VCs' focus on revenue could benefit open source
As early-stage investors look for revenue-generating businesses again, open-source companies could benefit. It's no longer fine to have downloads without corresponding dollars.
In a not-so-surprising turn of events, The New York Times reports that Silicon Valley venture capitalists actually care about revenue again.
After years of investing in Web 2.0 companies that generate eyeballs and weird brands but little revenue, VCs have decided that businesses that actually make money are a priority:
For Web sites that do not already have large audiences, "your business model may be just as plausible as it was 18 months ago, but we're all more cautious about giving you a slug of money," [Accel partner Theresia Gouw Ranzetta] said.
Instead, investors are looking for sites that make money in ways other than selling ads, like selling subscriptions or virtual goods. Selling 50 cent costumes for online avatars might not seem to be much of a revenue model, but pennies add up.
This emphasis should actually benefit companies with open-source models, which have seen investments taper off somewhat in the past few quarters.
Given that open source went through its own investment silly season years ago, back when it was fine to have downloads without corresponding dollars, it may make a safer investment for cautious VCs today. A wide array of open-source companies are making solid revenues in the $10 million to $50 million range, either reaching or approaching profitability.
In sum, as VCs focus on value again, just as customers are, open source should benefit.