Ask an Open Source Venture Capitalist 118
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.)
VC Secret Society (Score:1)
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Dear Sir (Score:1, Interesting)
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If.. (Score:2)
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On the subject of strong teams... (Score:5, Insightful)
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 (Score:5, Insightful)
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.
MOD PARENT UP (Score:1)
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In my own experience, open source takes over where profits leave off. Once the profits have left a market, you get all kinds of open source projects supporting it. So long as there are strong profits to be made, the developers prefer to sell their wares. Seems pretty natural to me. The obvious exception is M$, as monopolies have different market dynamics. In the age of rob
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Somewhat broad question (Score:5, Funny)
In general, what qualities in an open source project do you find attractive and worthy of consideration for venture capital?
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Typical Microsoft, same old shit repackaged under a new name.
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Common Failures (Score:5, Interesting)
When to seek VC, when to bootstrap? (Score:5, Interesting)
At this point, it feels like we've missed the boat (though our traffic and membership is higher than ever before), simply because we didn't take on the outside management and marketting expertise that would have come with real funding.
The question, then, is: does there exist a fundamental 'right time' to contact a VC/IB to avoid losing your competitive edge? Or, does it always vary by company?
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The answer is: as soon as you reach "break even" and have had at least 60% of your investment returned, provided a few other criterias are met. Before that, you risk loosing control (and thus your competitive edge). After that, you risk getting put out of the game by other players that have more money than you do.
Don't kid yourself with ideas of the "bright great future". All other (relevant) things being the
How did you get your job? (Score:5, Interesting)
How did you get your job? Is it hard, easy, boring, fascinating, soul-destroying, fulfilling, all of the above?
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You get born on 3rd base, and then spend your life thinking you've hit a triple.
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Can you lend me $1000 until payday?
I have a question (Score:1)
devils advocate... (Score:1)
ALTERNATIVE FREEDOM
A documentary about the invisible war on culture.
Features RMS, Danger Mouse (of Gnarls Barkley and the Grey Album), Lawrence Lessig, and more...
htt [alternativefreedom.org]
Why Open Source? (Score:5, Interesting)
From a Venture Capitalist's point of view what advantages do open source based companies have over other software companies?
CS and mgmt (Score:5, Interesting)
Use Parent as question please. (Score:2, Interesting)
That's more insightful than "Funny".
For example, how many ideas that were/are great ideas from an engineering perspective, but you had to pass because there wasn't a market for them? And what was it about those ideas that made them unmarketable?
I'm sure there are plenty of times where the business and engineering clashed.
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one question... (Score:1, Redundant)
The Magic Ingredient (Score:5, Interesting)
So where/how can the aspiring entrepreneurs among us learn how to think about how to make money with their marvelous inventions? Do you have any books, organizations, or workshops you could recommend?
When do you pull out (Score:5, Interesting)
To put it more precisely: When, in your opinion, does a startup stop being a startup, and do you pull out and cash in when that point is reached?
Why limit the questions to open source startups? (Score:3, Interesting)
Let's start with the basics... (Score:5, Interesting)
case of an open-source company this will never hold. Open-Source based businesses are always fundamentally different from an old-school technology
company in that you're not really selling bits; you're selling "something else" where the "something else" may vary depending on the business model.
So given that, and the thesis (mine at least) that the barriers to entry for competition are lower for an open-source company, what do you look for
in a potential investment? Are you looking for some radically new and innovative business model; with accompanying patent? Or is it all
about execution, suggesting that a would-be open-source company has to meet a higher standard in terms of attracting business and establishing
a customer base *before* getting funded?
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But they do exist and in the context of the question do seem relevant, which is why I asked. Please do not take my post as
an endorsement of business process patents (or patents in general).
Prevent getting thrown out of my own startup? (Score:5, Interesting)
Crow T. Trollbot
Re:Prevent getting thrown out of my own startup? (Score:4, Insightful)
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.
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Actually, the fact he is asking the question shows he is in touch with reality- its a good question and one that comes from seeing previous examples of founders losing their companies.
