Peter Fenton
No other investor has had as much success in open-source software as Peter Fenton, general partner at Benchmark Capital.
A competitive triathlete, Fenton has turned the standard marathon of open-source business-building into a sprint, churning out four big open-source sales--JBoss ($350 million), Zimbra ($350 million), XenSource ($500 million), and SpringSource ($420 million)--while most investors have yet to turn a profit on any.
Not that Fenton is a one-trick pony. He also just sold FriendFeed to Facebook and sits on the board of Twitter. It's fair to say that Fenton can now afford a second Aston Martin.
But Fenton is still busy, sitting on the boards of open-source companies Pentaho, Terracotta, and Engine Yard. He's also willing to share the secrets to his open-source success, telling The Wall Street Journal the key to building a winning open-source business.
Spoiler? Build a direct line to your customers using open source and then ensure an excellent product to pave the way to adoption, then usage, then sales. According to the Journal article:
Rather than "expensive sales efforts and negotiations with the upper management to get the most money possible," the people that will be using the software can easily download and try the product. This helps the best products proliferate and weeds out the underperformers.
"If you don't have the best product, you're not going to make it in open-source," unlike traditional enterprise software, where customers often flock to good-enough products.
Having a well-received product not only results in plenty of downloads, users and developers, it also makes the sales process that much easier. With SpringSource, "anyone the company sold to was already using the product," he said.
Sounds easy, right? Well, no, not if you've ever been involved in an open-source business. Building a great product is hard enough, but doing so in a transparent fashion while encouraging active adoption without appearing faux to your community...? That's hard.
Venture investing may be more art than science to some, but Fenton has done more than most to turn open-source investing into a science, as VentureBeat reports. For instance, many open-source companies are ecstatic to have widespread adoption, but Fenton is careful to call out the difference between adoption and actual usage, as he does in this Benchmark presentation (PDF).
In this presentation Fenton calls out two strategies for investing in either "farm-raised" or "free-range" businesses. Think of these categories as company-led (e.g., Zimbra) or community-led (e.g., SpringSource) open-source businesses. Neither is better than the other: they simply refer to whether an open-source community predates a company set up to monetize it.
The strategies Fenton takes depends. For "free range," it looks like this:
(Credit:
Peter Fenton (Benchmark Capital))
For "farm raised," Fenton's strategy looks like this:
(Credit:
Peter Fenton (Benchmark Capital))
All of which means your next open-source investment or company should be a snap, right? Maybe not. It's one thing to call the correct shots--and quite another to make them. Part of the reason Fenton has been so successful is that he has invested in exceptional operators at each company, including Marc Fleury and Rob Bearden (JBoss); Satish Dharmaraj, Scott Dietzen, Andy Pflaum, and John Robb (Zimbra); and Rod Johnson and Rob Bearden (SpringSource), among others.
Perhaps this is really the key to Fenton's success, after all is said and done: he knows how to attract top-tier entrepreneurs to top-tier open-source communities. That's not something one accomplishes with a jog or casual bike ride. That's the work of a triathlete, which makes Fenton perfect for the job.
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(Credit:
The 451 Group)
Venture funding for open-source companies rose to $115 million in the second quarter, a 14 percent increase over the same period a year ago, according to The 451 Group. And funding for the first half of the year is up 62 percent over the first half of 2007.
That's all the good news.
The bad news is that seed and series A funding remains anemic and may continue to remain so while venture-backed companies struggle generally to find a public exit, i.e. an initial public offering. In the second quarter, there were exactly zero IPOs for venture-backed companies--whether they were open source or otherwise.
While the open-source freeze may perhaps not be a cause for as deep concern as The 451 Group suggests--VCs need to see returns from their existing open-source investments before they start to pile on more--it does mean that there have been better times to try to get an open-source venture funded.
With that said, investors who have seen strong returns from open source (e.g., Peter Fenton at Benchmark and David Skok at Matrix) are actively investing and vetting new open-source projects. For those with the right credentials or track record, these are the investors to approach. But given their experience in investing in open source, they're also the least likely to be swayed by mere downloads.
