Open-source venture funding rises 14 percent in Q2

VCs are pouring more money into open-source companies, but the likelihood of a payoff in the form of an IPO is almost nil right now.

The 451 Group

Venture funding for open-source companies rose to $115 million in the second quarter, a 14 percent increase over the same period a year ago, according to The 451 Group. And funding for the first half of the year is up 62 percent over the first half of 2007.

That's all the good news.

The bad news is that seed and series A funding remains anemic and may continue to remain so while venture-backed companies struggle generally to find a public exit, i.e. an initial public offering. In the second quarter, there were exactly zero IPOs for venture-backed companies--whether they were open source or otherwise.

While the open-source freeze may perhaps not be a cause for as deep concern as The 451 Group suggests--VCs need to see returns from their existing open-source investments before they start to pile on more--it does mean that there have been better times to try to get an open-source venture funded.

With that said, investors who have seen strong returns from open source (e.g., Peter Fenton at Benchmark and David Skok at Matrix) are actively investing and vetting new open-source projects. For those with the right credentials or track record, these are the investors to approach. But given their experience in investing in open source, they're also the least likely to be swayed by mere downloads.