From stars to unicorns: how to articulate open-source and VC funding?
As Europe's desire for technological sovereignty grows, the French open-source scene is seizing the moment, and not just in the AI space with Mistral AI. As Daniel Jarjoura recently observed: "For the past three years, more and more entrepreneurs have launched open-source-related companies while going the traditional VC route." [1]
It may seem counterintuitive, but open-source can indeed coexist with building a venture-scale business. Companies like Red Hat, MongoDB, and Databricks already proved it. Open source is not always synonymous with freeware. From donations to subscriptions, there is actually a wide array of monetization routes available. As Sarah Guo points out: "Open-source is a strategy for building and selling" [2] particularly to a very technical and demanding audience.
What does it take to move from a project to a company? What are the best go-to-market tactics? How should monetization be approached? What are investor expectations? With these questions in mind, I partnered with Audrey Handem & Florian Obst, my friends at Speedinvest, to host a breakfast at the Stripe Paris office dedicated to open-source founders and investors. Our goal was to foster an open conversation and trade learnings and perspectives from both sides of the table. Many thanks to Quentin de Quelen from Meilisearch, Cyril Allard from Tailwarden, Stan Girard from Quivr (YC W24), Benjamin Brial from Cycloid - Sustainable Platform Engineering, Anais Monlong from IRIS and Henri Tilloy from Singular for participating.
Did you know the demand-side value of open-source software is estimated at $8.8 trillion? Without it, firms would need to spend 3.5 times more on software! [3] Open-source technologies offer a democratic way to develop our tools and shape our future while involving social and economic complexities. Stripe supports 60+ public repositories [4], reflecting a commitment to collaboration, and high-quality tools. In 2022, we open-sourced Markdoc [5], our Markdown-based authoring system that powers the Stripe docs, as well as Sorbet [6], a powerful type checker for Ruby designed to enhance code understandability and engineer productivity.
Stripe is also a strategic partner for numerous open-source companies. Our robust and well-documented APIs simplify the integration process for developers, allowing them to monetize efficiently and quickly. Beyond payments, Stripe provides revenue and finance automation tools [7] streamlining a crucial aspect for open-source companies operating on a SaaS model. Lastly, Stripe is designed to scale with the needs of any business, regardless of size. For open-source projects, this means the payment system can expand seamlessly as the user base grows, providing comfort and reliability for founders looking to grow their projects.
During the breakfast, our conversation covered a range of fascinating topics including the following five:
?? From Project to Product: One key theme was transitioning from an open-source project to a monetized product. Several founders shared their journey of starting with evening projects, putting them on platforms like GitHub, and eventually integrating payment systems to gauge user interest and collect valuable feedback. As one participant aptly put it, "Transitioning from a project to a company requires more than just code; it needs a clear vision and strategic feedback loops."
?? Challenges in Monetization: The debate around monetizing open source was vibrant. As one speaker noted, "Even major players struggle to monetize open source effectively." The complexities of maintaining open-source projects and the difficulties in converting users to paying customers were highlighted. "Monetizing open source isn't just about revenue; it's about creating sustainable value for the community," emphasized a founder.
?? Go-to-Market Strategies: Different stages of startups bring unique challenges. Early-stage founders discussed their approaches to securing feedback and iterating quickly. A crucial point was the importance of having a dedicated sales engineer to bridge the gap between technical demos and actual sales. One founder highlighted, "Finding your initial customer base can guide your entire go-to-market strategy. Listen carefully to those early adopters"
?? Community Engagement: Building and maintaining a strong community is essential. Discord was mentioned as a critical platform for user support and feedback, despite being challenging to manage. "You know it's important, even when it's a pain to maintain" said one participant. Effective strategies for community and corporate engagement were also discussed.
?? Investor Relations: Finding the right investors can make or break an open-source startup. Investors in the room emphasized the importance of clear product vision, the ability to adapt, and the balance between technical excellence and pragmatic decision-making. As one investor put it, "Revenue is great, but usage and community engagement are powerful indicators of potential."
If you wish to delve deeper into this topic, I strongly suggest exploring these excellent resources:
领英推荐
Senior Product Manager, GenAI
7 个月Rémi Durand-Gasselin
Building @ Quivr (YC W24)
9 个月It was very interesting to get the thoughts of other open-source founders! Thanks for the invite.
Technology Investment Banker at Avolta
9 个月Thanks for mentioning my study Jér?me Tomasini ?? Great initiative! The data I’m monitoring clearly shows an increase of VC investment in OSS, but it’s part of a bigger interest in developer-first startups (of which open-source representing a small percentage of deals). For example, only two startups had open-source products out of the last 10 developer-first fundraising in Europe (Pythagora (YC W24) and Kotzilla. OSS still need to demonstrate their ability to scale revenue beyond the 5m€ ARR with significant growth to keep attracting capital.
Co-founder @Tailwarden
9 个月Thanks for the invitation :)
Venture Principal at IRIS
9 个月Thanks for having us Jér?me Tomasini !