Venture capitalists are again embracing open-source technology companies. JBoss, which offers a layer of software for controlling Web applications, was one of 20 such businesses that raised $149 million in venture money in 2004.

At least three open-source start-ups raised $20 million last month alone.



But given some spectacular open-source failures in the late 1990’s, a natural question may be whether some of these venture capitalists have perhaps lost their minds.



In 1999 and 2000, according to VentureOne, venture capitalists invested $714 million in 71 open-source companies. Most of those projects collapsed.



Turbolinux, which raised $95 million based on the idea of selling a premium version of Linux, the open-source operating system, was one prominent failure (remnants of the company are still doing business in Asia). Linuxcare, a consulting company backed by Kleiner Perkins Caufield & Byers, among other venture firms, was another. It burned through at least $80 million.



“We all learned a lot of hard lessons,” said Peter Fenton, a partner at Accel, which invested in two open-source start-ups in the late 90’s.



A big difference between then and now is the increased adoption of open-source software by corporate users. Another is the relative success of Red Hat, an open-source start-up that went public in 1999 and makes money by selling enhancements and maintenance services to corporations using Linux.



More here.

0