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Open source may be many things, but it is not It is a business model – By Most estimatesat least. However, that did not stop Joseph Jacks and OSS Capital From finding some early-stage open source startups and funding them during their formative years.
These include the likes of open source Qualtrics-substitute Brick moldsany He grew up A pre-seed funding round last year. Elsewhere, there’s Notion alternative AppFlowy; Jira Alternate Plane; Calendly alternative cal.com; Postman alternative The jump. For those looking for an alternative to Okta, Serbus is worth a look. The one thing they all have in common is that they are open source, and they all raised money from OSS Capital. But it also highlights the perpetual conflict between open source and proprietary domains, and presents two diametrically opposed ideas – the idea of giving something away for free and the idea of making a profit.
“The great thing about these open source companies is that they are inherently philanthropic, while at the same time being capitalistic and pursuing business models that actually generate sustainable revenue outcomes,” Jax said in an interview with TechCrunch. “And I think they’re very contradictory, from the beginning and even when they become big companies.”
This juxtaposition of “philanthropy” and “business” is at the core of OSS Capital’s investment thesis, according to Jax — he believes there should be more open source in the world, and his way of “expressing that belief” is built on this idea. Capitalism.
“I think capitalism can promote positive, sustainable behavior much better than philanthropy can promote positive, sustainable behavior,” Jack said. “I think capitalism itself He is The penultimate manifestation of philanthropy, open source commercial networks and startups are the types of capitalism most suited to accelerating open source innovation in the world.
Open for business
Jack founded one of the first businesses to emerge around Kubernetes, the containerized application platform that spun out of Google in 2014. Kismatic, as Jacks’ startup was called, Obtained by Enterprise software company Apprenda in 2016. Jack also launched the Kubernetes community conference KubeCon, which was organized by Kismatic Donated to Cloud Native Computing Foundation in 2016.
After Kismatic, Jack co-founded a cloud data management startup Algebraand although this company ultimately went nowhere, it was around this time that Jack went I started blogging About his thoughts on open source companies.
“The fund wasn’t a big grand plan, it was an operation that really obsessed over these open source companies, and started a blog series that eventually led to the creation of the fund,” Jacks said. “I had no experience in venture capital or investing.”
Thus OSS Capital was born in 2018, with Jack the sole general partner and investor. OSS Capital has now raised three funds, each amounting to approximately $50 million, with plans to close a fourth fund by early 2026.
While most of its investments are at the seed stage, OSS Capital does do some follow-on financing, including… Leading In a Series A round last year at W4 Games, which markets the open source game engine Godot. It also undertook some larger validations for follow-on rounds, although it used a special purpose vehicle (SPV), which involves setting up an entity for individual investments.
There are also a few exits to talk about, including a full web framework Remixwhich Shopify acquired in mid-2022 and which is now Recommended method For users who create management apps on Shopify.
“It was a small result for us — we made our money several times over, but it had great results for Shopify,” Jax said.
To date, OSS Capital has made 80 investments in the region, and earlier this week, Jacks Announce He will move his company from ERA (Exempt reporting consultant) to RIA (Registered investment advisor) to meet regulatory requirements related to encryption. While Jack stresses that he is not “diversifying into crypto,” they have made a few investments in the space over the past few years, including $40 million in capital put into Parallel Studios. Pettensorand CEO of Coinbase Brian Armstrong Research Center.
Today, OSS Capital has a fairly extensive list of limited partners (LPs) – most of them individuals, and many of them with connections to the world of open source software. These include Automattic CEO and WordPress co-founder Matt Mullenweg; Red Hat co-founder Bob Young; Cockroach Labs co-founder Spencer Kimball; and MongoDB co-founder Elliot Horowitz. Elsewhere, YouTube co-founders Chad Hurley and Steve Chen are also backers, as are Shopify founder Tobias Lutke, GitHub co-founder Tom Preston-Werner, and Google founding investor Ram Shriram.
OSS Capital also includes a handful of large institutional investors, including Automattic, which has been the largest institutional investor since OSS Capital’s second fund. Other notable names in the institutional group include Insight Partners and Summit Partners, both well-known for their investments in the venture capital and private equity arenas.
