Open Source Weblog

“The vast (by far) majority of that money, since a few quarters already, is going towards the so-called ‘round B’ or later, that is existing companies who have been already financed and are milking more cash from their investors. There has been none or marginal investment in startups,” wrote Rabellino.

Comparing the figures for the first six months of this year and last year backs up the claim.

In the first half of 2007 there were 10 Series A/Seed funding rounds, with a total disclosed value of $39.75m, or 19.9% of the total of $198.85m.

In the first half of 2006, meanwhile, there were 12 Series A/Seed funding rounds, with a total disclosed value of $91.15m, or 42.9% of the total of $212.30m.

That’s a significant drop whichever way you look at it, but is it a sign of a long-term decline in early open source investment, or – as I had previously suggested - indicative of the cyclical nature of investment?

For that we have to take a more long-term view. The following chart shows the value and number of Series A/Seed funding deals as a percentage of the total for the last 14 quarters. Click the image for a larger version.

Despite the peaks and troughs, it shows there has been a steady decline in the percentage of open source funding directed to start-ups.

Of course, to some extent this is due to the maturity of the market. Many of the companies that raised Series A funding in early 2004 have gone on to Series B and later in more recent quarters.

However, it appears Rabellino has a point in that the next generation of vendors are doing less deals and are raising less money, as a percentage of the total.

Back in May Larry Augustin suggested a couple of reasons why this might be the case, including venture firms spreading risk, the unproven ROI of open source funding, and the fact that open source is being assimilated into the wider marketplace.

Is open source running out of ideas or are VCs falling out of love with open source? There is an up-tick at the end of the chart that provides a teasing suggestion that there answer is ‘no’, and recent funding deals for the likes of Openads, Interface21, Coupa, Avidence, and eZ Systems suggest there are plenty of new ideas to invest in.

And of course there are wide variety of projects that haven’t even got to the stage of looking for investment yet. We’ll have to wait and see where the line goes from here. Any predictions?