Open Sources | Rodrigues & Urlocker » Revisited - Returns on open source VC investments

July 10, 2007 | Comments: (0)

Revisited - Returns on open source VC investments

TAGS: Economics

I questioned the value of VC investments in OSS in a previous post. I estimated that the investments would have to be worth between $12.5B and $19.6B to be in line with the historical rate of return for VCs (i.e. 57%).

Well, I was wrong, (somewhat). Matthew provided the yearly details of OSS VC investments and calculated that the investments would have to be worth $9.5B at the end of 2006.

Here's the Google Spreadsheets file.

If you redo the analysis to calculate the value of investment to June 2007, the result is $11.9B, much closer to the $12.5B I'd estimated.

But that's not the most interesting part. Let's ignore VC investments in OSS from 2000, because that was bubble mania at its worst. And as Matt Asay points out,

Most of the early money invested in open source wasn't invested in open source companies at all or, rather, into companies that styled themselves as such.

Matt goes on to suggest that VCs with OSS investments are in for banner results when IPOs and acquisitions start to accelerate in 2008/9.

If we only consider the investments from 2001 to 2006, the sum total invested was $1.44B. This investment would have to be worth $4.7B to be in line with historical rates of VC returns. Anyone else think that $4.7B of "value in VC funded OSS firms" is easily defensible?

So, there you have it. Next time someone tells you that VCs should be weary of investing in OSS firms because they're uneasy about returns, show them this analysis.

I hope this wins over some readers who are missing Matt's general exuberance for all things open source. Remember, I'm on your side, if only with one glass of the OSS Kool-Aid in me (versus Mr. Asay's 21 glasses :-). Pulling out the old calculator once in a while helps to add credibility to our views. I hope to challenge some status quo views on OSS and maybe learn a thing or two along the way!

Posted by Savio Rodrigues on July 10, 2007 03:00 AM

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