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Open-source venture investing hits an all-time high

Open-source investments are at their highest level in history. Though the dollars skew toward later-stage companies, this is actually sign of good things to come.

The 451 Group

Just when you thought venture interest in open source was quieting down, along comes the biggest quarter in open source's (still young) history: $203.75 million raised, as reported by The 451 Group. This trumped the previous record of $193.6 million from Q4 2006. There's something about the end of the year that bodes well for open source...

Great news, no? Well, yes and no. as The 451 Group's Matthew Aslett goes on to note, the quarter saw far more later-stage deals than early (seed and Series A) deals:

Although the likes of Ringside Networks, Bluenog, and Engine Yard did prove there is more to come in the future, the vast majority of the funding raised in the quarter went to more familiar names, such as Automattic, Greenplum, SugarCRM, and Pentaho.

In fact, so many of the old names raised funding in the first quarter, it's difficult to see where significant further funding will be raised in the coming months unless a few more start-ups emerge.

I'm not sure I share the caution, though I, too, would love to see more open-source deals getting funded. Most venture funds simply aren't going to overextend themselves in any given investment area. Given that they have already placed their open-source bets, they're likely to continue to nurture these toward an exit, and then invest in subsequent opportunities once their existing investments pan out.

The exception to this "rule" is Benchmark, which seems intent on investing in every open-source venture on the planet. But it is the exception.

More tellingly, we're seeing experimentation in novel areas of software. Matthew didn't mention Acquia and OpenX, both of which recently raised rounds, but they (along with Ringside and the others mentioned) take open source into new territory. This is the key takeaway. Open-source venture investment has proved that classic enterprise software plays make sense for open source, but most areas have been covered.

The new opportunities are in new markets, where open source is innovating, not following. "Only three" is a glass half-empty way of looking at it. Given the nature of the companies being funded, it's definitely glass half-full, even for Savio.