Venture Capital Journal has published an interesting article (subscription required) analyzing the state of venture capital funding in open source software. While some of the data is somewhat lacking* the article makes up for it with insight from the likes of Robin Vasan, Peter Fenton, Amit Pandey, Cameron Lester, Harold Goldberg, Larry Augustin, Lisa Lambert and Leo Spiegel.

One of the core questions asked in the article is: “have all the good deals been done?” Robin Vasan suggested they might have been, saying “it’ll be the rare new company that will have an interesting opportunity”, while Larry Augustin disagreed, insisting “I see a fair number of early stage businesses out there looking for venture financing around open source” and Mark Radcliffe agrees with him.

We have previously voiced concern about the pipeline for VC funding based on the fact that while the first quarter of 2008 was the most successful quarter in history in terms of open source vendors raising venture capital funding, the percentage of disclosed Seed and Series A funding hit an all time low in the quarter. As can be seen from this chart, the percentage of funding going to Seed/Series A deals has been in decline for the past four years.

Does that tell the full story? Perhaps not. These two charts, which show the number and value of Seed/A deals (in blue) and Series B/later deals (in red) over the last four years, indicate that the number and value of Seed/A deals has remained pretty steady. The fluctuation in the percentage figure above has been caused more by fluctuations in the number and value of Series B/later deals.

So while the number of companies out there raising Seed and Series A deals may not be climbing particularly, it is at least not declining to the extent that the percentage figures would suggest. Our figures show that of the 79 companies that have raised Seed/A funding in the last four years, 40 have not yet gone on to later funding.

Removing those that have been acquired (JBoss, Gluecode, DevZuz) and those that have gone kaput (Mindquarry) gives a list of 36 companies potentially looking to raise further funding. Given the most deals that have ever been done in a year was 51 (in 2006), that’s a pretty healthy pipeline.

The figures, of course, relate only to vendors with disclosed Seed/Series A deals, and do not take into account behind the scenes bootstrapping and friends and family funding (and there’s a lot of that about thanks to open source M&A).

*VCJ cites $200m to $250m invested in 30 deals per year for the past three years, whereas The 451 Group has tracked 47 deals worth $338.57 in 2005, 58 deals worth $546.3 in 2006 and 49 deals worth $318.47 in 2007. VCJ also cited 10 deals worth $112m between January 1 and March 10, whereas we noted 10 deals worth $142.9m in January alone.