Open source may have many characteristics, but one thing it doesn't have, at least by most estimates, is a business model. But that didn't stop Joseph Jacks and OSS Capital from seeking out early-stage open source startups and funding them through their formative years.
These include Formbrick, an open source alternative to Qualtrics that raised a pre-seed round last year. Another Notion alternative is AppFlowy. An alternative plane for Jira. Calendly alternative Cal.com. Alternative hopscotch for the postman. For those looking for an Okta alternative, Cerbos is worth a look. What they all have in common is that they are open source and all funded by OSS Capital. But they also highlight the constant struggle between open source and proprietary realms, presenting two diametrically opposed ideas: giving something away for free and making a profit.
“But the great thing about these open source companies is that while they're essentially philanthropic, they're also pursuing a capitalistic, business model that actually generates sustainable revenue.” Jacks said in an interview with TechCrunch. “And I think they're very contradictory from the beginning to becoming a big company.”
According to Jacks, this juxtaposition of “philanthropy'' and “business'' is at the heart of OSS Capital's investment theory. He believes there should be more open source in the world, and says his way of “expressing that belief” is built around this. The idea of capitalism.
“I think capitalism can promote positive and sustainable behavior better than philanthropy can promote positive and sustainable behavior,” Jacks said. “I believe that capitalism itself is the penultimate manifestation of philanthropy, and that commercial open source networks and startups are the type of companies best suited to accelerate open source innovation in the world. It’s capitalism.”
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Jacks founded one of the first commercial companies born around Kubernetes, the containerized application platform spun out of Google in 2014. Kismatic, formerly known as Jacks' startup, was acquired by enterprise software company Apprenda in 2016. Jacks also launched a Kubernetes community. KubeCon, a conference that Kismatic donated to the Cloud Native Computing Foundation in 2016.
After Kismatic, Jacks co-founded cloud data management startup Aljabr. Although the company ultimately failed, it was around this time that Jacks began blogging about his thoughts on open source companies.
“This fund wasn't some grand plan. It was a process of falling in love with these open source companies. I started a blog series that eventually led to the creation of the fund,” Jacks said. spoke. “I had no VC or investment experience.”
OSS Capital was born in 2018, with Jax as the sole general partner (GP) and investor. OSS Capital currently has three funds raised, each valued at approximately $50 million, and plans to complete a fourth by early 2026.
Most of the company's investments are at the seed stage, but OSS Capital has raised follow-on funding, including last year leading a Series A round in W4 Games, which is commercializing the open source game engine Godot. We're also doing some big checks for subsequent rounds, which involve using a special purpose vehicle (SPV) to create a single investment vehicle. There is.
There are also a few outlets worth mentioning, such as the full-stack web framework Remix. Some of them were acquired by Shopify in mid-2022 and are now the preferred method for users to build management apps with Shopify.
“It was a small win for us, the profit was several times higher, but it was a big win for Shopify,” Jacks said.
Founding team of W4 Games. Image credit: W4 Games.
OSS Capital has made 80 investments to date, and Jacks announced earlier this week that he would be transitioning his company from an ERA (Exempt Reporting Advisor) to an RIA (Registered Investment Advisor) to meet regulatory requirements regarding cryptocurrencies. . . Although Jax emphasizes that they are not “diversifying into cryptocurrencies,” they have made several investments in the space over the past few years, including Parallel Studios, Bittensor, and Coinbase. It also includes $40 million in capital invested in CEO Brian Armstrong's ResearchHub.
OSS Capital currently counts a fairly extensive roster of limited partners (LPs). Most of them are individuals, and many of them are connected to the open source software world. These include Automattic CEO and WordPress co-creator Matt Mullenweg. Bob Young, co-founder of Red Hat. Spencer Kimball, co-founder of Cockroach Labs. Eliot Horowitz, co-founder of MongoDB. Also included are YouTube founders Chad Hurley and Steve Chen, Shopify founder Tobias Luedtke, GitHub co-founder Tom Preston Warner, and Google founder investor Ram Shriram. I am a supporter.
OSS Capital also includes a handful of large institutional investors, including Automattic, OSS Capital's largest corporate investor since its second fund. Other notable names in the agency include Insight Partners and Summit Partners. Both are known for their investments across the venture capital and private equity sectors.
