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MySQL, Red Hat and many other open source projects made good amount of money by supporting and creating world class software. But, how do you get venture capital - financing to grow businesses based upon open source ideas? If you are opening an open source software / hardware based business, read this getting started article about VC funding.

VC Funding

According wikipedia:

A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value).

Here in India VC funding reached to US $6.5 billion at the end of 2007. Most VC firms in India are either divisions or subsidiaries of Silicon Valley funds. They are primarily centered in Bangalore, Delhi and Mumbai.

Keith Ward has published an interesting article about getting funds for your small project:

So, you've got the greatest open source idea since Firefox. It's guaranteed to be bigger than TCP/IP. All you need now is some scratch to get your project off the ground. Given the genius of your idea, you're sure you'll have to beat off potential investors with a stick. If you think that's reality, I've got some subprime mortgages to sell you. Getting venture capital (VC) to fund your business is hard work, even if you have a commercial product to sell. The degree of difficulty ratchets up many times if you're an open source developer. It can be done, but it takes such single-minded focus that getting turned down multiple -- maybe even dozens -- of times won't faze you.

=> How to get VC investment for your open source

This news is 100% true; I’ve witnessed lots of growth recently here in India, especially in Mumbai, Delhi and Bangalore. Many south states making it compulsory to use Linux and open source software for government funded project.

Way back in 1999 I switched from Windows to Linux desktop because:
=> Cost
=> Virus issues
=> Reliability & Security

Today I can almost purchase any computer or toy, money is not issue, but I still prefer to use Linux as desktop. Windows Vista has given companies in less-developed markets a reason to consider open source alternatives, especially hardware requirements are high. People in Asia still purchase and use old Celeron based computer with 128 / 256 MB RAM, here is my desktop CPU (I'm using it since last 4 years):
$ grep -i cpu /proc/cpuinfo
Output:

cpu family      : 15
model name      : Intel(R) Celeron(R) CPU 1.70GHz
cpu MHz         : 1716.927
cpuid level     : 2

Open source accounts for between 25 and 70 percent of all software in Australian, Chinese, Indian and Korean companies, according to a recent IDC survey.In an interview with ZDNet Australia sister site ZDNet Asia, Wilvin Chee, research director with IDC's Asia-Pacific software research group, said: "Businesses are using a variety of open source software, ranging from infrastructure software and storage to enterprise applications such as CRM (customer relationship management) and ERM (enterprise resource management)."

Conducted by IDC between February and March this year, the study involved top executives from about 1,000 companies of all sizes.

Open source take-up booming in APAC (Via digg)