Magento Nabs $22.5 Million in Equity Funding for eCommerce Software

by Ostatic Staff - Mar. 16, 2010

Open source e-commerce software suite Magento got a boost this week thanks to a $22.5 million influx of cash from a round of equity funding. The company plans to use the money to boost its mobile commerce products and Software as a Service (SaaS) offerings in the coming months.

Magento is popular with big name brands like Lenovo, Vizio, and 3M, and has been downloaded over one million times. It's available in both Community (free) and Enterprise (paid) editions, but both are open source. It's also one of the most full-featured packages on the market and includes site management tools, report generators, and mobile commerce options.

Though it isn't clear from the SEC regulatory filing just who opened its wallet to Magento, TechCrunch's Robin Wauters has a hunch. "If I were to venture a guess, I would say PayPal plays a part in this story -- from what I can gather the least you can say is that the digital payment company has a deep partnership with Magento that spans both co-marketing of their respective services as well as a collaboration on a product development level."

No matter who backed the move, it's impressive for a young company that was named SourceForge's Best New Project a scant two years ago. Roy Rubin, CEO of Magento, said in an interview last year that transitioning his business from a consultancy to a product company was a challenge, but the team never wavered from its decision to release the project with an open source license. "Since day one, we knew very well when we started the project that that was going to be the strategy. We come from the open source roots and that’s what we knew well. We very much believed, and still believe, in the model. We saw other players and other verticals continue to do well. We saw MySQL, we saw SugarCRM, Alfresco and other commercial open source players and we understood that there was a true opportunity in the eCommerce space and that’s really what motivated us to believe that there is a business model around distributing free software. I think to date, two years after, we’re still very much believers of the model," says Rubin.

Magento was released under the Open Source License OSL 3.0) to ensure developers make their derivative work public. "The OSL license is actually the open software license, and the open software license is a license that closes what’s called the ASP loophole... [W]ith Magento, we treat distribution over a network, same as a classical distribution that’s covered under the GPL," explains Rubin. "If you create derivative work of Magento and you put up the work just on a website and distribute it digitally, via the web, that is still considered a distribution and as such, since the OSL license is a reciprocal license, your work has to be licensed under the OSL license and made public."

"Why did we choose that? We chose that because we felt that the work that we put into Magento was significant and we had hoped that the community reciprocates so that if are derivative works, the rest of the Magento community can benefit from that," says Rubin.

Have a look at Magento's Issue Roadmap for a sense of where the company is going from here. Whatever path the company's $22.5 million bankroll takes them, it won't have time to rest on its laurels. Open source eCommerce platform and Magento's chief competitor, ShopIgniter, just scored a $3 million investment from Madrona Venture Group