Slashdot Mirror
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.'"
So after spending countless nights (and days) coding and fine tuning your software, after having burn all your saving trying to maintain a website and paid for the bandwidth, after having lost all humans relationship to a handful of porn-addicted-cubicles-geeks, after being on the edge of personal bankruptcy, your project finally catches up and a small but dedicated community is backing you up, then you only half way there !
VC seems not to take *any* risks when investing in Open-Source companies, you got to be *already* successful in order to be one of the lucky one that is being given some cash, and then, hopefully, you are not going to be asked to give up control in exchange for that well deserved life-saving money.
People tend to understimate the value of technical support. I think it is decent answer to (in perspective of new business model) : How do you make money on something that is developed and distributed for free?
VCs need to own something and in this case they want to own customers that can't use the software without them.
Two wrongs don't make a right, but three lefts do.
Most small businesses fail. Whether its software or brick-n-mortar, the simple fact is that most business ventures simply don't work out. Venture capitalists are not going to take extra risks to support Open Source companies versus any other small business, especially when the business model is so new.
I think this is going to be the norm. Find an existing OS project, see whose using it, and then figure a way to make money. I agree with what your saying. It does seem like a haphazard way of building a business. But OS is a different economic paradigm so I guess it takes a different investment paradigm.
Evil people don't think they're evil. - George Lucas, Making of Ep III
you "make money" in open source (primarily) by using it in your OTHER meat and potatoes widget making and selling business. Software is a tool to "do other real tangible stuff", it's the "do stuff" part where you make your money if you are joe corporation. If you are joe IT nerd, you make YOUR money by using open source for your employer at joe corporation making and selling widgets better than his competitor. If you forget that part, you will lose out and most likely get replaced.
This is 2005, not 1975, the software tool business is becoming "free", as in FOSS free, it's beyond mature, the "tools" are plenty good enough to "do business with" now, so look to actually DOING SOMETHING with the tools to "make money".
In meat space, there are just so many hammers and saws you will be able to sell to a contractor, eventually those hammers and saws go build a lot of buildings, THAT is where the real serious folding money is made, not on the sales of hammers and saws. If you try to keep coming out with a new hammer or saw that is only marginally different from the previous, the contractor is just going to go 'fuggit" and stop buying "new" tools as long as the old ones are functional and still making his living for him.
Yes, *some* loot is made on the tool, *some* people are employed manufacturing and selling them, but it's a tiny industry compared to the general construction industry. Home Depot is a big company, but it's a miniscule fraction of a percentage of the entire construction and remodeling industry dollars wise and raw numbers of gainfully employed people wise.
Staying focused on the "tools only" side will only result in a set of economic blinders to the really big picture. and this is also being lost on US corporations who have forgoten that eventually you really actually have to go to work and make something, you have to create wealth, not re arrange wealth, manage wealth, leverage wealth, trade wealth around, nope, you have to MAKE IT for any NEW wealth to actually get into circulation or in peoples hands. You can't just keep opening sales outlets while you close down wealth manufacturing outlets and expect it to last for generations, it just is not possible.
The same with an economy based primarily on intangibles, it just isn't possible.