How To Get VC Funding for Open Source Products

Getting VC funding today is very hard, getting investment for your open source product is 10 times harder in today’s climate. The biggest showstopper for an open source product is a viable business plan.

Keith from Linux.com has written an interesting article on getting funded for open source products. The key points made by a successful open source product CEO who got over 18 million VC funding and a veteran VC are:

• The degree of difficulty ratchets up many times if you’re an open source developer. It can be done, but it takes such single-minded focus that getting turned down multiple — maybe even dozens — of times won’t faze you.
• “In open source, you have to figure out how you’re going to make a return on the investment,” Jim Watson, managing director of San Francisco-based VC firm CMEA Ventures says. “At the end of the day, somebody has to pay something for what you’re doing or it has no value.”
• Finding an investor that believes in your company and product is especially important in the open source arena, says Bob Walters, Untangle’s CEO. Open source can present more risk, making it that much harder. “Funding for open source has become very discriminating of late.”
• If you don’t yet have a large community, it’s even more crucial to have a strong business model and business case. The idea comes first, but a close second is the need for a strong, experienced leadership team to guide the fledgling company and convince VCs to write the checks.
• Having a rookie leadership team makes it “really hard to succeed in this business; you need an experienced team, a partner that’s done this several times. It reduces a lot of the risk for VCs,” Watson says.
• Beyond keeping it simple, a company must know its audience. A huge negative for Watson is “groups that haven’t thought about the market. Who’s the customer who will be paying for this? It’s amazing how many of those we see.”
• Getting multiple points of view is a recurring theme for successfully raising VC capital. And it can start right at the beginning, according to Miller, who says to consider “having more than one founder. At the end of the day, if your idea isn’t good enough to convince two people, it’s probably not good enough to build a business” around.

The last point on getting multiple founders is very important for other reasons too. Running a business is hard. Having a core team of 2-4 people, people who trust each other, ensures that you have all the bases covered. My only advice to this mix is that choose your partners / core team very carefully. More than any other factor, they can make or break your business.