Subject: Re: Valuation of Open Source companies
From: Ian Lance Taylor <ian@airs.com>
Date: 02 Nov 2005 13:31:05 -0800

David Fetter <david@fetter.org> writes:

> Venture capitalists are essentially antagonistic to any company they
> fund, FLOSS or otherwise.  Their goal in life is to buy a winning
> lottery ticket that others provide the work and talent to fill in, and
> they are ruthless toward anything they fund that is not providing this
> ticket.  When they think they can cash that ticket in, they screw
> everybody who did the actual work.  Why would anybody here want to
> help them, FLOSS or otherwise?

That is not really accurate, though there is certainly a grain of
truth in it.

But the reason to work with VCs is obvious: they have money, lots of
money, and they are willing to give it to you.  Sure, there are
strings attached, and you would be a fool to take the money without
understanding the strings.  But if you need money to start a company,
there is no easier way to get it.  (I was a co-founder of a VC-backed
company, now defunct.)


I have no special comments for the original poster.  I only know a few
VCs.  I would say that in general they don't understand open source in
the way that I understand it.  The ones I know tend to view it as a
business tactic--essentially, a way to get people to do work without
having to pay them.  They don't understand what is required for that
work to actually occur.  That said, I'm sure there are some VCs out
there who do understand it.

I personally can't see any reason that use of open source software in
a business plan should cause valuation to change in and of itself.
The business plan is the business plan.  Open source is just a
component.  Whether a business is built around open source or not, it
still has to find customers who are willing to pay for something.  In
the end, that's what matters.  Very very few customers will pay for
something because it is open source, or because it is not.

Ian