Mike McNeila frontend developer, wasn’t sure what his next step would be, but with a baby on the way, it looked like his next course would be part-time dad and part-time consultant on Sails.JSthe open source project he created in 2012.
That’s when Sid SijbrandijCEO of GitLab and General Partner of Open Core Ventures, called. The two had met during Y Combinator in 2015 and Sijbrandij saw on LinkedIn that McNeil was available for work.
“Basically, I was like, ‘Hey, give me the weekend. I’m not trying to get any other deals or other projects, I just need time to figure out what my childcare will be like for the next five years while I’m the CEO of this company” , McNeil said. “I mean – it became obvious when I realized what the opportunity was.”
Venture capital for open source
Open Core Ventures takes an unusual tactic for a venture capital firm: instead of looking for companies to fund, it identifies promising open source projects and builds companies.
“All software should be open and anyone can become an entrepreneur,” the organization’s website reads in large blue print. He puts Sijbrandij’s money behind this message, investing his personal capital through his OCV Fund I.
If at this point you are refining your elevator pitch, stop. Open Core Ventures does not accept submissions or applications; instead, it identifies potential companies based on open source community participation and whether the market looks promising.
“We’re going to look at a few things – we’re looking at whether the project is popular, like whether it has a lot of users,” Sijbrandij told The New Stack. “We look at the level of innovation going on; how often people make improvements to the code base; is it a good market to be in? Are there proprietary companies that are successful in this market? »
Open Core Drives investment approach
Sijbrandij supports an open core approach to open source, which is essentially a business model where part of a product is free, with additional paid features. This concept was why Open Core Ventures focuses on open source projects.
“We really believe that the open core is becoming the most logical way to build software, which means that part of the software is proprietary, part is open source, and all source code is available to everyone,” said Sijbrandij.
But figuring out what to charge and what to give can be tricky for open-source software developers, he said. The venture capital firm simplifies this by using a model called a buyer-based open core.
“It’s basically about who cares more about a feature,” he said. “If it’s an individual contributor who cares the most about the feature, usually you make it open source. If it’s a frame, you own it – you charge for it.
Sijbrandij explained how open source software is easier than proprietary software:
- Trust, because the organizations have the source code;
- Control, as organizations run the software themselves;
- Innovate, because if someone adds or corrects a feature, it is returned to the common; and
- Adoption, because there is always a free version to try.
There’s a second reason why Open Core Ventures opted for its hands-on approach to building businesses, he added.
“We want to democratize being a founder,” he said. “I think 80% of potential founders are now on the sidelines because they need a salary. We make sure they get paid from day one, making sure it’s no longer a barrier for them. »
Building Open-Core Businesses
Fleet is the first company funded by Open Venture. It started in September 2020 and the creator of the project, Zach Wasserman, was recruited as CTO. Then McNeil was added as CEO. Earlier this year, Fleet finished its Series A at $20 million, bringing its total raise to $25 million and its valuation to $100 million.
Generally, this is the Open Core Venture model: hire a chief technologist from among the contributors to the chosen open source project. This person starts with a salary, which in itself is unusual for startups. The CTO then recruits a few engineers and is accompanied in the beginnings of the company. Six months to a year later, Open Core Venture hires a CEO to lead the business side, with a preference for those from the open source community.
“We start with technology,” said Sijbrandij. “We generally look at who is the author of the project? Who contributed to it?
Open Core Ventures provides support in other ways, such as helping the company find legal, financial and operational support.
“We help manage the day-to-day, from setting up a global payroll system to filing trademarks and negotiating with suppliers,” said Betty Mathe COO of Open Core Ventures.
The plan is to add one business per month, Sijbrandij said.
So far, the venture capital firm has funded four companies in addition to Fleet:
- Koora deployment solution for Ceph on Kubernetes based on Rook, the open source cloud-native storage orchestrator.
- Synuraoffers cloud-based collaborative workflows for Open Broadcaster Software (OBS).
- Mermaids Chart, a smart diagram software based on the Mermaid open-source project; and
- flowforgean open source low-code development platform based on the Node-Red project.