Comcast Invests in Vyatta

In a first for the cable industry, Comcast Corp. (Nasdaq: CMCSA, CMCSK) is putting money into open-source networking, leading a fresh round of financing for Silicon Valley software specialist Vyatta Inc.

Comcast Interactive Capital (CIC), the venture capital arm of the nation's largest MSO, directed an $11 million Series B round for Vyatta, lifting the startup's venture funding total to $18.5 million. Comcast likely put in somewhere between $5 million and $10 million while Vyatta's earlier investors -- JPMorgan Partners , ComVentures , and ArrowPath Venture Capital -- kicked in the rest. (See Vyatta Raises $11M.)

Vyatta, one of Light Reading's Top Ten New Startups and a 2006 Leading Lights award finalist, offers open-source routers, firewalls, and VPNs for the cable, telecom, and enterprise sectors. (See LR Names Leading Lights Finalists and Vyatta Vaunts Open Source Router.)

The two-year-old firm, which styles itself as the Red Hat Inc. (NYSE: RHT) of the networking industry, is going up against Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks Inc. (NYSE: JNPR), Nortel Networks Ltd. , 3Com Corp. (Nasdaq: COMS), and others in the estimated $5 billion to $8 billion market for mid-range and access routers.

Vyatta, which launched its product in the second half of last year, boasts about 100 customers so far. But it hasn't announced any deals with MSOs or telcos yet, including Comcast.

Deepak Sindwani, a principal at CIC, says Comcast, a big Cisco customer, has talked with Vyatta about possible trial deployments of the firm's technology. But he says there's been "nothing serious" yet.

"It doesn't mean anything yet," Sindwani says. "We'll help them with introductions into Comcast."

Sindwani says the $500 million Comcast venture fund picked Vyatta because of growing industry demand for open-source technology, the startup's experienced management team, and its advanced product development. It's the first investment of the year for the MSO venture fund, which evaluates more than 1,000 firms each year but typically invests in just six to eight.

"It will take a few years to blossom," Sindwani says of Vyatta. "Obviously, there are a lot of challenges they're going to face. But there are a lot of opportunities too."

Vyatta says it will use the money for operating capital as it buffs up product delivery and tries to increase its market penetration. The company, which is shooting to be cash-positive in two years, does not plan to seek new funding for a while, if at all, having raised its first $7.5 million round about six months ago. (See Vyatta Raises $7.5M.)

CEO Kelly Herrell, who joined Vyatta in June, says the firm is now talking to "a number of service providers," including both cable operators and telcos, about deploying its open-source software. "We're equally applicable to all."

In particular, Vyatta is targeting the business services market, seeking to supply its software-based access routers, security devices, and voice modems to service providers catering to commercial clients. Herrell notes that about one third of the world's routers are sold by service providers to businesses as customer premises equipment.

"The pendulum is really swinging towards managed services," Herrell says. He's hoping to capture 20 percent market penetration in five years.

— Alan Breznick, Contributing Editor, Cable Digital News