Speaking of reality, your statement shows that you probably aren't tactful enough to answer questions without slipping in some sort of
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Yes, it's their money. It's typically NOT given as an "investment" in the same sense as what we'd associate
with investments, though. It's typically framed as a loan of X dollars, with a 2-5 year use of proceeds, and
a payment term for the loan with grants of shares in the company, and options to extend the use of proceeds, etc.
Yes, it's their money, but unless you get tattooed with them having the option to exercise control
at any time over your compa
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In one company I worked for, the CEO (who was mutually appointed, but not the founder) immediately started driving the company into the dirt. He would do things like a big company CEO would do, like get into global car rental agreements. Things that would probably work for a large company, but are absolutely insane and suicidal for a small startup.
When it became obvious that the CEO was making things worse, rathe
Do you plan for patent reform? (Score:3, Interesting)
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Why is there a lack of OSS Back Office Apps? (Score:1)
First on my mind (Score:5, Interesting)
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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 propri
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Yes, but the difference between typical startups and your ideas is that in typical startups they first have an understanding of how it would make them money -- which for post-1999 VC's is nice to know.
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Ok, point taken. However, none of these ideas is entirely speculative; there are companies out there employing some or all of these approaches, among others. Digium [digium.com] is a good example of the model that involves selling both hardware and an
open-source software solution along with training, services, etc.
I shou
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Most businesses wouldn't care if its free and/or open source software or otherwise. They usually jus
Team retention and control (Score:2)
How user experience expertise impact OSS investing (Score:4, Interesting)
- initial thoughts on the UI when assessing products (obviously not so important for server tools)
- thoughts on UX expertise of the team
- more importantly, how you take a promising OSS company and add UX expertise?
thanks,
cz
Where should I begin? (Score:1)
Step 3: Profit! (Score:1)
10 Most common (Score:5, Interesting)
Re:10 Most common (Score:4, Funny)
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Management and Financial moxy (Score:2)
Bootstrapping versus VC (Score:3, Insightful)
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VC Job (Score:1)
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This is usually the best answer. I've found that anything from a simple misunderstanding of how a bit of physics works to a lack of the necessary modeling calculations can cause you to start down a path that won't really work. Consulting with an expert (most of whom are happy to answer questions from someone who's honestly interested in the field) can often help you understand the problem, should one exist.
However, don't take
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What can I say? Life carries risk. The key is that you are not an expert in the subject and don't know a trustworthy expert on the subject. So the chances are far higher that you've made a mistake rather than having stumbled upon something new. The gamble isn't as great as you might think, especially since most experts get into their field
Planning ahead (Score:4, Informative)
Financing / Control Questions (Score:5, Interesting)
Does a VC understand what is driving us? (Score:1)
I have an idea (Score:3, Interesting)
I have a really great idea that I would like to market. Without getting into specifics it's along the lines of (legal) media distribution, and would involve licensing from big television/media companies. I haven't seen anything like my idea out there, and have been activly looking, as I have intrest in this idea as a consumer as well. I think it has a lot of potential and would compete well in the current market.
My question is this, how does one go about getting started? Could you give a general overview of how a successful startup works, as well as perhaps some good references for further research?
Cost of VC for Open Source (Score:2)
My understanding of typical Open Source projects is they're typically undertaken by smaller companies with a distributed team, sometimes with many staff working from home, and often have little corporate resources.
Why should a small company in this situation risk tak
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I would say that you need several things: some fundamental business know-how, some idea of what business model you might adopt for your business, and some contacts that can help out. You can gain these
How to add business competence to a OSS venture? (Score:1)
One of the answers might be 'business angels', but at least in my state, the whole BA scene has disappeared (the local BA organisation has not helped any entrepreneur in the first 3 years of it's existence
How do you protect your IP? (Score:1)
Open Source vs. $$$ (Score:3, Interesting)
Why then invest in Open Source? What are the advantages to this model of business from an investment standpoint? Are there disadvantages from an investor's standpoint? How do you weigh those?
