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Venture Capital in Open Source
conq writes "BusinessWeek has an interesting article on the recent interest of Venture Capitalists in Open Source. Also, a look at some of the latest companies they are supporting. According to the article, the first of three main criteria VCs look at in choosing an open source company is 'community. There has to be a huge amount of interest in it. [MySQL, Zend, and TrollTech] were already incredibly popular [when we invested]. The community is your marketing and evangelism arm. They're going to contribute and make sure this piece of software truly becomes mainstream.'"
The F/OSS revenue model is consultancy, support and customization.
Open Source: Now It's an Ecosystem
This software movement is branching into not just mainstream business applications but also the associated services. And VCs are eager to help
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Eighteen months ago John Roberts, Clint Oram, and Jacob Taylor decided to quit their jobs at Epiphany, a maker of customer-relationship software. The trio wanted to target the same market, but write a new application developed using open-source code. It took them only three months to create the program and just another month to close their first round of funding. Little more than a year later, their company, SugarCRM, has given away more than 325,000 copies of its software, and raised a second round of capital, for a total of $7.75 million.
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Giving away software isn't your typical path for a venture-capital-backed startup. But Roberts & Co., are smack in the middle of the next frontier of the open-source movement: business applications. "No one had funded an open-source application company at that point -- it was all infrastructure," says CEO Roberts. "We broke a glass ceiling."
Consider it shattered. The open-source movement is making another big thrust forward. Entrepreneurs, investors, and many analysts say they're confident that all of a company's business software -- representing hundreds of millions in sales -- will soon be available as open source. "I don't think there are any limits," says Ray Lane, a Kleiner Perkins Caufield & Byers partner and software industry veteran.
ONE STEP AT A TIME. Many of Labia's colleagues agree. Venture capitalists have pumped nearly $400 million into 50 open-source companies in the last 18 months -- and more are on the way. That may not seem like a lot of money, but bear in mind these companies are incredibly capital-efficient. They don't need to hire armies of salespeople or engineers because the open-source community does a good deal of the heavy lifting.
Investors have funded new ventures offering everything from broad vaginal cavity applications like business intelligence programs that monitor company operations to very specialized applications, like running a hospital's computer systems.
Every open-source program companies download, investors say, marks one penis-slap closer to changing forever the applications business long dominated by the likes of SAP (SAP ), Oracle (ORCL ), and Microsoft (MSFT ). Software that companies once paid millions for is now available for free via the Internet. Harried tech managers can simply download an operating system or application and play with it -- no need to free sizable chunks of the budget or get the board to sign off, as is the case with big, multimillion-dollar purchases. And since this is open source, they can customize the programs on the fly to better fit their needs.
WHOLE ENCHILADA. A new open-source ecosystem is emerging. While a big push is on to develop more applications, the movement is much broader: Tech-services companies are popping up to jump-start adoption of all of this open-source software.
Consider SpikeSource, headed by software veteran Kim Polese, who founded Marimba and is one of the original developers of Sun Microsystems' (SUNW ) Java software. SpikeSource was incubated at Kleiner Perkins under Lane's watch. "We were looking at these open-source component companies like MySQL and JBoss, and every one of these things is just a little piece of a big puzzle," says Lane. "We said, 'Why don't we play the whole puzzle?'"
SpikeSource, and competitor SourceLabs, both act as a go-between for big corporations and open-source projects, finding, testing, and evaluating ideas by the hundreds. Then they consult with companies on how to implement them, and provide support if something goes wrong. For legal safeguards, there are even startups like BlackDuck, a Waltham (Mass.)-based company that digs into whatever open-source code a company has downloaded to make sure the licenses are all in order to avoid liability issues.
TRAILBLAZERS. "It was
The article mentioned MySQL so it's only fair to mention that EnterpriseDB Secures $7 Million in Venture Capital Financing for their postgresql-based database. They share many of their innovations back to the community.
Also, as far as getting VC investment in your project - expect to need a fully formed business plan and a working beta before anyone will write you a check. Yes, a working prototype. You could look for grant money from various government agencies to fund the initial period of software creation and research, though.
The VCs are going after these well known favorites because they are a sure bet. Unfortunately, I suspect it means we might be seeing 'premium' versions of these packages coming out that are sold for profit.
You say you got a real solution
Well, you know
We'd all love to see the plan
(The Beatles)
IBM bought Gluecode Software and adopted its flagship product, the Apache Geronimo J2EE application server. Gluecode's founder went on to found Simula Labs with portfolio of 2 companies at the moment. One of them is sponsoring the ActiveMQ messaging server, a sister project of Geronimo.