This is Part 2 of a two-part series. Click here for Part 1.

Want to become a small-time venture capitalist in the software market? Buying shares of a handful of software stocks with market caps roughly equal to their cash balances is a lot like investing in an early-stage company -- only without the VC's hope of a lucrative IPO. And because they carry the uncertainties typically associated with such companies, they're probably best avoided by all but those most comfortable with risk.

Both

Marimba

(MRBA)

and

Commerce One

(CMRC)

may be two of the riskier investments.

These companies' headier days, of course, date back to the dot-com bubble. Before starting Marimba, Kim Polese helped create Java at

Sun Microsystems

(SUNW) - Get Report

in the early 1990s. By 1997, she landed on

Time

magazine's list of the top 25 most influential Americans, an eclectic crew that included Tiger Woods, Madeleine Albright and Dilbert.

Marimba's mantra was so-called push technology, which sent online content, applications and services to computers, without requiring individuals having to pull them down themselves. Trouble is, in these more discerning times, investors today aren't quite sure what exactly push technology is.

"I don't think anyone really understands what the product is," said Kevin Wenck, who manages the small San Francisco-based Polynous Fund. "Original push

technology was: Flood your computer with everything of interest on the Web. This is for a specific nuts and bolts application: We're going to make sure whatever software you bought from our company is continually updated with latest versions and features."

Wenck said he bought Marimba at $1.45 in October and sold at $3 in the January rally. He noted that software makers such as

Intuit

(INTU) - Get Report

have used Marimba's product to prompt users to get the latest updates of their products. But for Wenck to buy again, the stock will have to drop to about $1.25.

Shares of Marimba, no longer covered by any Wall Street brokerage, have dropped 50% to $1.85 from a 52-week high of $3.67, and 97% from an all-time high of $60.75 in 1999. Marimba's first-quarter revenue fell 27% to a mere $8 million compared to the year-earlier period.

Marimba's idea never seems to have taken off. Since the company went public in 1999, the company's revenue has topped off at an unspectacular $12 million in the second quarters of 2000 and 2001 -- a scale more typical for a private company than a public one.

But with $43.7 million in cash as of March 31 and a quarterly burn rate of only $4.3 million, Marimba can continue limping along for awhile.

Ian Murray, a portfolio manager at Straus Asset Management, which was the largest institutional shareholder of Marimba as of March 31, is betting on new management -- the company has named a new CEO and CFO in the past year -- and that another company will see Marimba as an attractive addition to its own suite of products. In his portfolio, Murray explains, you have a certain number of speculative names trading at or around cash that may rise on a catalyst -- or, he acknowledges, that may become deadwood.

Commerce One: Betting on the Wrong Plan

Business-to-business software maker Commerce One is yet another dot-com diva whose glory days are long over. It's probably the riskiest of software stocks trading at cash levels because it continues to hemorrhage red ink, with an operating cash burn rate of $51.9 million in the first quarter. At current burn rates, U.S. Bancorp senior software analyst Jon Ekoniak estimates the company has only four to five more quarters of sustainability. He has a market perform rating on Commerce One, and his firm has done banking business with the company.

"They made a large bet on the public marketplace market and that did not pan out," Ekoniak said. "Now they are trying to rebuild themselves, develop new products, and in this environment with a now-tarnished reputation, it's going to be difficult for them to do that."

After public marketplaces lost their luster, Commerce shifted gears, focusing on the procurement and sourcing software market. The problem is Commerce One arrived late to the game against such larger players such as

PeopleSoft

(PSFT)

and

i2 Technologies

(ITWO)

, as well as fellow B2B player

Ariba

(ARBA)

.

Commerce One's first-quarter license revenue shrunk 88% to $8.4 million and total revenue shrunk 81% to $31.8 million. To make matters worse, about $7 million of the license revenue actually came from German software giant

SAP

(SAP) - Get Report

. SAP has invested about $250 million in Commerce One but many have worried that it is trying to distance itself from the company.

Despite that investment, Ekoniak believes SAP would let Commerce One die because the German company wants to be at the front of the procurement business -- a new field Commerce One is entering -- and might prefer to bring in revenue for itself rather than channeling it to Commerce One.

John Ederer, an analyst with Pacific Growth Securities, calls Commerce One "public venture capital."

"It happens to be a publicly traded stock, but given where their sales, particularly license revenue, have come down to, and the heavy losses they're still producing on the operating side of things, it's effectively an early stage company," said Ederer, who has a neutral rating on Commerce One. "We are not actively telling investors to buy the stock at all." His firm hasn't done any banking with Commerce One.

Still, he said it's a bit harsh to call Commerce One one of the walking dead. "I know B2B is kind of a dirty word these days," he said. "Just because it's fallen out of favor hasn't changed my opinion that once companies have gotten a handle on what's going on internally, the next round of significant investment will be connecting company to company."

But given the current state of the economy, that time may be too far off for Commerce One.

Click here for Part 1

.