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.
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.
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