My CAOS colleague Matt Aslett wrote recently about how we expect to see an uptick in open source merger and acquisition activity given the current economic conditions and bargains for the larger, mostly proprietary players. Matt also discusses the difficulty of further VC funding, though we have seen some significant investment announcements, such as Open-Xchange, Infobright and others. Still, Matt is probably right that funding will be harder to come by for any company, open source or not.

I also continue to see a number of startup and younger open source vendors — would-be fundees — that are opting to hold off on venture funding and stick to building up business, customers and reputation. BitRock is chief among these vendors, which see some open source counterparts on the hook for tens of millions of investment, but with an exit path that has become overgrown with previous, strategic deals that valued open source as high as we have ever seen (e.g. Red Hat-JBoss, Citrix-XenSource, Sun-MySQL, Nokia-Trolltech). The fast path to acquisition is no longer as scenic or valuable, given valuations are now down to the floor. The option of the IPO is, well, not really an option right now. So companies such as BitRock, which was considering an A round earlier this year, are sticking to the angel-funded, bootstrapped startup route and a longer path to profitability and then, perhaps acquisition or going public.

Ohloh, the open source developer and project ranking and information company that provides a site for users and developers to communicate across open source projects, is another example. CEO Scott Collison reports the company, which is healthy, is now considering its best path forward, which may or may not include funding. Collison adds that he believes the only reason Ohloh can look ahead and consider an exit path is because it has been frugal and taken very little capital.

Another open source executive whose company is going ahead with further funding says the path, end game and funding boil down to the maturity and presence of the software, with established projects, communities and now vendors leveraging widespread use to present less risk to investors. The maturity matter is also something Matt discusses. I agree and think it is the newer companies still in the process of proving themselves and their products that are proceeding without funding, whether by choice or not.

Still, if doing without venture funding becomes more common for open source-based startups, it may limit the growth and revenue we see from open source. That, in turn, may make it even harder for those that do want or need VC investment to get it, particularly if they’re open source. Then again, it may just mean that while there is less investment funding to be had, there is also less investment funding sought, at least for now.