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Ask an Open Source Venture Capitalist
Richard Gorman, of Bay Partners, is a venture capitalist. Part of his job is to seek out and finance open source companies. He's not easy to snow technically; he has a Master's degree in Computer Science from MIT. And he's not easy to snow financially, either; he also has a Master's in Management. This is a golden opporttunity for all you budding entrepreneurs out there to find out exactly what a tech-hip, management-hip venture capitalist looks for in an open source-based startup. (As always, Slashdot interview rules apply.)
Your profile states your feelings that a "very strong team" is important to the success of a startup. However, most startups only have the basis for a technology team in place, and rarely have a strong executive team. In a recent interview with Robert X. Cringley, technologist-cum-Venture Capitalist Bill Joy stated that his firm worked with startups to assist in installing team members that are missing from a venture. (Google is an excellent example of this in action, with Page and Brin turning over the Chief Executive reigns to the more experienced Eric Schmidt.)
What are your thoughts and opinions on this practice? Does your firm assist startups with more than just financial matters, or do you feel it important that the startup be fully formed by the time you invest?
Javascript + Nintendo DSi = DSiCade
In my (very) limited experience in dealing with the VC world, one of the key concepts that was always in any discussion was the exit strategy. Typically that translated into IPO or sale to someone else. Is this any different with respect to open source companies?
It just seems to me, and I'm just a knuckle-dragging developer here (who also engages in diy projects), that the exit strategies might be a bit different than your traditional concerns.
sad robot making broken music
Mr. Gorman,
In general, what qualities in an open source project do you find attractive and worthy of consideration for venture capital?
What are the most common problems that most startups have when begining talks with you?
"When I want your opinion, I'll give it to you." --leonstryker
I have graduate degrees and experience in engineering, and I have good managerial and interpersonal skills. I have often wondered what it would take to sit on the other side of the table, and what it is like to have plenty of funding, helping other people bring good ideas to market.
How did you get your job? Is it hard, easy, boring, fascinating, soul-destroying, fulfilling, all of the above?
Toronto-area transit rider? Rate your ride.
Why have you chosen to fund Open Source based companies?
From a Venture Capitalist's point of view what advantages do open source based companies have over other software companies?
A masters in both CS and management? I'd love to see some of the arguments he gets into with himself...
This guy's the limit!
You can and must know your subject area, in this case, tech. You also need to put together a business plan and shop it around. But the thing that there doesn't seem to be a lot of help out there on is the magic ingredient: learning to think like a Yankee trader. There's a certain kind of thinking that works out ways to monetize a technology product or service. Sales people kind of have it. MBAs don't have it, or if they do, in small degrees (learning the CAPM doesn't teach you how). Engineers definitely don't have it.
So where/how can the aspiring entrepreneurs among us learn how to think about how to make money with their marvelous inventions? Do you have any books, organizations, or workshops you could recommend?
Do what you can, with what you have, where you are.
getting your resume summary posted on a slashdot summary.
Given that the nature of venture capitalism is to fund startups, at what point do you pull out? Is there a critical size of a company which is a warning to pull out and cash in? If so, what size is it?
To put it more precisely: When, in your opinion, does a startup stop being a startup, and do you pull out and cash in when that point is reached?
In general, what drives you to fund a startup? Just as interesting would be what drives you away from funding a startup (other than the obvious answer of "their idea sucks").
Traditionally it's held that one of the things a company should have, if seeking venture capital, is "proprietary technology." Obviously in the
case of an open-source company this will never hold. Open-Source based businesses are always fundamentally different from an old-school technology
company in that you're not really selling bits; you're selling "something else" where the "something else" may vary depending on the business model.
So given that, and the thesis (mine at least) that the barriers to entry for competition are lower for an open-source company, what do you look for
in a potential investment? Are you looking for some radically new and innovative business model; with accompanying patent? Or is it all
about execution, suggesting that a would-be open-source company has to meet a higher standard in terms of attracting business and establishing
a customer base *before* getting funded?
// TODO: Insert Cool Sig
Crow T. Trollbot
Does the license of the open source matter to you? Do you have a preferred form of license, e.g., GPL vs. BSD? Obviously, some licenses are better for the developers to make a buck on versus others which aren't designed to hold cash flow.
What are the best ways to actually earn a profit, when you're giving away the source code? Are entrepreneurs in this area limited to "support, support, support", or are there other ways?
Apology to Ubuntu forum.
Creating good UI and an overall understanding of user experience is a common shortcoming in OSS. The notable exceptions have had significant help from commercial companies with ui design expertise (say, Firefox, Ruby on Rails). Can you please describe how you think about user experience and OSS, and how that impacts investment decisions?
- initial thoughts on the UI when assessing products (obviously not so important for server tools)
- thoughts on UX expertise of the team
- more importantly, how you take a promising OSS company and add UX expertise?
thanks,
cz
That's more insightful than "Funny".
For example, how many ideas that were/are great ideas from an engineering perspective, but you had to pass because there wasn't a market for them? And what was it about those ideas that made them unmarketable?
I'm sure there are plenty of times where the business and engineering clashed.
In your opinion, what are the 10 most common mistakes open source-based startups make when seeking venture capitol?
Arnold Kling in Under the Radar recommends that entrepreneurs start out by bootstrapping their operation by finding paying customers and actually making money before thinking about outside funding. What are your opinions about this way of starting up?
What do you plan to do for a living after BubbleBurst 2.0?