“I have never actively pursued fundraising from these institutional investors, nonprofits, foundations, endowments, etc.,” Jacks said. “We just don't spend the time optimizing the design of the fund. The reason our investors are mostly retail investors is because they're people I really respect and have a lot of respect for. They've been building open source companies for years, so they understand what we're doing.”
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There are a number of niche venture capital firms focusing on everything from wildfires to oral health. This industry-specific investment philosophy may be an attractive proposition for early-stage founders seeking deep industry expertise.
Didier Lopes, co-founder and CEO of OpenBB (often referred to as the open source alternative to Bloomberg Terminal), raised $8.5 million in a seed round of funding led by OSS Capital just six months after launching the project. Secured. And Lopez said the insights and connections developed through this initial partnership opened doors.
“They recognized that cultivating a strong, loyal community takes time. Their insights into how other startups are balancing open source and commercial services It was important in defining our future strategy,” Lopez told TechCrunch. “But it also connects us with leaders in open source.”
This includes introductions to angel investors such as Red Hat's Bob Young and AngelList co-founder Naval Ravikant, as well as executives from companies such as Elastic and GitLab, who are currently on OpenBB's advisory board. I did.
Didier Lopes, co-founder and CEO of OpenBB, speaks at Cornell University's Future of Finance and AI conference. Image credit: OpenBB
However, leaning towards “open source” as an investment ethos comes in the face of a growing recognition that overly permissive software licenses are incompatible with building sustainable long-term businesses. As an example, developer tools unicorn Sentry is colluding with several other startups to emphasize a new licensing paradigm called “Fair Source.” This is a tacit acknowledgment that while open source as a concept remains popular, startups are wary of it. Commercial Restrictions.
“Open source is not a business model. Open source is a distribution model, and primarily a software development model,” Chad Whitacre, head of open source at Sentry, told TechCrunch in an interview last month. “And in fact, licensing terms impose severe restrictions on the business models that can be used.”
Naturally, Jax fully agrees with this opinion. “I completely agree with his opinion, it's true,” he said. This is surprising considering his VC firm appears to be fully committed to open source. In case you were wondering, the three-letter acronym “OSS Capital” stands for “Open Source Software.”
But this is where we get into the nitty gritty of commercial open source software (COSS). It's often more about trying to monetize a full-fledged SaaS app than about a critical component of the software stack, such as the hugely popular Kubernetes. Use open source as a carrot and stick. The go-to model for many of these businesses has become known as “open core.” In this model, the core functionality of the software is open source, but the bulk of the utility is locked behind a premium proprietary paywall. This allows customers to tinker, inspect, integrate, and self-host, but if they want enterprise features for hosting or additional features, they have to pay.
And this is where Jax is at pains to point out why “open source” itself is not something he would invest in.
“There's a fundamental difference between 'open source' and 'commercial open source,'” Jacks says. “Open source is a licensing paradigm, a technology development paradigm, a philosophy. That's not what I'm investing in. OSS Capital doesn't invest in open source. We're doubling down on people's investments and… I manage money to make a lot of money. And I do what I do because I'm very interested in making a lot of money.”
Buried within all this is a bet, a big bet, that “open core” will eventually trump pure proprietary.
“In my view, this kind of thing [open core] This approach actually replaces a closed core SaaS company,” Jacks said. “I've had this theory since the foundation's inception. It's based on Marc Andreessen's statement that software is poisoning the world. This means that the speed at which software is being eroded is fast.”
And he's not the only one thinking this. GitLab CEO and co-founder Sid Sijbrandij launched Open Core Ventures (OCV) in 2020. The company is slightly different in that it takes an incubator approach to building and investing in companies around existing open source projects, but the basic philosophy is similar. . Sigibrandi believes that “open core” startups will make up 80% of venture-funded startups in the future, but it “will take a long time” to actually get there. I admit that it might be.
“The power of open core comes from giving users the ability to contribute. Open core provides a level of reliability, agility, and speed that you can't get with closed source software,” Sijbrandij told TechCrunch. spoke. “We are seeing the open core model mature and more entrepreneurs wanting to start businesses based on this model. Over time, we think most companies will fall somewhere on this spectrum rather than at the extremes.”