Open supply is perhaps many issues, however one factor it’s not is a enterprise mannequin — by most estimations, at the least. Nonetheless, that hasn’t stopped Joseph Jacks and OSS Capital from in search of among the earliest-stage, open supply startups and funding them by way of their early life.
These embrace the likes of open supply Qualtrics-alternative Formbricks, which raised a pre-seed spherical of funding final yr. Elsewhere, there’s Notion various AppFlowy; Jira various Airplane; Calendly various Cal.com; Postman various Hoppscotch; and for these in search of an alternative choice to Okta, Cerbos is value a glance. The one factor all of them have in widespread is that they’re open supply, they usually have all raised money from OSS Capital. However additionally they spotlight the perennial wrestle between the open supply and proprietary domains, showcasing two diametrically opposing concepts — that of giving one thing away totally free and that of creating a revenue.
“The cool thing, though, about these open source companies is they are inherently philanthropic, while at the same time capitalistic and pursuing business models that actually generate sustainable revenue outcomes,” Jacks stated in an interview with TechCrunch. “And I think they’re very paradoxical, from the very beginning all the way to when they’re large companies.”
This juxtaposition of “philanthropy” and “business” is on the coronary heart of OSS Capital’s funding thesis, in line with Jacks — he believes there ought to be extra open supply on the earth, and his means of “expressing that belief” is one constructed round this concept of capitalism.
“I think capitalism can promote positive and sustainable behavior much better than philanthropy can for positive and sustainable behavior,” Jacks stated. “I believe that capitalism itself is the penultimate manifestation of philanthropy, and commercial open source networks and startups are the most well-suited type of capitalism toward accelerating open source innovation in the world.”
Open for enterprise
Jacks based one of many first industrial corporations to spring up round Kubernetes, the containerized utility platform spun out from Google in 2014. Kismatic, as Jacks’ startup was referred to as, was acquired by enterprise software program firm Apprenda in 2016. Jacks additionally kickstarted the Kubernetes neighborhood convention KubeCon, which Kismatic donated to the Cloud Native Computing Basis in 2016.
After Kismatic, Jacks co-founded cloud knowledge administration startup Aljabr, and although this firm finally went nowhere, it was round this time that Jacks began running a blog about his ideas on open supply corporations.
“The fund wasn’t a big grand plan — it was a process of being really obsessed with these open source companies, and I started a blog series that eventually led to starting the fund,” Jacks stated. “I didn’t have any VC or investing experience.”
And so OSS Capital was born in 2018, with Jacks the solo normal companion (GP) and investor. OSS Capital has now raised three funds, every round $50 million in measurement, with plans to shut a fourth by early 2026.
Whereas most of its investments are on the seed stage, OSS Capital does some follow-on funding, together with main on a Sequence A spherical final yr into W4 Video games, which is commercializing the open supply recreation engine Godot. It has additionally accomplished some bigger checks for follow-on rounds, although for that it has used a particular goal automobile (SPV), which includes establishing an entity for single investments.
There are additionally a number of exits to talk of, together with the full-stack net framework Remix, which Shopify acquired in mid-2022 and which is now the really useful means for customers constructing Admin apps on Shopify.
“It was a small outcome for us — we made a few times our money, but it’s had great outcomes for Shopify,” Jacks stated.
So far, OSS Capital has made within the area of 80 investments, and earlier this week, Jacks introduced that he could be transitioning his agency from an ERA (exempt reporting adviser) to an RIA (registered funding adviser) to satisfy regulatory necessities round crypto. Whereas Jacks stresses he isn’t “diversifying into crypto,” they’ve made a handful of investments within the area over the previous few years, together with $40 million in capital put into Parallel Studios, Bittensor, and Coinbase CEO Brian Armstrong’s ResearchHub.
In the present day, OSS Capital counts a reasonably intensive roster of restricted companions (LPs) — principally people, lots of whom have connections to the world of open supply software program. These embrace Automattic CEO and WordPress co-creator Matt Mullenweg; Crimson Hat co-founder Bob Younger; Cockroach Labs’ co-founder Spencer Kimball; and MongoDB co-founder Eliot Horowitz. Elsewhere, YouTube founders Chad Hurley and Steve Chen are additionally backers, as are Shopify founder Tobias Lütke, GitHub co-founder Tom Preston-Werner, and founding Google investor Ram Shriram.
OSS Capital additionally counts a handful of bigger institutional traders, together with Automattic, which has been its greatest company investor since OSS Capital’s second fund. Different notable names within the establishment pot embrace Perception Companions and Summit Companions, each of that are famend for his or her investments throughout the enterprise capital and personal fairness realms.
