Will the Cloud Bring Back Bootstrapped Prime Time Software Vendors?

I was checking out a great post by Matthew Aslett over at the 451 Group’s open source blog on the history of open source VC funding. There’s a lot of great stuff covered in the full report, and the blog is a nice distillation of the findings.

What is good to see as referenced by this chart below, is that funding for open source startups has continued to rise for the most part:

But I would argue that the simple fact that most companies that get to the VC stage these days have to have some sort of “open strategy” skews these numbers. This is a good thing: more companies are simply employing portions of open source philosophy to create more efficient and (hopefully) profitable operations. After all, that is why VCs invest right? To put in seed money for a potential bigger return.

But, how does the convergence of SaaS and open source – in the cloud – with far more developer-friendly platforms, affect the investment trend?

I would argue that we will see VC positions at far lower initial numbers than we’ve seen in the past. The activation energy needed for a profitable startup with smart distribution models (open source, App Store, App World, SaaS, etc.) is far less than the dinosaurs that sold with enterprise sales teams. I expect to see more sub-$1m positions than large $4-10m Series A rounds in the future.

It really is that much easier to go to market these days. Now, will there still be large, complex technology concepts that come up and receive huge funding rounds?  Sure. But I see these in areas like renewable energy, data warehousing, cloud infrastructure/virtualization, etc. I think the barrier to entry for applications vendors is just getting lower and lower.

This probably scares the pants off of some CRM and application vendors. But I think for those of us that thrive on innovation, we welcome the challenges and opportunities that more level playing fields bring.

One thought on “Will the Cloud Bring Back Bootstrapped Prime Time Software Vendors?

  1. Hi Martin,

    Thanks for the mention. The barriers to entry have lowered but it appears that many investors haven’t woken up to this and are still looking for larger investment and pay-off opportunities than some vendors are happy to commit to. This has led some to suggest that the old VC model for software is broken. We touch a little on this in our report, although it impacts the whole industry, not just open source. I expect to see much more on this subject during the year.

    Matt

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