Fortisphere closes Series A round

The increasingly crowded virtualization space has a new entrant, as software startup Fortisphere Inc. is expected to emerge from stealth mode with $10 million in Series A funding on Monday.

The first round was co-led by Boston venture firms Fairhaven Capital Partners and Globespan Capital Partners. Cooley Godward Kronish LLP represented the company in the financing, while Wilmer Cutler Pickering Hale and Dorr LLP was counsel to the investors.

The two investors provided seed money, included as part of the Series A, to get Fortisphere's product development going when the company was founded in October 2006.

The first-round capital should last the company through next year, as president and CEO Michael Harper said he expects Fortisphere to go back and raise a Series B round in late 2008.

The Glenwood, Md., startup's software is designed to allow companies to manage, secure and expand their IT systems after implementing virtualization technology.

"Our focus is on the emerging category of virtual machine lifecycle management, which is all about solving the problems that are unique to virtualization," Harper said. "We've designed [our software] specifically to address problems in virtualization in a way that is transparent without impacting performance or reducing the benefits of virtualization."

Fortisphere plans to make its mark by solving and managing the problems created as virtualization of servers, desktops and applications becomes increasingly prevalent. Large tech companies such as Microsoft Corp., IBM Corp., Hewlett-Packard Co., VMware Inc. and others are all bringing technologies to market that allow businesses to virtualize their IT operations, and Fortisphere plans to help those businesses manage things.

"This platform allows companies to grow their virtualization environments better than they have in the past by delivering visibility and best practices and control," Harper said. "We have a credible pipeline of interested prospects that are dying to get their hands on the product, so we expect next year to be a year with a lot of growth."

According to Harper, the company's software will be released to the market in the first quarter of 2008, although there are already beta copies of the technology in the hands of potential customers. Targeted at medium to large enterprises, the software will initially be available in North America.

The round's proceeds will be used for further product development, to expand the sales team and for marketing.

Virtualization deals have been immensely popular among venture capital firms this year, with well over $500 million invested in virtualization companies thus far in 2007.

There are plenty of reasons for venture capitalists to be excited about the sector. A July report by Interactive Data Corp. forecasts that the virtualization services market, which was at $5.5 billion in 2006, will expand to $11.7 billion by 2011. And even more importantly, there have been a number of high multiple liquidity events in the industry this year.

In August EMC Corp. spun out 10% of its subsidiary, VMware, in a $1.1 billion blockbuster offering. The stock soared 75% in its first day. After paying $635 million for VMware in 2003, EMC's remaining 87% stake was valued at $16.6 billion after the first day of trading.

Many virtualization buyouts have also occurred this year as larger technology companies piled in. Hewlett-Packard snapped up enterprise software companies Opsware Inc. and Neoware Inc. for $1.6 billion and $214 million, respectively; Citrix Systems Inc. bought XenSource Inc. for about $500 million; and F5 Networks Inc. grabbed Acopia Networks Inc. for $210 million.