Agile, according to Rally CEO Tim Miller, has become the de facto process for software development. To validate his position, Rally yesterday announced it has closed a US$16 million round of funding to advance its platform. Miller also hinted that Rally could be looking at acquisitions in the first quarter of this year.

The funding was led by venture firm Greylock Partners. Tom Bogan, former president and COO of Rational Software and a partner at Greylock, takes a seat on Rally’s board of directors. Other members of Rally’s existing funding syndicate also participated, but Miller said Greylock put up “the lion’s share” of capital.

Other members of the board include Brad Feld of Mobius Venture Capital, Lisa Reeves of Vista Ventures, Peter Roshko of Boulder Ventures and Bryan Stolle of Mohr Davidow Ventures.

“We were approached by a late-stage VC [venture capitalist] in the fall, even though we weren’t looking for capital,” Miller explained. “I’ve known Tom a long time—I approached him at our first fundraising and kept in touch over the years—so I called him and he said he’d be interested” in making the new investment.

“[Software as a service] and agile will continue to revolutionize how software and hardware get developed worldwide,” Bogan said in a statement.

Rally in 2009 nearly doubled its revenue from 2008, Miller said. He forecasted that the company will be cash-flow positive in 2010. The company will hire engineers to continue building out its application life-cycle management and project/product portfolio management solutions.

Noting that other ALM tools providers are evolving their products to align more closely to agile practices, Miller said, “We look forward to seeing large ALM providers continue to validate that this is a large and growing market. We think it will blow wide open beginning this year.”

Rally, he added, began by doing 25-seat deals, and now has customers with 2,500-seat licenses and prospects at 25,000 seats. “The underlying principles [of agile development] are consistent across development organizations, even those using mixed methodologies.”

Miller said the company is looking at “a couple of acquisitions” that could take the company in a new direction, but he did not indicate what direction that might be.