Virtual Computer Secures $15 Million, Makes Real Friends with Citrix

Virtual Computer, a Westford, MA, PC virtualization startup that has been gradually decloaking since last fall, today announced that it’s raised a Series B funding round totaling $15 million. The surprisingly large round was led by Highland Capital Partners of Lexington, MA, and Flybridge Capital Partners of Boston, the same investors who put up the company’s $6 million Series A round one year ago. But the round also includes a new strategic investor, Fort Lauderdale, FL-based Citrix Systems, which just unveiled its own PC virtualization strategy and says it expects to build a “mutually beneficial” relationship with Virtual Computer.

The startup, which operated under the stealth name Old Road Computing Corporation until September, is developing a system called “NxTop” that will allow corporate IT administrators to outfit all of its employees’ Windows desktop and laptop PCs with centrally managed and backed-up operating systems and applications. That, in itself, is nothing new—there are plenty of companies that offer technology for centralized hosting of virtual desktop environments or centralized installation, updating, and backup of Windows applications and data. But the way Virtual Computer pulls this off may be simpler, cheaper, more secure, and more scalable than older approaches—at least, that’s the aim.

As Virtual Computer’s website explains, the company is building a virtualization program called the NxTop Engine that is installed on laptop or desktop hard drives and runs below the level of the usual Windows operating system. It is also building a management system called NxTop Center that maintains copies of the operating system, applications, and user data needed by each individual PC user. Whenever a NxTop PC has a network connection, NxTop Engine grabs the appropriate OS, applications, and data from NxTop Center. If the machine is a laptop and doesn’t have a network connection, NxTop Engine uses the most recent copies and operates the machine just as if it were an independent Windows PC.

The company believes this approach has several advantages over other desktop virtualization methods such as server-based remote hosting. Servers can only host 20 to 30 users simultaneously, meaning large companies have to buy lots of servers in addition to the client machines. And hosted systems don’t work for laptops, which don’t always have a network connection.

“There is unprecedented pressure on corporate IT teams in 2009 to reduce costs and increase employee productivity,” Highland general partner Peter Bell said in a statement. “Our increased investment is a vote of confidence that Virtual Computer’s unique capability to deliver the cost saving benefits of desktop virtualization without the need for significant data center investments is a winner in any economic climate.”

Virtual Computer hasn’t revealed much about how NxTop actually works, but today’s announcement made it clear that the NxTop engine is based on the open-source Xen hypervisor. (A hypervisor is a hardware control system that can host one or more virtual operating systems.) Citrix’s application virtualization systems also use the Xen hypervisor (it paid half a billion dollars in 2007 for XenSource, a server virtualization company built around the technology)—which helps to explain its interest in Virtual Computer.

“We’ve been watching Virtual Computer since their company launch,” Andy Cohen, Citrix’s senior director of strategic development, said in a statement. “We see great synergy between their use of Xen technology for PC lifecycle management and Project Independence, our recently-announced initiative to dramatically change the economics of desktop computing by enabling devices, desktops, applications and people to operate more independently through the power of client-side Xen virtualization. We look forward to working with Virtual Computer in a mutually beneficial capacity and see our investment as the first step in that direction.”

Citrix’s Project Independence, announced January 21, is a joint effort with Intel to build a Citrix-compatible hypervisor into the processors for new laptops. It will supposedly allow company employees to use their own laptops for work, by accessing a centrally managed desktop environment for work purposes and switching back to their original desktop environments for personal or home use.

Some of the promises Citrix is making about Project Independence—such as the ability to “assure that corporate applications and data are completely isolated from personal data, greatly increasing security”—directly overlap with the features Virtual Computer is advertising for NxTop. It was not clear from the startup’s announcement today how Citrix and Virtual Computer might work together, especially given that Citrix already has its own system for delivering virtualized applications to PCs, called XenDesktop.

Virtual Computer said last year it planned to release a beta version of the NxTop system to select customers in the fourth quarter of 2008 and to a broader group in the first quarter of this year. The $15 million Series B round will allow it to keep NxTop’s development moving and “significantly accelerate” sales and marketing efforts, according to today’s announcement. The company is advertising at least two open positions, for a client-user interface engineer and a graphics engineer.

Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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