Ask an Open Source Venture Capitalist

Richard Gorman, of Bay Partners, is a venture capitalist. Part of his job is to seek out and finance open source companies. He's not easy to snow technically; he has a Master's degree in Computer Science from MIT. And he's not easy to snow financially, either; he also has a Master's in Management. This is a golden opporttunity for all you budding entrepreneurs out there to find out exactly what a tech-hip, management-hip venture capitalist looks for in an open source-based startup. (As always, Slashdot interview rules apply.)

On the subject of strong teams...

[AKAImBatman]

Your profile states your feelings that a "very strong team" is important to the success of a startup. However, most startups only have the basis for a technology team in place, and rarely have a strong executive team. In a recent interview with Robert X. Cringley [youtube.com], technologist-cum-Venture Capitalist Bill Joy stated that his firm worked with startups to assist in installing team members that are missing from a venture. (Google is an excellent example of this in action, with Page and Brin turning over the Chief Executive reigns to the more experienced Eric Schmidt.)

What are your thoughts and opinions on this practice? Does your firm assist startups with more than just financial matters, or do you feel it important that the startup be fully formed by the time you invest?

Exit Strategy

[blinder]

In my (very) limited experience in dealing with the VC world, one of the key concepts that was always in any discussion was the exit strategy. Typically that translated into IPO or sale to someone else. Is this any different with respect to open source companies?

It just seems to me, and I'm just a knuckle-dragging developer here (who also engages in diy projects), that the exit strategies might be a bit different than your traditional concerns.

Re:First on my mind

[psykocrime]

You don't need to be an Open-Source VC expert to see that there are options other than just support. At least, depending on how
exactly you define "support." Consider things like:

professional services; integration, consulting: "Can you make FooBar2003 work with BlazzleFlaz1998?" "Sure, that'll be $300 / hour
for custom integration work"

one-of customizations for $$$: "Can you add a feature to FooBar2003 to make it do Blah?" "Sure, that'll be X-thousand dollars if
you want the resulting change to be proprietary (eg, we don't roll it into the open-source version) or Y-thousand if the change
gets rolled into the base version.

Hosted systems-management that works with the product in some meaningful way; see RHN from RedHat for an example of that.

Sell hardware as well, and package hardware / software bundles that are pre-assembled to fit some specific purpose.

Sell "stacks" where you assemble various open-source packages into a cohesive whole to solve some problem. In this case, what
you're really selling isn't the bits, but the expertise and time to research, review, experiment, validate, etc.

Sell T-Shirts and stuff on CafePress.com

There are others of course, but those are a couple that jumped to mind. Google for Open Source Business Models [google.com] for more.

Bootstrapping versus VC

[YoJ]

Arnold Kling in Under the Radar recommends that entrepreneurs start out by bootstrapping their operation by finding paying customers and actually making money before thinking about outside funding. What are your opinions about this way of starting up?

Re:Prevent getting thrown out of my own startup?

[frank_adrian314159]

How do I structure a VC deal so that I can't be kicked out of my own company?

Oh! This one's easy!

You can't. It's *their* money. Even if you can't be kicked out, they can destroy the company out from underneath you. If you can't live with this fact of life, find alternate funding sources.

Actually, the fact that you're even asking this question shows that you're enough out of touch with the reality of the situation that you probably shouldn't be looking at VC funding at all.

In general, the VC's *do* want you to succeed. Places where you might have conflict generally revolve around three issues - your performance in your chosen position isn't very good, you have a hard time "playing with others" including personnel the VC might bring in to help you (and by asking for VC money, you've already acknowledged that you can't do it on your own), or there's a fundamental disconnect in your vision and the vision of the board WRT strategy (in which case, you shouldn't have taken the money in the first place).

VC's are not there to screw up your life, steal your work, or eat your children (OK, maybe the eat the children thing, but...). They are there to make money. As long as you and *their* company can help them do that, you're golden. If you can't, you should be kicked out.

Who do you turn to for technical due dilligence?

[Samrobb]

For a lot of technology startups, there's got to be a point where the VCs are interested, but want to do some technical due dilligence. Things like making sure that new technology really does have the potential to perform as advertised, or that the founders aren't making obvious mistakes in areas outside of their direct expertise (ex, embedded hardware requirements from software developers, or software development plans from hardware jockeys).

So... who do you turn to when you feel the need to do some technical due dilligence on a company you're planning on investing in? Are there any opportunities for nuts-and-bolts technical people to get involved with a VC in this capacity, or is this something that is generally handled in-house or though personal contacts?