451 CAOS Theory 
A blog for the enterprise open source community
No money in tools?
Rachel Chalmers, April 4, 2006 @ 1:50 pm ETI had a lot of fun at EclipseCon 2006 talking to small, profitable companies with no VC. The Eclipse ecosystem is rapidly becoming awesome, but it’s not the only place where startups like these appear: Cygnus and Sleepycat were similarly bootstrapped. You always hear that there’s no money in tools, but I finally realized why (and who is saying it): there’s no money in tools… for venture capitalists. For engineer/entrepreneurs, a tool-based startup running off its consulting revenues and keeping overheads low can be a very nice living indeed.
Comments (4) Categories: Conferences,Software
…and the advantage of making your tools open source, or leveraging an OS framework like Eclipse, is low-overhead viral marketing.
Right…but what about the market noise. You’ve mentioned some successes, but, without the money to “splash,” most of the tools companies die on the vine, or they become side projects for a handful of people who have paying jobs. I’m beginning to think that with such good technology quietly disappearing, it’s really all luck (without the wad of investment cash in the back pocket).
Luck is certainly a big part of it, as is the right Rolodex and considerable patience: both Cygnus and Sleepycat were about ten years old when they were acquired.
Another factor I’m beginning to think about is VC microcredit. The way VC funds are structured now, it seldom makes sense for one partner to sit on more than 6-8 boards, meaning the minimum investment is $5-10m. Some alternative arrangement with lending going down to about $100K would suit this development model far better.
Finally, if you know of any cool tools in danger of dying on the vine, please email their details to me! I’m all about championing good technology over market noise.
While not dying on the vine exactly…here’s one local to me that I like:
http://www.openlogic.com/page.php?pname=company/news/press