“I haven’t really pushed to get more of these institutional investors, or from the likes of nonprofits, foundations and endowments,” Jacks stated. “I just haven’t spent time optimizing the design of the fund. The reason we have mostly individual investors is that they’re people that I really admire and I respect a lot — they understand what we’re doing, because they’ve built open source companies over the years.”
Open community
There are many area of interest enterprise capital companies on the market, specializing in the whole lot from wildfires to oral well being. Such vertical-specific funding philosophies is perhaps an interesting proposition for early founders wanting deep trade experience.
Didier Lopes, co-founder and CEO of OpenBB — sometimes called an open supply various to Bloomberg Terminal — secured $8.5 million in a seed spherical of funding led by OSS Capital simply six months after his challenge’s inception. And Lopes stated that the insights and connections fostered by way of this preliminary tie-up opened doorways.
“They recognized the time required to cultivate a strong and loyal community — their insights into how other startups navigate the balance between open source and commercial offerings was important for us to define our strategy going forward,” Lopes instructed TechCrunch. “But also, being able to connect us with open source leaders.”
This included introductions to angel traders, comparable to Crimson Hat’s Bob Younger and AngelList co-founder Naval Ravikant, along with executives from corporations comparable to Elastic and GitLab who now sit on OpenBB’s advisory board.
Nonetheless, leaning into “open source” as an funding ethos flies within the face of a rising sense that overly permissive software program licensing simply isn’t appropriate with constructing a sustainable long-term enterprise. By means of instance, developer tooling unicorn Sentry, in cahoots with a number of different startups, is placing its weight behind a brand new licensing paradigm dubbed “fair source,” a tacit acknowledgment that whereas open supply as an idea stays standard, startups are cautious of its industrial limitations.
“Open source isn’t a business model — open source is a distribution model, it’s a software development model, primarily,” Chad Whitacre, Sentry’s head of open supply, instructed TechCrunch in an interview final month. “And in fact, it places severe limits on what business models are available, because of the licensing terms.”
Jacks, for what it’s value, is absolutely on board with this sentiment. “I agree with him completely, it’s true,” he stated. That is shocking, provided that his VC agency is seemingly all-in on open supply. The three-letter acronym in “OSS Capital” stands for “open source software,” in case there have been any lingering doubts.
However that is the place we get into the actual nitty-gritty of industrial open supply software program (COSS), which is commonly much less about vital elements of the software program stack such because the wildly standard Kubernetes, and extra about attempting to monetize absolutely fledged SaaS apps that use open supply as a carrot-on-a-stick. The go-to mannequin for a lot of of those companies has come to be often known as “open core,” the place the core performance of the software program is open supply, however a good portion of the utility is locked behind a premium, proprietary paywall. This permits prospects to tinker, examine, combine, and self-host — but when they need internet hosting or bells-and-whistles enterprise options, they should pay.
And that is the place Jacks is at pains to level out why “open source” in itself isn’t what he invests in.
“There’s a fundamental difference between ‘open source’ and ‘commercial open source’,” Jacks stated. “Open source is a licensing paradigm, a technology development paradigm, a philosophy — that is not what I invest in; OSS Capital does not invest in open source. We manage money for people to multiply their investment, and make them tons more money. And I do what I do because I’m also very interested in making tons of money.”
Buried in amongst all this can be a guess — a giant guess — that “open core” will finally win out over pure proprietary.
“My view is that this kind of [open core] approach will actually replace closed core SaaS companies,” Jacks stated. “I’ve had this thesis from the beginning of the fund, and it builds on what Marc Andreessen said about software eating the world, but my take on that has been that open source is eating software faster than software is eating the world.”
And he’s not the one one who thinks this. GitLab CEO and co-founder Sid Sijbrandij launched Open Core Ventures (OCV) in 2020, and whereas it’s barely totally different in that it’s adopting extra of an incubator strategy to constructing and investing in corporations round present open supply initiatives, it has the same underlying philosophy. Sijbrandij believes that “open core” startups will symbolize 80% of venture-funded startups sooner or later, although he concedes it could “take a long time” earlier than we really attain that stage.
“The power of open core comes from giving users the ability to contribute — open core provides a level of trust, agility, and speed you can’t get with closed-source software,” Sijbrandij instructed TechCrunch. “We’re seeing the open core model mature and more entrepreneurs wanting to start businesses under the model — open core is a broad space between completely proprietary and completely open source. We think that over time most companies will be somewhere on this spectrum, instead of on the extremes.”
