Index Ventures partner Mike Volpi had just secured a $ 1 billion payday at Confluent’s IPO ($ 1.3 billion to be exact).When doing so He told TechCrunch Venture capitalists weren’t very “hyped” about investing in open source in 2015, and that this has only changed recently, he can forgive a little revisionist history. all right. But since Red Hat unveiled Hughes in 1999, VCs have been investing in open source and haven’t slowed since. What has changed is the type of successful open source investment.
Open source that was successful by imitating proprietary software. We are now winning by creating a whole new category. (And yes, Volpi has succeeded in investing in both.)
Faster and faster
I worked for the first open source startup (Lineo) in 2000. Raised about $ 60 million We promise to incorporate Linux into many new devices that are the predecessors of smartphones, from microcontrollers to personal digital assistants. We were part of many of the open source companies that were raising money at the time, with companies such as TurboLinux and LinuxCare investing more than $ 700 million in building a Red Hat IPO. Lineo burned in 2002 and was sold as scrap. Of these other companies, open source is soldiers, and VCs are anxious to keep shaking in search of a billion-dollar fence.
By 2005 New York Times I was writing aboutOpen wallet for open source, “Quoting investments in JBoss, SugarCRM, MySQL and more. They quoted me and insisted that “in a year we can guarantee that there will be dozens of companies using the SugarCRM model” for open source monetization that relies on a combination of open source cores and proprietary add-ons. .. Extension.
I would like to say that it was foresighted, but it was simple math. Open source quickly became dominant among developers, and VCs recognized this. Some VC companies, such as Volpi’s Index Ventures and Peter Fenton’s Benchmark, were quicker to recognize trends and invested heavily. Volpi has invested in Confluent, Elastic, Cockroach Labs, Hortonworks, Kong, and Starburst and has the right to take pride in its ownership in this category. His company can add MySQL etc. to its roster.
Even slow-moving VCs have caught up with billions of investments and tens of billions of returns. In 2018 alone, IBM’s acquisition of Red Hat generated $ 55 billion in open source revenue, but OSS Capital’s general partner Joseph Jacks said. Keeps a summary of all revenues And while not all companies he recognizes as open source fit that description, it’s still enough for a final total of well over $ 100 billion.
Return to TechCrunch interview. Obviously, it’s not dramatically true that open source didn’t see much VC action until 2015. Andreessen Horowitz, an investor and former XenSource CEO of Andreessen Horowitz, is a bit cheerful. Peter Levin wrote in 2014 Even if multiple “Red Hats” are funded, there is no other Red Hat. Nor is it true that open source “the market has become more and more popular as more investors support the model.” It’s true that more and more VCs are funding open source, simply because there are more open source funding.
And that’s the real story.
Build the future with open source
Many of those early open source investments were companies like Alfresco, one of my startups, whose goal was to provide an alternative to open source in the established software category. (In the case of Alfresco, it was document management. We charged ourselves as an “open source Documentum.”) This made marketing easier. Someone else was already spending money on creating the category and all you had to do was commoditize it. Through open source. There were open source app servers (JBoss), open source customer relationship management (SugarCRM), open source business process management (BonitaSoft), and more.
But then something interesting happened on the way to the market. Open source has become revolutionary.
Open source celebrities by 2013 Mike Olson can declare “In the last decade, no major platform-level software infrastructure has emerged in a closed-source proprietary format.” He said to open source, “Enterprise infrastructure tends to be surprisingly irreversible. I did. ” He was right. However, this actually made it difficult and not easy to pick a VC winner.
Take Confluent, the main sponsor of the currently popular Apache Kafka project. CEO Jay Krebs, Twitter thread, Reminds me that this is not always the case. “We created our first Kafka codebase on LinkedIn between 2009 and 2010. In 2011, we released our first Kafka code as open source … Reverberating silence. Nobody cares. did!”
In other words, few people at the time were serious about streaming data. Kafka is a publish / subscribe messaging system used to handle real-time streaming and batch-based data processing. At the time of Olson’s statement, I worked for Nodeable for a year. It sought to build a business with Apache Storm and provide a way for developers to take advantage of stream-based processing of data. I failed. Many startups fail. Perhaps we struggled with marketing the company and our product wasn’t great (both may be true), but in most cases we need to adopt streaming data. I had a hard time convincing the developers.
No one needs to convince today. Streaming data is becoming the norm, and Kafka is at the heart of it. Back to Kreps: “Building an event-centric data architecture, moving from batch to real-time stream processing, doing this around a kind of commit log that summarizes real-time changes and data storage, and many other big ideas. I knew it could be a big deal! “
Mr. Krebs continues. “But how can you get people to think about data differently? Maybe we needed a company to help drive it. But no one has your product. If it’s about an unwanted paradigm, there’s no point in starting a company. How to test it? “
December 2013, Kreps Wrote a blog post How event streams can act as the central nervous system of a company and data usage can shift in real time through stream processing.
“If blogging is popular, there may be a company there,” he remembers. If not, well, this may not work. Blog posts were very popular! We decided to jump and start the company. Confluent was born in September 2014. “
This will allow you to return to your investment in open source. In the past, investing in open source was considered relatively cheap, as it only piggybacked on a project started with a developer. It still happens, but when open source companies are creating categories, they may need much more capital than just aping them. This is certainly a message from MongoDB CEO Dev Ittycheria. Quote over $ 700 million The company has invested in this product since the start of the project. No document database product was imitated by MongoDB. It had to be spent.
Ditto Confluent raised $ 455.9 million before the IPO. Or Neo4j, an open source graph database company that has raised over $ 500 million, including the recent $ 325 million Series E.
This means that investment in open source has never slowed since Red Hat ignited Hughes in 1999. If anything, it keeps accelerating. Also, funding can be expected to be even bigger and faster, as open source companies have to spend a lot of money to create new markets rather than copying old ones. Free software seems to have a lot of money.
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Open Source Constants | InfoWorld
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