Venture Capital Continues To Pour Dollars In To Commercial Open Source

Nuxeo is the latest open source based commercial business to feel the love from VCs who see a pot of gold at the end of the open source rainbow

After an initial gold rush of VC investment in open source based businesses a few years back, investment in commercial open source companies seemed to be cooling off. Whether it was the economy in general or something specific to open source, the gold rush may be coming back. Open Source Enterprise Content Management firm Nuxeo is the latest company to announce additional VC funding. They raised 3.3 million.

I had a chance to speak with Cheryl McKinnon, Chief Marketing Officer at Nuxeo a few weeks back. Nuxeo has been a very vocal contributer in the whole open core vs open source debate. You can read her blog for some good commentary on that. But open core or open source, Nuxeo is doing well and the VC community loves a winner.  Congrats to the team on the additional raise.

Nuxeo is not the only open source company to announce capital raises recently though. Opscode, a Seattle based IT infrastructure start up just announced an 11 million dollar round and the release of its open source based Chief product. 

Alien Vault, an open source security information manager (SIM) last week announced that they raised another 4 million dollars as they seek to expand into the US from their European roots. I met the co-founders of Alien Vault at the RSA Conference last year and have stayed in touch since. Will have an update on their efforts in a post soon.

Also ZenOss raised over 4.8 million in convertible preferred stock recently too. Another open source based company pulling in investment.

Finally, one that I like to watch, the open source hardware company, Bug Labs let the cat out of the bag that they just raised another 3 million dollars.

So is it just the economy doing better or has the investment community fallen back in lust with open source business models.  Probably a little of both.  Many of these commercial open source companies have come out of the recession leaner, stronger and better able to compete. VCs recognize this like sharks recognize blood in the water. If there is going to be a killing made, they want in.

Another conclusion that can be drawn here is that this is a ringing endorsement for the open core movement. Most of these companies are not generating cash just from services and support.  They are providing some sort of freemium model. They offer a core of open source software and have pay modules and add ons.

If you are an enterprise consumer of open source this means that better financed commercial open source companies are a safer bet for the long term. Also it means that plan on paying something for your software. In most of these models the community or free edition may not give you the functionality you need. What do you think?

Congratulations to all of the companies who have raised money. If you are with an open source based business and have recently raised money, please let me know and would be happy to report on it and speak with you.

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