By Sean Wolfe

Investors have backed PostPath, a startup company looking to hollow out Microsoft’s dominance of the corporate email exchange server market, with $15 million in a third round of funding Wednesday.

The round was led by JAFCO Ventures, with prior backers Matrix Partners and Worldview Technology Partners also participating.

Tom Mawhinney, a general partner at JAFCO Ventures, will also be joining PostPath’s board of directors. The Mountain View, California-based company is now entering its fourth year, with $30 million in funding to date.

To take on a giant like Microsoft, the company has adopted a strategy that its executives believe will appeal to many IT managers.

Rather than pitch a company on technology that requires them to rip out all their old servers, why not offer an open source server that offers the new functions they need and works seamlessly with their existing infrastructure?

Pulling that off required the PostPath team to hack Exchange. Typically, getting a product to be compatible with a Microsoft product requires a company to be a Microsoft developer.

Not so for PostPath, which worked for the better part of a year, using software to detect individual packets coming out of an Exchange server to figure out what it was doing, then developing its own server software to emulate Exchange.

“The reason why no one’s done this before is because it’s difficult,” CEO Duncan Greatwood noted dryly. “We had to sniff packets on the wire. We worked it out by inspection and bombarding multiple Exchange servers.

“It was a huge effort, a bit like trying to solve a big math problem,” he added. “You can have a flash of inspiration and solve a big piece of it. Other parts of it, you can use experimentation and brute force.”

With the hard work of decryption done, the gamble for investors is PostPath’s ability to make a compelling product that IT shops will want.

“Can we own the email store on Linux? That’s the objective,” said Peter Goettner, a general partner at Worldview. “That means adding stuff to the product is relatively free for us, and definitely free for the customer. It all boils down to total cost of ownership for the enterprise, and getting the features they want cheaply is a big part of that story.”

Taking on Microsoft and IBM

The new funding is aimed at growing the firm’s staff and services. The company currently boasts 65 employees. Mr. Greatwood expects that number to hit around 100 by year’s end.

Is that big enough to take on Microsoft, whose email server Exchange dominates a market once ruled by IBM?

In 2000, Big Blue’s Lotus/Domino/Notes empire (bought dearly when IBM acquired Lotus in 1995 for $3.2 billion) had 37 percent of a 123 million strong installed base. Microsoft had 34 percent.

Today, the Radicati Group, a Palo Alto, California-based market watcher, expects IBM to slip to just 18 percent in a market that’s more than tripled, with Microsoft commanding more than a third of what has become a $2.7-billion market.

Could Microsoft retaliate, by changing its protocols in such a way to make Mr. Greatwood spend another year figuring out how they work? Mr. Greatwood thinks not.

“There are so many components in the network that talk to these protocols—those that lock users into using their products—those same protocols also lock Microsoft into maintaining compatibility,” he said.

From an investor perspective, while PostPath is a David to Microsoft’s Goliath, it does create exit possibilities. Worldview last sold one of its portfolio companies, Netwise, to Redmond back in 1995—at the beginning of Microsoft’s Internet acquisition tear.