for B-hive Networks

VMWare bought enterprise software company B-hive Networks last week, netting a relatively quick return for investors Index Ventures and Venrock, though details of the acquisition were not disclosed.

“It was a good exit for us, no question about that,” says Bernard Dallé, a partner of Index Ventures, which backed B-hive, a San Mateo, Calif.-based maker of application performance management software. “What VMWare did was make an offer that made sense for all the shareholders.”

Venrock’s Ohad Finkelstein discovered the B-hive team in Israel and brought Dallé in to the $7 million Series A in August 2006. It was the company’s only institutional round of funding.

“We were looking at investing in the applications performance management space for quite a while because we think it’s an area of significant growth in enterprises,” says Dallé. “Everyone’s struggling trying to find the best solution and Israel is one of the places a lot of these companies are popping up.”

Index decided to go in on the initial financing with Venrock because it liked the B-hive’s technology.

“We were impressed because it was deployed from the network instead of an agent on the server,” Dallé says. “It’s able to monitor the performance of applications and if applications are deterioriating, it’s able to instruct software such as VMWare to reallocate resources.”

Apparently, VMWare saw the strategic value of such a technology. “We really had no intention of selling at this stage,” Dallé says. “We had just invested in the Series A and were in it for the long run.”

Enterprise software and corporate data infrastructure investments wax and wane in popularity, but Dallé says there’s been a recent resurgence in venture capitalist interest in these areas.

“It’s a much more active market than it was a year ago, but compared to the excitement you see about consumer Internet, it’s way below that,” he says. “You’re going to see crazy valuations there that you won’t see on enterprise deals.”

Of course everything virtualization-related has been red-hot since VMWare’s breakout IPO last year. Investments in virtualization startups hit an all-time high of $309 million last year, eclipsing the $291 million VCs pumped into such companies in 2006, according to Thomson Reuters (publisher of PE Week).

In the first two months of this year, U.S.-based VCs have invested $47 million into seven virtualization upstarts: Agami Systems, AutoVirt, CiRBA, Pano Logic, Terracotta, Virtual Iron and VKernel.

Dallé says Index is actively looking at cloud computing and automation of the datacenter for its next enterprise investments. —Alexander Haislip