Astaro “paved the way” for VC-funded open source companies

Astaro makes and markets a network appliance built on Linux and a complement of open source tools to help prevent spam, viruses, and other potential Internet intrusions. When Astaro’s founders launched the company in 2000, venture capital funding for open source businesses was hard to find. CEO Jan Hichert says he and his colleagues tried but failed to secure funding and had to bootstrap. After the company was proved successful, VCs proved more willing to contribute to a company built on open source.

Hichert and partners Ludwig Lutter and Markus Henning were working for an ISP in Germany when they began to appreciate the wealth of open source tools that were available to protect networks from Internet threats. “What was holding back companies from using them was that [the tools] are hard to configure and deploy for non-Linux experts,” Hichert says. “We thought if we could put these components together, and make them easy to manage over a Web-based UI, we would have enabled thousands of small businesses to take advantage of the open source technology available.” So the three launched Astaro and its flagship product, an appliance that integrates 10 tools with Linux as the base. Sysadmins can deploy Astaro’s Security Gateway using a software appliance, a hardware appliance that plugs into the network, or a virtual machine for VMware-based environments.

Raising the capital they needed to successfully launch Astaro wasn’t an easy task, Hichert says. “Back then, to base a business on products built using Linux and open source was a fairly new idea. We were out in the market for fundraising and venture capital, but the investors we talked to were very averse to the idea that with open source that you would not own your intellectual property. Our employees got the idea, and the customers loved it, but the investing community seemed allergic to open source. We were forced to bootstrap for two or three years until we could show traction.” During that time, Hichert, Lutter, and Henning were careful to keep operations lean. “We worked to get a product out there that could be sold via the Internet without having to build a big sales and marketing infrastructure,” Hichert says.

In 2002, once the company had about a hundred customers under its belt, investors were willing to support Astaro with venture funding and expert guidance on the company’s supervisory board. Even though Astaro had reached a point where it could have been very successful without venture money, Wichert says the cash infusion was welcome. “We wanted to expand [from Germany] into the United States and develop new products. The money allows us to accelerate those plans.”

Astaro’s success in landing investment capital has helped open doors for other open-source-based companies, Wichert believes. “When we received the VC money, you could count on one hand the number of open source companies [receiving VC]. I hope that we were able to help some other companies, to pave the way for them and show them that venture capitalists can be made happy.”

Astaro has made it a point to give back to the open source community from which it has benefitted. “We contribute about half of our research and development budget funds into improving the open source components of the Security Gateway,” Hichert says. “It’s a great idea to do business in the area of open source software, but it’s important to stay honest and true to the idea of open source. You must continue to contribute, otherwise your community will not stay with the project. Lots of companies think they can put some useless piece of code out there and some munificent community will appear to build around it. That’s not the case. As soon as you start taking too much out of it, it’s going to slow you down. It’s a balance you have to find between keeping everything to yourself and not getting any benefit from the community, or giving everything away and you don’t get to build a business on it. It’s a delicate balance, and one that is different for every company.”