Open for Business

Thursday, April 07, 2005

Commercial open source: a magnet for venture money

Not so long ago Venture Capitalist would not even consider meeting entrepreneurs with business plans based on open source. Waste of their valuable time, right? It was all about your "secret sauce", a.k.a. your intellectual property. No IP, no funding.

Well, evidently, times have changed!

According to Matt Asay, VCs have invested more than $150M in open source startups since March 2004. I can easily believe this number. Off the top of my head I can mention a few recent deals that make that number seem plausible:

$10M for JBoss (first round) led Matrix Partners with the participation of Accel Partners, $8.5M for Groundwork (second round) led by Mayfield, $7M for Optaros led by Charles River Ventures, $5.75M for SugarCRM (second round) led by Draper Fisher Jurvetson (DFJ), $4M for OpenLogic led by Appian Ventures and Red Rock Ventures, and $3.5M for SourceLabs led by Ignition. There are other rising names in the space including SpikeSource funded by Kleiner Perkins with stars involved like Kim Polese and Ray Lane.

That's some serious change!

The challenge until recently has been monetizing open source. The reality is that open source has truly crossed the chasm; new business models based on open source services have emerged and changed the software business for good. Today, open source startups are clearly attracting the best names in the venture community. Furthermore, I heard that most of the deals listed above were dog fights where some VCs had to be very flexible and generous to get in.
The takeaway is that commercial open source clearly represents a disruptive shift in the software industry.

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