We reported last week that VC funding for OSS-related vendors fell 37% in 2009 to $375.4m. We noted at the time that the decline was not actually as steep as I or others had predicted.

Another reason we weren’t overly negative about the 2009 figure was that we knew the figures for the first quarter of 2010 were much more positive. According to our preliminary figures, funding grew 37.9% in the quarter to $89.1m.

1Q10 was the second consecutive quarter of growth, following the more modest 6% rise in the fourth quarter of 2009, providing another reason to think positively about investment and OSS in 2010, although as the chart above indicates, funding levels are still well down on 2008.

Another note of caution surrounds the fact that a significant proportion of the funding in Q1 was was the result of Magento’s $22.5m equity funding round.

Other early-stage deals announced in the first quarter included a $6m series A round for eXo Platform; $5.1m for Abiquo; a $5m series A round for NorthScale; and a $4m series A round for OpenERP.

Later stage deals included $12m series C funding for MuleSoft; $10m series B funding for
Lucid Imagination; and an $8m series B round for DotNetNuke.

There were 16 announced funding deals in the first quarter, compared to 12 in the whole of the first quarter of 2009. Fifteen of the deals in the first quarter of 2010 had a disclosed size, resulting in an average deal size of $5.9m. In the same quarter of 2009, there were 11 deals with a disclosed size, resulting in the same average deal size of $5.9m.

Based on the increased number of funding deals in 2010, it is clear that venture funding is available for both early- and later-stage deals if the business opportunities are right, although the fact that the average deal size remained the same indicates continued pressure on funding levels. Taking all these factors into account, the level of funding in 2010 can be expected to be flat at best compared to 2009.

A full discussion of VC funding in the first quarter of 2010 and the whole of 2009 is included in our latest CAOS report, Open to Investment, 2010, along with analysis of venture-backed mergers and acquisitions in 2009 involving OSS-related vendors, an overview of the potential impact of current economic conditions on OSS adoption and investment in OSS-related vendors, and a list of the 74 vendors we believe are most likely to be considering further funding in the next two years.

451 Group clients with an interest in OSS and venture capital may also be interested in our recent Sector IQ report: Open source M&A in 2010: Will scarcity of later-stage funding lead to more scrap sales?