Open Source and SaaS Funding: Bucking the Economic Downturn

Phil Wainewright posed an interesting question in his blog yesterday. Citing a fresh round of funding for a number of SaaS providers that have recently cashed in, he asks if it’s still possible to secure VC funding for SaaS startups given the downturn the economy has taken in recent months?

I’d say absolutely. In many retrospects, SaaS and open source are on parallel courses. The maturity of the products has resulted in their acceptance in the economic mainstream, and as a result, funding for startups in both industries remains strong.

A recent study by the 451 Group supports this, and showed that open source VC investments totaled $204 million in the first quarter of 2008, more than double the amount for the first quarter of 2007. I’d have to imagine that the numbers for SaaS startups is similar.

Like any rapidly expanding industry, acquisition of these startups remains strong, another sign that SaaS and open source is bucking the economic trend. And while acquisitions might eliminate these startups and seem to discredit the industries long term validity, there will always be new ones to take their place.

Besides, it’s open source’s lower costs that make it more attractive during an economic downturn to begin with, so why not add a little more fuel to the fire curiosity of VC funding?