Investing in Open Source Software Companies: Deal Making from a Venture Capitalist's Perspective

Abstract

This chapter studies how venture capitalists invest in open source-based companies. Evaluation and valuation of knowledge-intensive companies is a challenge to investors, and while many methods exist for evaluating traditional knowledge-intensive companies, the rise of open source companies with new hard-to-measure value propositions such as developer communities brings new complexity to deal-making. The chapter highlights some experiences that venture capitalists have had with open source companies. The authors hope that the overview of venture capital process and methodology as well as two case examples will provide both researchers and entrepreneurs new insights into how venture capitalists work and make investments.