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One of IBM's senior venture capital investment authorities is encouraging software start-ups to follow the money, and back the LAMP open source stack.

According to Drew Clark, director of strategic insights for IBM's venture capital group, building software using Linux, Apache, MySQL and Perl/PHP/Python (LAMP) is one of the key requisites for VC investment today.

He also believes start-ups should examine delivery of their software online, as a subscription service like Salesforce.com, instead of via CD or in a box.

This combination will enable small and medium business (SMB) customers - a growing economic force according to analysts - to more easily access ISVs' functionality while being able to control IT costs.

"One of the differences between now and five years ago was we didn't have a tool to [reach] SMBs. Now we have open standards and the ability to deliver value over the web," Clark said during a recent meeting with The Register.

He warns that traditional ISVs are being squeezed by the pricing pressure created by LAMP and software-as-a-service.

Clark, a 20-year IBM veteran, is one of the original line-up in an IBM group created in 199 by former chief executive Lou Gerstner that was designed to encourage start-ups.

IBM's venture capital group doesn't put its own cash into start-ups as such, but works with VCs to identify and support start-ups with IBM products and services, such as eServer Application Server Advantage for Linux, or Chiphopper, launched in March. Chiphopper provides tools and services to run Linux applications on IBM's eServer x86, POWER and mainframe architectures.

SMBs are seen by vendors and analysts as a growing opportunity. According to Forester, SMBs spent $320bn on IT in the US last year - 44 per cent of total IT spending - and are expected to increase that amount by eight per cent this year. Spending by enterprise-level customers is expected to increase by six per cent.

"VCs have realized there's a huge opportunity - it's just as prestigious as going after that sector [SMB] as the enterprise," Clark said.

VCs, meanwhile, have hefty reserves to draw on. Hedge funds - one source of money looking for investment - recently hit record levels, growing 15 per cent in 2004 to a record $1 trillion in value. Funds are expected to grow between 10 per cent and 15 per cent this year.

But there are no blank cheque for ISVs, though, with VCs wary of inflating another bubble by funding every LAMP or service start-up. Instead, Clark says, VCs are "under pressure to behave", and that today's investment climate is characterized by more "thoughtful" deals. ®

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