Dave already covered SpringSource's impressive Series B investment from Benchmark and new investor Accel, but the interesting factoid behind the investment is that the two firms co-invested at all, given the commonality between the two: Peter Fenton.
Two years ago, Fenton bolted from Accel to Benchmark, a move that jarred the cozy VC world. Partners rarely lateral to another move, and not without considerable consternation because it shakes up board seat arrangements and creates complications as to whose Aston Martin gets which parking spot.
It's therefore good to see that there's no enduring bad blood between Fenton and Accel. The VC world is too small to permit prolonged handwringing over parking spaces. (Peter, you can park your Aston Martin at my house anytime. Just leave the keys under the doormat.)
Congratulations to Rod and the SpringSource team for the investment. Two great firms and what I hear was a sweet valuation.
eWeek has put together a solid list of the top-15 open-source business influencers in the industry today. It's much the same that I would have devised had I come up with such a list. Names like Linus Torvalds (Linux), Mitchell Baker (Mozilla), Mike Milinkovich (Eclipse), and Larry Augustin (most startups known to humankind) make the list. Also John Roberts of SugarCRM, who was really the one who made commercial open source as big a topic as it is today, at least beyond Linux and middleware.
But the list is also notable for its inclusion of some people that might normally escape public notice, but who deserve it all the same. Tim Golden (Bank of America) is one such person. Another is Peter Fenton (Benchmark Capital). Few recognize just how deeply involved Peter is in the open-source venture market.
Others on the list, like Mark Shuttleworth, are well-known but not yet for the right reasons. Mark is known more for his engineering side (Ubuntu), but I think his most lasting impact will be with the uncompromising business principles that he brings to Canonical.
At any rate, good people getting the credit they're due.
If there was an open question as to which venture capital firm is the king of open source, Benchmark just settled that question with its most recent investment in Pentaho, a leading open-source Business Intelligence company. Not surprisingly, Peter Fenton is behind the deal.
Pentaho competes with other open-source BI companies like JasperSoft and Actuate (and I suppose Greenplum, too, in a way), but the more interesting competition is the big proprietary vendors (Business Objects, Cognos, etc.) and the net new opportunities bringing BI to the masses.
It will be intriguing to see how this investment pans out for Benchmark. The firm has so many eggs in the open-source basket that it will either (continue to) win big (Red Hat, Zimbra, MySQL, etc.), or lose big. My bet is on the former outcome.
If you're looking for a seasoned, open-source savvy executive team, you might look to MySQL or another leading open-source company. But if you want that team to come with investment dollars attached, you'd do far better to look to Benchmark Capital. In addition to Kevin Harvey (MySQL, Red Hat, etc.) and Peter Fenton (JBoss, Hyperic, SpringSource, etc.), Benchmark just added four new EIRs (Entrepreneurs in Residence), two of which will focus on open-source investment opportunities.
Benchmarks's Bob Kagle notes the importance of EIRs:
By bringing seasoned executives into the firm to found new businesses or work with our portfolio companies, everyone benefits. They understand the challenges of running a start-up, and demonstrate by example what it takes to build, manage and lead fast-growth technology companies.
This is particularly true in open source, given the relative dearth of understanding of how to build a successful open-source business. Anyone who needs a hand in doing so will almost certainly want to tap into one of Benchmark's new EIRs: Rob Bearden.
... Read moreThere are a range of venture capitalists that I like and would work with in a venture. At Alfresco I've been fortunate to work with Robin Vasan (Mayfield) and Kevin Comolli (Accel). I'd happily work with either again. They are entrepreneurial and empathetic. They're also helpful in cracking into a wide range of companies.
One firm with whom I've never formally worked but would engage in a heartbeat is Benchmark Capital. Matt Aslett of The 451 Group gets it exactly right in calling out Benchmark as the secret sauce behind a majority of the industry's successful open-source ventures...and exits:
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