Fourth Quarter VC Funding for OSS Was Down, but Don't Panic

by Sam Dean - Jan. 09, 2009Comments (0)

The latest roundup of venture capital numbers from the analysts at The 451 Group is causing some to speculate that VC funding is drying up on the open source front, but there's more than immediately meets the eye. While it's true that the $44.9 million in funding raised in the fourth quarter was down 10.9 percent from $50.4 million raised in the fourth quarter of last year, it's also true that 2008--one of the most miserable financial years in anyone's memory--brought an overall increase in venture capital funding for open source. Here's how the numbers stacked up for last year, and a peek at what lies ahead.

As you can see from this chart from The 451 Group, there was a steady decrease in VC funding for open source throughout the four quarters of last year:

For the fourth quarter of last year, there were nine deals done involving open source companies (you can review them in The 451 Group report), and the average deal size was just under $5 million, down from $6.3 million on average in the fourth quarter of last year, when there were eight total deals. So overall funding and funding for the average deal were both down.

However, take a look at this chart, also from The 451 Group:

While 2006 was an anomaly in terms of the flow of venture capital toward open source, the general trend remains up and overall venture funding for open source was up in 2008, compared to all funding for 2007, as seen at left. The total amount of venture funding for open source companies since the beginning of 2004 is $2.95 billion--nothing to shake a stick at. I'm not surprised that purse strings were tightened as last year progressed. Everyone tightened, and there was little common sense present.

The great investor Warren Buffett has always been fond of saying "I don't care about a quarter's earnings." He cares about general, long-term trends. The general, long-term trend for VC funding for open source remains positive, despite the most severe types of challenges.