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Open Source: VC's New Investment Darling
$204 million of VC cash flowed into open source companies in the first quarter of 2008. That’s twice the amount invested over the same period in 2007.
That’s the finding of the 451 Group and reported by Information Week. The 451 Group identified 20 deals during that period, which works out to about $12 million
per deal. That compares to only 11 deals were made during the first quarter of 2007.
Top recipients included Auotomattic, Greenplum, SugarCRM, Pentaho and EnterpriseDB. Major VC’s included Charles River Ventures, Fidelity Ventures and Valhalla Partners.
Interestingly, less than 5 percent of the funding were for seed rounds of startups. Most of the cash went to operations that have been out there for some time.
The few startups that saw VC cash were social app server company RingSide Networks, app infrastructure company Bluenog, and Ruby-on-Rails hosting company Engine Yard.
The huge challenge with these investments is ROI — finding the right model that coexists with the idea of freely downloadable software and that can generate revenues is
a problem that all oepn source companies are struggling to solve.
Business models that companies are using include charging for support and services, embedding ads in the software, and offering a dual licensing model: one that applies for unsupported community use and another that is supported and applies for commerical use.
