451 CAOS Theory 
A blog for the enterprise open source community
Open source funding plunged in Q4, FY07
Matthew Aslett, January 2, 2008 @ 11:32 am ETNB The figures originally reported here were preliminary and have been revised for a formal CAOS report to be published in the first half of 2009. The figures for Q4 have been removed or updated, while those for the full year have been updated:
“I believe last year was actually the peak year of open source fundraising… This year is down slightly, but not down in such a dramatic way to indicate anything else but a good appetite for funding of open source,” Matrix Partners general manager David Skok told LinuxInsider in late 2007.
The raw data indicates open source funding fell more than slightly in 2007. Disclosed funding deals as funding for open source software declined 34.0% to $403.9m.
In response to the LinuxInsider article noted above, Matt Asay argued that it would be wrong to conclude that VC funding for open source is drying up. Once again we return to Larry Augustin’s prediction that the value and number of deals would decrease this year and would be unlikely to increase until we see more evidence of successful exits.
On the subject of exit strategies, we previously noted that the big money for established open source vendors went on M&A activity rather than venture funding in the third quarter. While there were fewer M&A deals in the fourth quarter, and none of the big money deals (Citrix/XenSource, Yahoo/Zimbra) we saw in Q3, there has been a noticeable shift towards open source M&A activity as open source funding has fallen.
Meanwhile Gianugo Rabellino, CEO of Sourcesense previously questioned whether the VC industry might have “filled the checkerboard and… moved to something else”. While it is certainly true that many of the investment opportunities in the obvious application categories have been filled, there are still emerging opportunities in new markets.
Examples from the fourth quarter include Acquia raising $7m in Series A funding to support the commercialization of Drupal, while open source-based home appliance vendor Axentra raised $6m in October. Meanwhile, as Asay states “as for investments into the ‘easy’ enterprise categories, there’s still money there, too”. We are aware of one significant funding round for an established open source vendor that is set to be announced soon, and there are rumors of others to follow in the first quarter.
Clearly, open source funding hit a peak in 2006, and while funding levels are unlikely to increase substantially in 2008 there is no reason to believe that the rate of decline seen in 2007 will be repeated this year.
Incidentally, for those that like to follow the running total, open source funding to date now stands at $2.38bn.
Comments (13) Categories: Funding,Linux,M&A,Software
Open source funding down in Q4 2007…
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[...] Read the rest of this great post here [...]
Don’t care about the charts. People who can use Open Source will use it regardless of funding …
Funding may have gone down, however in terms on Open Source consolidation and acquisitions it was much higher than 2006. Regardless of VC funding Open Source is growing heavily and it will grow more in 2008 and beyond.
Very interesting and not very surprising, Matt. As the meaning of “open source” got so diluted and the business models of some new adopters assimilated to that of proprietary software, it become more apparent that Free software (as in GPL and its derivatives) was the way to go. That’s why GNU/Linux is so far ahead of open source in the enterprise when it comes to adoption.
In short, open source is something else whose value was radically warped. We have to ask ourselves if OSI-approved ‘open source’ means what it used to mean. If not, we’re killing the term and harm everyone who is honest, e.g. Digium, Red Hat, even MySQL. People ought to return to the term “Free software” and just emphasize that it’s about freedom. ‘Open source’ should have been more stubborn and selective. Have I lost hope in ‘open source’ because of the charts? No, that was months ago when I saw the thing devolving and called it quits.
Just my 50 pence and I hope I don’t upset anyone.
Not sure I agree with the latter part of your comment Roy, but certainly the mixed-source business models means that it is increasingly difficult to point to a particular vendor or investment as “open source”. Larry Augustin also discussed this issue in his post, referenced above. Whether you see this as a success or a failure of open source depends on your point of view.
Please buy open source software to support it. There is no such thing as totally free. We want commercial support so we must buy open source. But *never* spend a dime on Microsoft products. Open source is really great.
[...] 451 Group: Open source funding fell in 2007 January 4th, 2008 by admin The 451 Group has put up an article on the fall in funding for open source companies in 2007. “Disclosed funding deals were down 40.7% to $323.87m for the full year, compared to $546.3m in 2007. While a reduction in funding had been expected after the huge levels seen in 2006, a dramatic reduction in funding during the fourth quarter meant that total funding for 2007 was also lower than the $334.82m raised in 2006.“ [...]
[...] 2008 should be FedEx year for commercial Open Source. It's time to deliver: Open Source funding is not exactly dry as a bone, but is definitely taking the plunge (I consider this a good thing, actually). The money has been awarded, now it's time to get to real work and prove our worth. No excuses. [...]
[...] it is 1 April, and no I’m not joking. Following the plunge in the fourth quarter of 2007, VC funding started 2008 on a [...]
[...] $100.4m in the whole of the first quarter of 2007. It’s an extraordinary turnaround after a dismal fourth quarter of 2008, and helps to explain why the funding level for the last quarter was so low. [...]
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[...] of accuracy this data has now been removed. For a full assessment of VC funding in 2007 see this post. Permalink | Technorati Links | Bookmark on del.icio.us | digg it Categories: Funding, [...]