Q3 Results in Less VC Funding for Open Source Vendors

by Ostatic Staff - Oct. 19, 2008

The 451 Group is reporting that venture capital funding for open source vendors was down 12.2% last quarter, compared to Q3 2007. They say that while this is a larger drop than seen in the overall market, it's not quite as dire as it may seem at first glance.

While it's not shocking news that the market has been struggling (regardless of industry) for some time now, it seems that in spite of the numbers that the 451 Group is reporting, open source is in a positive position. The drop shown last quarter in venture capital funding was not unexpected, and it follows two quarters of solid, healthy growth.

The 451 Group speculates that the record setting funding seen in the first quarter of 2008, and the modest, but strong, investments thereafter, are indicative that vendors were planning ahead and raising money to help weather the rocky period the market is currently facing. It also mentions that this sort of "economic hangover" isn't particularly surprising in any industry after a few quarters of rather impressive growth.

The 451 Group report also makes the point that the open source market appears to have very strong fluctuations because it's smaller. This means that the fate of any one vendor -- good or bad -- can substantially impact the figures. The report links to Ringside Networks closing shop as the illustration for a probable factor in the Q3 fluctuation.

It also seems that though the venture capital funding was less widespread, the vendors that received funding got a bit more than had been seen in previous quarters. Naturally, these figures are only based on funding that was publicly disclosed.

Though the economy has slowed and open source start ups are feeling the pinch as keenly as any other market sector, the report gives some hopeful indications that new open source vendors will ultimately ride out the storm.