Open Source Weblog

I should mention that Savio knew that $30.7bn figure was wrong.

“You'll argue that the complete $2.05B wasn't invested for 6 years. Valid point. So, if you run the numbers with different input for # of years you get:

If Matthew could provide the yearly or quarterly splits on VC funding to OSS, we could get a better sense of whether $7.9B or $30.7B is the correct target,” he wrote.

After getting some maths 101 from Savio on the equation he had used:

“F=P*((1+i)^n) where

F = Today's value of the VC dollars invested in OSS
P = Initial Investment; in this case $2.05B invested in OSS by VCs
i = Rate of return; in this case 57%
n = # of years invested; in this case 6 (we should use 7 b/c Matthew's data is from 2000 to 2007, but 2007 isn't over and more was likely invested in 2007 than in 2000)
^ = Power of”

I ran the numbers myself and found that the result is closer to $9.5bn.

How could the figures be so different? There's some very good reasons:

1. Rather than the $2.05bn figure quoted from 2000 - Q2 2007 I wanted to run figures for annual investment levels, which means the $1.83bn invested up to the end of 2006. The result is a calculation of value up to that point.

2. More than half that amount ($1.11bn) was invested in the last three years, and therefore has had less time to accrue the necessary returns.

3. Except the $385.3m invested in 2000, the early part of the decade was actually not a good period for open source investments, following the Linux boom that accompanied the dot com boom and bust. The years that should have earned some of the biggest returns were relatively under-invested.

Here's how the figures break down using Savio's equation. [UPDATE - Savios has more readable presentation of these figures here and has also run the number excluding the boom of 2000, based on feedback from Matt Asay.]

Year
Invested amount
Value end 2006

2000
$385.3m
$5,770.3m

2001
$76.7m
$731.6m

2002
$138.6m
$842.1m

2003
$115.1m
$445.4m

2004
$299.5m
$738.2m

2005
$306.5m
$481.2m

2006
$503.8m
$503.8m

Total
$9,512.6m

“Maybe the VCs are doing the same math and realizing that their OSS investments aren't driving returns in line with historical norms? If so, this would be a 3rd factor in why VC funding to series 'B' and above is increasing while series 'A' seems to be drying up for OSS vendors,” notes Savio.

Given the low levels of investment in 2001 to 2003 it could also be argued that VCs are waiting to see the returns from their post-Linux boom investments. After all, as previously noted, there have been relatively few exits made by open source firms, compared to the current number of vendors seeking funding. The returns are going to be small at this stage, therefore.

Or maybe I am just rubbish at maths...