VC money pours into open-source businesses

. . . keeping an eye on the penguin

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Apr. 03, 2008

Opinion -- Don't ask me to explain it, but venture capital money is pouring into open-source businesses.

Yes, Bear Stearns crashed and burned; people are beginning to worry about what to do when, not if, they lose their jobs; and it seems like more jobs are being outsourced every day. So, why are people with cash investing it in open-source companies?

Well, I can only surmise it's because they think there are riches still to be made in open source. After all, with Red Hat's great last quarter and fiscal year, Red Hat CEO Jim Whitehurst is now talking about Red Hat becoming the first open-source company to pull in a billion in revenue.

Some people, such as those at Tremblant Capital Group, a hedge fund firm, seem to believe the ex-Delta executive is on to something. Tremblant has more than doubled its Red Hat investment.

It's not just Red Hat, though. In an analysis piece titled "VC funding for open source hits an all-time high," The 451 Group reports, "The first quarter of 2008 was the most successful quarter in history in terms of open-source vendors raising venture capital funding, with the amount raised hitting $203.75 [million], up from $100.40 [million] in the same quarter of 2007."

While a good deal of that money is going to relatively established open-source firms such as Automattic, Greenplum, SugarCRM and Pentaho. There's also a lot of cash going to such new-kid-on-the-block businesses as Ringside Networks, Bluenog and Engine Yard.

This isn't small change either. According to The 451 Group analyst Matt Aslett, of the 20 deals we know of in the first quarter, 17 of them had "an average deal size of $11.99 million." That, by the way, gives this last quarter "the second-highest average deal size ever, behind the $13.84 million recorded in 4Q06, when there were 14 deals with a disclosed deal value."

With money like this pouring into open-source businesses' piggy banks, it's enough to make me think that maybe I'd be better off working in open source rather than writing about it.

-- Steven J. Vaughan-Nichols

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