Open source hardware opportunities? (Score:3, Interesting)
What is your opinion of the open source hardware projects that you are aware of, and do any stand chance of becoming success stories like so many of the software projects have?
Also, have you come across many business opportunities that could be filled by open source hardware (care the describe them?), or do companies shy away from open source hardware for some reason (if so, why?)?
Thank you!
Non-disclosure (Score:1)
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Most VCs will kick you out the door if you ask for an NDA. They see far too many screwball ideas to go through the legal proceedings that an NDA would require. In any case, they're more interested in the implementation of the company than the idea that founds it. i.e. They're investing in monetary potential, not your amazing brilliance.
Return on investment? (Score:2)
-Rick
How do I get to talk to your kind? (Score:5, Interesting)
1) How do I get to talk to someone like you? What would be the best approach?
2) What do you want to see from someone who approaches you? Neat, well formulated ideas? Implementations? Finished business plans? A running company? All four?
3) What bores you to death and what talks have you had with VC seekers that where a total waste of your time? What where the things they did wrong?
... What WERE the things they did wrong. (Score:2)
Oblig: He has a Masters Degree... (Score:1)
Working Tech, New Idea (Score:3, Interesting)
Take the case of a company that has been in business for 7 years or so, and has successfully bootstrapped themselves into a modest little venture using their own open source technology. They have offices, employees (even salesmen!), a small management team, a decent little client base, and no debt. But they are very much a small business.
Now, with their hard-fought, real-world experience, understanding of their sector, and practical experience with using open source to make real money, they think they see a new opportunity in the marketplace, which their technology is well-positioned for. But going after this market will require a big investment, at least doubling the company size, and will probably require a whole new management team.
The question is: how is this problem like or unlike a start-up? Do VCs tackle this situation differently than they would a pure start-up? Should the company approach VCs differently than a start-up would? Or is this out of VC territory altogether?
A question from a young entrepreneur (Score:2)
How much risk is too much? (Score:2)
1. The parent software has some issues that may make my company a target for patient and other legal attacks. For example, it uses Mpeg4, and plays DVD's under Linux.
2. The product would be heavily dependant upon COTS (commercial off the shelf) hardware from a manufacturer that does not provide detailed specifications
SCO money (Score:1)
Code Alreeady Implemented (Score:1)
When the deal goes bad (Score:2)
The cash infusion did not a miraculous turn-around make.
The lack of progress caused calls for cost-cutting. It is easy for the finance people to quantify how much money they would save by cutting salary expense. There is no similar offset for computing the increase in ill will....
Every year, the company announces another layoff. Every year, the competition (Microso
Who do you turn to for technical due dilligence? (Score:3, Insightful)
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?
How to do you open-source a development tool? (Score:2, Interesting)
I have developed a next generation build tool, a make replacement, called KJam ( http://www.oroboro.com/kjam [oroboro.com] ). I am having some success licensing it under a traditional 'closed' license to software development companies.
I have received interest from some large open source projects to switch to using kjam as their build tool. The problem is that since they are open source they can only allow development tools in their toolchain which are themselves open source. Since they give all their users the right to
How does a developer get his project funded? (Score:3, Interesting)
To me, this makes the project a success, and demonstrates clearly that there's a real market for such a project, as users are of their own free will willing to support it wholly.
Real life gets in the way of me being able to dedicate the same level of devotion that I used to be able to give the project, but I personally am confident that if we had funding that enabled us to hire just one or two developers and purchase some additional equipment, the project could take off like a rocket. We have a huge list of ideas for improvement -- things that we simply don't have the time to successfully realize today, but which we could if it was our job.
So my question is, what would you recommend we do to seriously pursue getting real funding. How do we first find someone that is not turned off by the idea of an open source model, and second will actually listen to our proposed business plan? When talking to them, what sort of things are they looking for that demonstrates that we're serious, willing to work hard, and aren't just looking for a free ride to tinker around on code?
pick me! (Score:2)
Why VC? (Score:1)
Who writes your PR? (Score:2)
Did you approve that copy? Wow. You know better. Nice marketing if you did.