Orange County doesn’t need to look to Silicon Valley for the nearest Linux software maker. There’s one right here, and it’s looking for $10 million.
Santa Ana-based REDSonic Inc., which makes a version of the free Linux operating system to run wireless phones and other devices, said it is in talks to close its second round of funding sometime this year. But the company said it hasn’t yet found all the investors it needs.
The coming round would follow the company’s $4 million first round, completed last year. Investors included venture capital firms and technology companies in Taiwan and Singapore, but none from the U.S.
The company hopes to change that in the next round, saying it is actively courting U.S. corporate and private investors to fund its expansion to markets in Asia.
The company hopes the cash infusion will help it grow its China operation to 15 people.
“We feel that our business would be more profitable in Asia,” said Dr. Kwei-Jay Lin, REDSonic’s chief executive and founder. “The company may be set up in the U.S., but we want a strong Asian presence.”
Raising money could be tough for REDSonic. Its publicly traded Linux peers,once seen as rivals to the Microsoft Corp. juggernaut,have lost much of their luster on Wall Street, with many now trading at about a buck.
But Lin said he is betting that REDSonic shouldn’t have any problem securing the investors it needs. For one, the company’s software,a result of 15 years of Lin’s work at the University of California, Irvine,is important technologically, he said. Lin is a professor in UCI’s department of electrical and computer engineering.
The software is embedded,meaning there’s no direct user interaction with the software. It also means the software doesn’t crash, unlike offerings from Microsoft. Secondly, the company said it already has several unnamed Asian device makers in its customer lineup.
“We make one of the few real-time Linux products on the market right now,” Lin said. “We’re quite unique.”
Lin said he realized the commercial potential of his research at UCI after Linux software company Red Hat Inc. held a blockbuster initial public offering.
“I think that during the summer of 2000 was when everyone paid attention to Linux,” Lin said. “That was one of our projects we have been doing research on and we realized it was a good opportunity.”
Today, Red Hat, whose stock was near its 52-week low of about 3 last week, is a rival. Earlier this month, the Durham, N.C.-based firm released a developer suite of software for embedded Linux applications.
Any funding for REDSonic would be out of the ordinary of late for OC venture capitalists, who have had a penchant for optical gear startups and chip designers. In the past six months, at least five such companies, including Newport Opticom, 3DSP Corp., TransDimension Inc., VSK Photonics Inc. and Opvista Inc., received cash from local venture capitalists.
“We’re seeing better deals and more deals in infrastructure and enabling technologies,” said Randy Lunn of the Irvine office of Palomar Ventures earlier this year. “That’s more investments in semiconductor chip areas, wireless and enabling business software.”
Semiconductors always have held allure for venture capitalists. But these days, the fallout of dot-coms and some software companies has given chipmakers a new sheen,despite the current poor fortunes of big chipmakers.
But the market for embedded Linux applications stands to grow, according to Lin. While Linux has failed to make much of a dent in Microsoft’s dominance, observers say it has a role in servers and devices. Lin estimates the Linux market could be worth about $40 billion in two years.
And REDSonic, with its strong connections in Asia,a hotbed for the types of products it hopes to place its software in,stands to benefit from that expected growth, Lin contends. n
