Open Source 💜 Venture Capital

With Hashicorp filing their S1, the unstoppable run of open source led software companies continues with another blockbuster IPO predicted. Over the last few years we have seen some great outcomes for venture capital who invested in companies like Confluent, Elastic, GitLab, Cloudera, DataBricks, MongoDB, SUSE  and many others. As an employee I vividly remember Sun Microsystem’s acquisition of MySQL for $1B which was a huge milestone in the open source venture era. IBM’s recent acquisition of RedHat for $34B set a new benchmark. This space is on 🔥! 

Open Source software’s importance and necessity in the software industry is now undisputed. I famously steal and quip the quote – ‘Open Source software is like dark matter for our tech industry’. Even the browser you are reading this blog on has open source built into it. Building software around (and with) a community is an exciting and energising endeavour. 

But to build a commercial venture based on open source software is not easy. There are enough similarities between a regular startup and a startup based on open source software – the trials and tribulations are as intense. But one thing does stand out, that of ease of raising as well as availability of venture funding for open source startups in India. 

Venture capital in the US has been abundant for startups having their business model around open source software. Enterprise adoption of open source is more prevalent leading to startups being able to demonstrate innovation and a route to growth. That meant US based open source startups were typically more attractive to VCs. 

As the Indian tech industry has matured from IT services to B2C startups to B2B SaaS startups, it has opened up new opportunities and ambitions for Indian startups. Open source is at the heart of this shift because it accelerates the speed of innovation. And because Indian startups are attracting capital, more businesses are embracing open source as a route to growth area, so the cycle is perpetuated

This healthy(and at break-neck speed) cycle of growth is creating startups based on open source software in India – and is seeing an increased interest from venture capital as well. SaaS is helping create a commercial model to monetize open source for these startups. This intersection is really attractive. 

It is exciting to see so many developer and software-infrastructure focused tech startups being built every day to cater to the tech demands from not just our startup ecosystem – but developers globally. If you look around, most tech infrastructure software is open source – especially for developers. 

In my conversation with founders of some of these Indian startups, there are 3 clear reasons that each of them called out as to why they chose to create a business model around Open Source. 

• Accelerate Adoption : Clearly, by providing a free open source version of their product, they are able to accelerate adoption. Some of them have got 10,000+ customer installs globally – something that would have taken a lot of marketing dollars to get to in a traditional approach. Developer word-of-mouth adoption is really LIT. 
• Accelerate Engineering : This underpins the community strategy where they have contributors coming from developers globally to enhance, document and fix code. While the core product-strategy is retained by these startups to cater to a broader audience, they get hundreds of developers volunteering to improve their product and solve pain-points for all. One of the biggest benefits that I heard from each of them was the ability to have ‘localisation’ needs accelerated because some developer in some country will write that part of the code because she/he needs it. This comes back into the product as a contribution and BOOM 💥 the product suddenly is available for all customers in that country since a localisation need has been solved. 
• Accelerate Support : One of the biggest reasons customers (especially developers) look at open source software is the quick and readily available support from within the community. The community shares experiences, fixes, workarounds and sometimes peer-to-peer live support to get things working. This helps open source startups drive a lot more usage and adoption – creating a solid loop of growth. 

Appsmith’s recent series-A raise of $8M, Hasura’s series-B of $25M, Signoz and Chatwoot’s YC entry, ToolJet’s fundraise (Stay Tuned!) and ERPNext’s strategic investment by Zerodha is really firing up the open source startup economy. It is truly the beginning of something phenomenal in the open source startup space. 

The future for Indian tech startups built on open source is exciting and I personally derive a lot of energy as well as motivation when I talk to their spirited founders. I’ll be posting an interview series with open source startup founders very soon and would be launching a mentoring program to help them scale Community & Commerce for them! 

Hit me up at maneesh@msupernaut.com or @msupernaut to take this conversation forward.