Slashdot Burying Stories About Slashdot Media Owned
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Having started a small website, that quickly turned into a medium sized website, that led to mentions in Private Equity Weekly, calls from Turner, speaking engagements, and emails from a couple Investment Banking firms, at what point should a startup seek outside funding vs. trying to bootstrap their way to success? We wanted to carry it as long as we could (we're not losing money, we can afford to run at this level forever), but we have since been equaled (or, in some cases passed) by a dozen or so copycats with big bankrolls funding their marketing and PR.
At this point, it feels like we've missed the boat (though our traffic and membership is higher than ever before), simply because we didn't take on the outside management and marketting expertise that would have come with real funding.
The question, then, is: does there exist a fundamental 'right time' to contact a VC/IB to avoid losing your competitive edge? Or, does it always vary by company?
Mooniacs for iOS and Android
I have a really great idea that I would like to market. Without getting into specifics it's along the lines of (legal) media distribution, and would involve licensing from big television/media companies. I haven't seen anything like my idea out there, and have been activly looking, as I have intrest in this idea as a consumer as well. I think it has a lot of potential and would compete well in the current market.
My question is this, how does one go about getting started? Could you give a general overview of how a successful startup works, as well as perhaps some good references for further research?
Why then invest in Open Source? What are the advantages to this model of business from an investment standpoint? Are there disadvantages from an investor's standpoint? How do you weigh those?
-Todd
Put down the sig, and step away from the computer.
What is your opinion of the open source hardware projects that you are aware of, and do any stand chance of becoming success stories like so many of the software projects have?
Also, have you come across many business opportunities that could be filled by open source hardware (care the describe them?), or do companies shy away from open source hardware for some reason (if so, why?)?
Thank you!
-- PGP keyID: 0x4C95994D
As a lead-maintainer / developer of a successfull open source project and a freelancer and company partner who focuses on OSS I have a three-part question:
1) How do I get to talk to someone like you? What would be the best approach?
2) What do you want to see from someone who approaches you? Neat, well formulated ideas? Implementations? Finished business plans? A running company? All four?
3) What bores you to death and what talks have you had with VC seekers that where a total waste of your time? What where the things they did wrong?
We suffer more in our imagination than in reality. - Seneca
Take the case of a company that has been in business for 7 years or so, and has successfully bootstrapped themselves into a modest little venture using their own open source technology. They have offices, employees (even salesmen!), a small management team, a decent little client base, and no debt. But they are very much a small business.
Now, with their hard-fought, real-world experience, understanding of their sector, and practical experience with using open source to make real money, they think they see a new opportunity in the marketplace, which their technology is well-positioned for. But going after this market will require a big investment, at least doubling the company size, and will probably require a whole new management team.
The question is: how is this problem like or unlike a start-up? Do VCs tackle this situation differently than they would a pure start-up? Should the company approach VCs differently than a start-up would? Or is this out of VC territory altogether?
As a college student who is starting up a business, the biggest hindrance is my seeming lack of appearance. What tips would you have for young people with good ideas who want to present their researched business ideas/plans in a way that gets noticed?
For a lot of technology startups, there's got to be a point where the VCs are interested, but want to do some technical due dilligence. Things like making sure that new technology really does have the potential to perform as advertised, or that the founders aren't making obvious mistakes in areas outside of their direct expertise (ex, embedded hardware requirements from software developers, or software development plans from hardware jockeys).
So... who do you turn to when you feel the need to do some technical due dilligence on a company you're planning on investing in? Are there any opportunities for nuts-and-bolts technical people to get involved with a VC in this capacity, or is this something that is generally handled in-house or though personal contacts?
"Great men are not always wise: neither do the aged understand judgement." Job 32:9
I have developed a next generation build tool, a make replacement, called KJam ( http://www.oroboro.com/kjam ). I am having some success licensing it under a traditional 'closed' license to software development companies.
I have received interest from some large open source projects to switch to using kjam as their build tool. The problem is that since they are open source they can only allow development tools in their toolchain which are themselves open source. Since they give all their users the right to build their software, they can only use tools that their users are also licensed to use.
Clearly I would love to make it possible for these projects to be able to use kjam as it would be a tremendous endorsement. But if I do that won't I need to provide such liberal licensing terms that I would be unable to continue to sell commercial licenses?
I have seen some open source software projects succeed with 'dual licensing' where the product is free for non-commercial use, but requires a license for commercial use ( e.g. license required for integration into your commercial product like trolltech, or commercial licenses required for some applications or configurations like mySql and Asterisk ).
Are there open source licenses which would be liberal enough to allow other open source projects ( and their users ) to use my build tool and still give me an avenue to sell licenses to large corporate software developers?
My project (a web based game; see my user profile) sees about 40,000 users every day across the globe. Right now our operational costs (two dedicated servers w/ substantial bandwidth) are 100% funded (and well in the black) by user donations.
To me, this makes the project a success, and demonstrates clearly that there's a real market for such a project, as users are of their own free will willing to support it wholly.
Real life gets in the way of me being able to dedicate the same level of devotion that I used to be able to give the project, but I personally am confident that if we had funding that enabled us to hire just one or two developers and purchase some additional equipment, the project could take off like a rocket. We have a huge list of ideas for improvement -- things that we simply don't have the time to successfully realize today, but which we could if it was our job.
So my question is, what would you recommend we do to seriously pursue getting real funding. How do we first find someone that is not turned off by the idea of an open source model, and second will actually listen to our proposed business plan? When talking to them, what sort of things are they looking for that demonstrates that we're serious, willing to work hard, and aren't just looking for a free ride to tinker around on code?
Slay a dragon... over lunch!