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Desktop virtualization startup NComputing announced a $28 million Series B financing Monday, Jan 14. Menlo Ventures of Menlo Park, Calif., led the round, joined by insiders Scale Venture Partners of San Francisco and South Korea's Daehong Technew Corp.

The Redwood City, Calif., company makes virtualization software and hardware that allows up to 10 people to use a single PC from numerous terminals.

"The general PC marketplace has been stuck at 850 million worldwide users for about 15 years now, and at the same time there are immense new markets waiting for IT technology," said NComputing's chairman and CEO Stephen Dukker. "The emerging world alone holds enough to virtually double the size of the market."

"The real barrier is cost, we have fundamentally used up all the people who can afford computers," Dukker added.

And its at cost-effectiveness that NComputing's technology is seeking to radically expand the base of computer users. Working on the principle that the PCs built today are powerful enough that applications only use a fraction of the computer's capacity; NComputing's virtualization software and hardware tap into the unused capacity to allow multiple users to use the machine simultaneously. After the company's software is loaded onto a standard Windows or Linux PC, separate users with a monitor, keyboard, and mouse can connect to the shared PC through a NComputing access device.

"Its a program that creates for each user an independent virtual desktop sitting inside the shared PC," said Dukker.

NComputing said that the process can reduce an organization's computing costs as much as 70% and electric consumption by 90%. It has already sold 500,000-600,000 of its systems, which have been deployed by 15,000 organizations, primarily schools, colleges, governments and businesses. The company's initial focus has been on education, where it already "owns 4% of all U.S. kindergarten through grade 12 school seat purchases; education is 80% of our business today, but that is only because they have the most immediate need," said Dukker. "They understand the cost savings and as soon as they're confident that it works they buy, the corporate user is a bit more conservative, but it's beginning to happen in the corporate world as well."

Other virtualization companies, such as Citrix Systems Inc. and VMWare Inc., develop technology that also creates similar virtual environments, but at greater cost, according to Dukker.

"What VMware does, for each user of the shared PC, they create a virtual computer so each user runs its own copy of the operating system and their own copy of the application, and the result is very large memory requirements," said Dukker, "for each user you run on VMware you need a minimum of 1 gigabit of memory."

"Whereas our approach is that everyone is running on one copy of the operating systems and then each user desktop is virtualized in a self-contained environment," he continued.

The hardware device used to connect the PC with the terminals costs NComputing only $11 to build, which allows the company to charge a low-price for each seat on the system (as low as $70 a seat) while allowing the company and its resellers to make a profit.

"This is classic disruptive technology," said Dukker. "It costs the customer less, and makes the reseller partners earn more than they did selling PCs."

He went on to say that competitors like Citrix, Microsoft Corp. and VMware charge $100 to $500 a seat for similar services.

Dukker is no newcomer at reducing the price of computers. As the founding CEO of eMachines, he lead the introduction of that company's PCs, which effectively brought the price of a new computer down to the $400 range.

With its technology going-head-to-head with that of such high-fliers, NComputing has been the recipient of plenty of investment offers.

"We've been receiving on average two offers of investment a week and we did get a nine-figure valuation for the company only a year after its [Series] A round, which is amazing," said Dukker. The first round closed in October 2006, when it received $8 million from Scale and Daehong Technew.

After reaching profitability last year, NComputing decided to pour all its resources into growth and expects this to be its final round of venture capital before it starts prepping for an initial public offering.

NComputing plans to use the funds to expand its operations and sales organization globally as well as for product development. A large part of the company's growth strategy involves making its technology available in countries where computer's are not necessarily commonplace. NComputing distributes its products to more than 70 countries and has offices in Australia, Canada, China, Germany, India, Korea, Poland, Russia, the United Kingdom and the United States.

The company also plans to market its shared-computing technology to original equipment manufacturers that want to deliver PC functionality on platforms such as smartphones, HDTVs and kiosks.

H. Dubose Montgomery, managing director and founder at Menlo Ventures has also joined the company's board of directors. NComputing received counsel from Cooley Godward Kronish LLP.

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