“I haven’t really pushed to attract more of these institutional investors, or the likes of nonprofits, foundations and endowments,” Jacks said. “I haven’t spent time refining the design of the fund. The reason we have mostly individual investors is because they’re people I really admire and respect a lot – they understand what we’re doing, because they’ve built open source companies over the years.
Open network
There are a lot of niche venture capital firms, which focus on everything From forest fires to Oral health. Such sector-specific investment philosophies can be an attractive proposition for early founders who want deep industry experience.
Didier LoebQco-founder and CEO of OpenBP – Often referred to as an open source alternative to Bloomberg Terminal – Secure $8.5 million In a seed funding round led by OSS Capital just six months after starting his project. The insights and connections fostered through that initial connection opened doors, Lopez said.
“They recognized the time needed to grow a strong, loyal community — and their insight into how other startups approach the balance between open source and commercial offerings was important for us to define our strategy moving forward,” Lopez told TechCrunch. “But also the ability to connect us with open source leaders.”
This included introductions to angel investors, such as Bob Young of Red Hat and co-founder of AngelList Marine Ravitalas well as executives from companies like Elastic and GitLab who are now members of the OpenBB Advisory Board.
However, the penchant for “open source” as an investment ethos runs counter to the growing feeling that software licensing is too permissive Just not compatible While building a long-term sustainable business. For example, tool developer Unicorn Sentry, in collaboration with several other startups, is putting its weight behind a new licensing model it calls “Fair source“, an implicit admission that although open source as a concept remains popular, startups are wary of its commercial limitations.
“Open source is not a business model – open source is a distribution model, it is primarily a software development model.” Chad WhitakerSentry’s head of open source told TechCrunch in an interview last month. “In fact, it places severe restrictions on the business models available, due to licensing requirements.”
Jack, for what it’s worth, completely agreed with that sentiment. “I completely agree with him, it’s true,” he said. This is surprising, given that his investment firm appears to run entirely on open source. The three-letter abbreviation in “OSS Capital” stands for “open source software,” in case there are any lingering doubts.
But this is where we get into the real nitty gritty commercial Open source software (COSS), which is often less about critical components of a software stack like the widely popular Kubernetes, and more about trying to monetize full SaaS applications that use open source as a carrot on a stick. The go-to model for many of these companies became known as “Open core“, where the core functionality of the software is open source, but much of the utility is locked behind a premium, proprietary paywall. This allows customers to modify, inspect, integrate, and self-host — but if they want hosting or enterprise features, they have to pay.
Here Jack tries to explain why “open source” per se is not what he should invest in.
“There’s a fundamental difference between ‘open source’ and ‘commercial open source,'” Jack said. “Open source is a licensing model, a technology development model, a philosophy — and that’s not what I’m investing in; OSS Capital doesn’t invest in open source. We’re managing people’s money.” To double their investment, make more money for them and I do what I do because I am also very interested in making a lot of money.
In the midst of all this there is a bet – a big bet – that “open kernel” will eventually win out over pure proprietary.
“My view is that this kind of (open core) approach will actually replace closed core SaaS companies,” Jacks said. “I’ve had this thesis since the inception of the fund, and it’s based on what Marc Andreessen said about software eating the world, but my take on that is that open source is eating software.” faster Of the software that is eating the world.”
And he’s not the only one who thinks so. GitLab CEO and Co-Founder Mr. Sigbrandig Fired Open basic projects (OCV) in 2020, and while it’s slightly different in that it takes a more incubator approach to building and investing in companies around existing open source projects, it has a similar core philosophy. Sigbrandig believes “open core” startups will do just that represents 80% of venture-funded startups in the future, although he admits that it may be “a long time” before we actually get to that stage.
“The power of open kernel comes from giving users the ability to contribute — open kernel provides a level of trust, agility, and speed that you can’t get with closed source software,” Sijbrandig told TechCrunch. “We are seeing the open kernel model mature and a greater number of entrepreneurs wanting to start businesses under this model – open kernel is a broad space between fully proprietary and fully open source. We believe that over time, most companies will be somewhere on this spectrum , instead of being at the extreme.
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