Open Source VC Funding Hits All-Time High

But with most well-known firms nearing their financing goals, will the trend peter out?

It's a good time to be an open source startup looking for financing. According to 451 Group analyst Matthew Aslett, open source vendors were able to raise a record $203.75 million in the first quarter of 2008.

The 1Q08 figure is more than double the $100.40 million raised by open source vendors during the first quarter of 2007. The previous record for open source VC financing was set back in the fourth quarter of 2006 at $193.7 million.

Aslett said 20 open source deals took place during the first quarter of 2008, with an average size of nearly $12 million.

"Given the slowdown in funding in the second half of 2007, I don't think anyone would have predicted the growth we saw in Q1," Aslett told "But with the surge of activity in January it was quickly obvious that we were in for a good quarter."

"There were a couple of deals that were held over from 2007, and it is also unusual to get so many big open source names all raising funding at the same time," he added, pointing to financing won by companies including Greenplum, SugarCRM, Pentaho, Alfresco and Zenoss.

VCs interest in open source isn't necessarily limited to particular product or service areas, Aslett said. However, he added that vendors combining the open source development model with SaaS delivery model have become doubly attractive to investors.

"Given the interest in Web 2.0, Rich Internet Applications and social networking, those are likely to be big areas in the future, and there is significant interest in companies like Appcelerator and Ringside Networks," Aslett said. "Maximizing revenue from community use and Web visits is of significant interest to VCs, so it is no surprise to see LoopFuse attracting interest."

Appcelerator is a developer of Rich Internet Application (RIA) tools, Ringside is a social media play and LoopFuse markets a sales and marketing automation service.

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