Jon Hansen has started interviewing me periodically on his show on BlogTalkRadio as part of his Thought Leaders Series.  Yesterday’s interview focused on my experience of investing in Rally Software and included short discussions on how Rally got started, how and why I decided to invest, and the role various factors play in my decision making process.  Jon does a nice interview. 

I’m very proud of my friends at Rally – they’ve created a company that is well on its way to being one of – if not the – most significant software company in Boulder.

Lots of little things go into building a great company over the long term.  Rally Software is one that I’m proud to have been involved in from the beginning.  I remember when Ryan Martens, the founder, would sit for entire days in a small conference room near my office covering the white boards on the walls with his scribblings.

Today Rally is a 150 person company that plans to add another 75 people in 2010 on the heels of Rally’s $16 million financing led by Greylock.  And – since their birth in 2002, Rally has had 17 babies (well – people that work for Rally have had the babies, but you probably figured that out.)  Recently, Rally’s leadership team decided to do something about this.

Nicely done Tim, Ryan, and everyone else at Rally.  Now you’ve just got to get these kids using software from Kerpoof at an early age.  I wonder how Agile Parenthood works?

I’ve watched (and participated) with excitement as Rally Software has helped move the notion of agile software development into the mainstream over the past few years.  In addition to having the leading Agile application lifecycle management solutions, they are tireless educators and evangelizers for all things Agile.  Today, over 1500 companies are doing over 33,000 projects using Rally’s SaaS-based ALM software.

Rally has just announced their Agile Success Tours.  The first one is in Denver on 3/18/09 followed by similar events in LA on 3/26/09 and New York City on 4/02/09.  They are free, but you have to register for them.

Each event is a half-day and is aimed at software and IT executives and managers who are being asked to deliver software faster and with fewer defects.   The event will focus on how development teams can adopt Agile practices to achieve the real and measurable results that today’s economic climate demands: faster time-to-market, improved productivity, and fewer defects.

In addition, Rally has recently launched an Agile Blog that is packed with information, advice, and suggestions about Agile and how to implement it in your organization.

If you aren’t familiar with Rally or Agile, take a quick look at their five minute overview or try out the free version of Rally’s Community Edition for up to 10 users.  Come join the Agile movement.

Two weeks ago, one of the companies I’m on the board of – Rally Software – announced that they have acquired a company called 6th Sense Analytics.

I’ve been involved in Rally since the very beginning and it has been incredibly rewarding to see them grow from an idea that the founder/CTO Ryan Martens had to the market leader in Agile application lifecycle management.  Rally updates quarterly their “by the numbers page” which gives a nice overview of the scale of Rally.

In Q4 of 2008 we started getting some inbound calls from other software companies that were in related markets to Rally.  These calls were from companies that had developed significant software assets, but hadn’t really had much market success.  In several cases they were companies that had worked with Rally; in other cases they were from folks that thought they might be complimentary to Rally.

In response, Rally’s leadership team identified a number of areas on their roadmap that they could accelerate (or bring forward) by acquiring a small company.  They’ve used this to quickly decide whether or not it is worth spending time with the inbound inquiries they were receiving.

One of them – 6th Sense – fit great.  Rally has a significant amount activity on their product roadmap in 2009 around development metrics and analytics.  Rally and 6th Sense engaged in a serious discussion and within 45 days had closed an acquisition.  Internally, Rally went through a detailed build vs. buy analysis; adding the 6th Sense folks to the overall team and incorporating their software into the mix was a no-brainer decision for us.

I’m seeing this pattern with a number of the established companies I’m an investor in.  Having gone through this cycle several times and had success and failure with acquisition driven strategies, I’ve got a clear view on when and how it can work successfully.  I’m not interested in garbage truck mergers (two crappy companies that get jammed together to hope something good comes out of it) – all of my energy is focused on having a market leader pick up a complementary technology or market “asset” that helps accelerate the product or market roadmap.

Look for a lot more of this in 2009.

Kevin Kelleher’s article on GigaOm this morning titled 2009: Year of the Hacker made me think back to the rise of open source after the Internet crash of 2001.  In the aftermath of the crash, many experienced software developers were out of work for a period of time ranging from weeks to years.  Some of them threw themselves into open source projects and, in some cases, created their next job with the expertise they developed around a particular open source project.

We are still in a tense and ambiguous part of the current downturn where, while many developers are getting laid off, some of them are immediately being picked back up by other companies that are in desperate need for them.  However, many other developers are not immediately finding work.  If the downturn gets worse, the number of out of work developers increases.

If they take a lesson from the 2001 – 2003 time frame, some subset of them will choose to get deeply in an open source related project.  Given the range of established open source projects, the opportunity to do this today is much more extensive than it was seven years ago.  In addition, most software companies – especially Internet-related ones – now have robust API’s and/or open source libraries that they actively encourage third parties to work with for free. The SaaS-based infrastructure that exists along with maturing source code repositories add to the fun.  The ability to hack something interesting together based on an established company’s infrastructure is omnipresent and is one of the best ways to “apply for a job” at an interesting company.

We are thinking hard about how to do this correctly at a number of our new investments, including companies like Oblong, Gnip, and a new cloud-computing related startup we are funding in January.  Of course, many of our older investments such as NewsGator and Rally Software already have extensive API libraries and actively encourage developers to work with them.  And of course, there are gold standards of open source projects like my friends at WordPress and masters of the API like Twitter.

If you are a developer and want help engaging with any of these folks, or have ideas about how this could work better, feel free to drop me an email.