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.'"

Comments

What's the revenue model?

[LeonGeeste]

Um, the article (I'm sorry, TFA) doesn't say anything about the, er, REVENUE MODEL that these "businesses" use (in fact, it specifically says that's big barrier, and only hints about the models in one line), and, uh, that's kind of important to consider when invensting venture capital. Remember the dot-com boom/bust, anyone? Enron? Didn't that teach ANYONE the merits of, you know, understanding how the businesses intends to make money before pouring putting your own funds into it?

I had a great idea for a open source project that could use a lot of funding (it relates to machine translation and is something people would pay a lot of money for), and I read the article (TFA) hoping to find ideas for revenue models for open source that I could then use to promote when seeking VC. No, I was unfortunately not successful. Maybe next time Business Week can remember to include the single most important part of the story?

Another, somewhat lower-end source of money...

[tcopeland]

...is simply to write a book about your open source project. The project users get better documentation for your project, the managers feel a bit better about using a product that has some paper documentation, and while you're writing the book you'll run across all sorts of interesting nooks and crannies in your code which you can fix and document.

Downsides are that it's a lot of work and that it doesn't make a ton of money; maybe just enough to keep one person going. But in my experience it's well worth the effort.

Asterisk is a no-brainer

[Toe, The]

I can't wait until VC discovers Asterisk (and Digium, the company behind the project).

It's a no-brainer, in terms of market and community. And it's a classic open source project, in that it ties into everything, does everything, and is used by everyone.

I'll be installing next year. The more capital behind this project, the better.

And hopefully some of that capital will go to developing Mac drivers for the PCI cards. :)

Supply Side OSS

[Doc Ruby]

What about those scenarios applied to a developer who just uses an open-source product as the basis for their own operations? If I build a LAMP app, I'm leveraging the combined communities of Linux, Apache, MySQL and PHP - other OSS combos work similarly, even if some other SW is proprietary. The components are mainstream, but my new app has to make its way. Assuming my proprietary part presents a barrier to market entry to my competitors, how much value do VCs place on my risk mitigation by betting on the right OSS components? PHP is a good example: it's not nearly as compelling without ruding on OSS like Apache, MySQL and (also OSS) Perl. If PHP weren't OSS itself, how attractive to investors would it be?