Venture capitalists have poured $3.2 billion into open-source companies since 1997, according to a new report from The 451 Group. It's about time we started delivering a return on that investment.
In some ways, of course, this $3.2 billion investment has already been repaid several times over. The Linux Foundation, for example, estimates that that the Linux kernel is worth $10.8 billion in free research and development, and a compelling argument has been made that open-source vendors have already saved customers $60 billion in license fees they'd normally be paying.
Indeed, if you expand beyond just vendor-initiated open source, you quickly get well beyond a few billion dollars in value.
All of this is great, but VCs aren't known for the prettiness of the bows they place on their Christmas presents. They're investing to make a return for themselves, not enterprise IT or developing economies. With few exceptions--including Red Hat, Suse, XenSource, Zimbra, and JBoss--the open-source ecosystem hasn't been fattening the coffers of VCs.
This must change.
I believe we're on the cusp of that change. Here's why:
For my company's last management meeting, I tracked our sales against the Dow Jones Industrial Average since November 2005, when we first started selling our product. As can be seen above, while Alfresco followed the DJIA for the first two years, in the past year, as the DJIA has zigged, we've zagged.
The recession has been very good for open-source Alfresco.
But it's not just us. I've talked with a range of open-source companies that I advise (including SugarCRM, JasperSoft, Volantis, and Openbravo), as well as many that I don't advise (Sun's MySQL, Pentaho, OpenX), and almost universally, every open-source company reports the same thing: economy down, sales up.
This sounds like a perfect storm brewing for impressive VC exits on open-source companies, once valuations catch up with the sales numbers open-source companies are reporting. I would imagine that by late 2009 or early 2010, we'll start to see the economy recover a bit, boosting valuations for mergers and acquisitions. Once that happens, I believe that we'll see VCs start to reap a bountiful harvest on their open-source investments.
Disclosure: I am an employee of Alfresco, an open-source content management and collaboration company.
Follow me on Twitter @mjasay.