Securing investors is always a challenge for startups. But for open-source companies, it’s even harder.
Open-source companies need the right investors to innovate and enter new markets. But when you deal with a specific subset like open source, it can be difficult to find VCs with the required experience and knowledge. Those of us in the open-source community know it’s not just about the money — it’s also about continuing to grow the community.
My company, Styra, is first and foremost an open-source company. So, when we started raising funds, we knew our approach to Series A and Series B funding would have to be different from most other companies. From the beginning, we decided to prioritize the open-source community — which helped us raise $40 million in a Series B round of funding led by Battery Ventures.
Community is in our DNA
Community is in the very DNA of Styra. It’s why we built Open Policy Agent (OPA), an open-source project — and whywe donated OPAto the Cloud Native Computing Foundation (CNCF) in 2018. OPA is stronger because of its contributors and integrations, which is only possible at this scale because of OPA’s open-sourced nature.
As Styra continues to set the standard for authorization and enhance our commercial product, Styra Declarative Authorization Service (the management plane that operationalizes OPA), our vision is to continuously support the growing community of users for OPA. For us, it’s a measure of success.
The problem Styra is trying to solve is no small task: We are reinventing authorization with a new standard. That’s why we knew our investors needed to understand the importance of the community.
Focus on investors who understand the open-source community
In Series A funding, we set out to prove our worth to investors. But in Series B funding, we had more control. The OPA user base had grown exponentially — in fact, OPA had 75 million downloads, a nearly 600% increase in 2020 alone. So we wanted to continue seeking out VC partners who had not only heard of OPA, but were familiar with open source. Because the open-source community has unique complexities, we wanted our investors to understand the ecosystem as a whole, including how to best work with developers. This is vital because several factors set open source apart from other industries:
Metrics: For open-source companies, it’s not just about annual recurring revenue (ARR) — it’s about community growth, participation and engagement. At Styra, we measure download rates, number of talks from the community and members in the developer community on the OPA Slack. These are all soft metrics, but they’re important.
Spend: Most of your seed money will be spent on building out an open-source team. From developer advocates to engineers, ROI on these team members is not tied to sales metrics. Investors need to understand that there will be a large investment before they see any return.
Values: When sharing is part of your plan from the start, you operate differently. Unlike companies with a few lines of quick proprietary code built to sell for a large amount, open-source companies focus on creating long-term, clean code and projects and supporting their community.
What to look for in an investor partnership
If there’s a disconnect between your investor and company, it can lead to the investor expecting unrealistic results. To identify a long-term partner who can handle the complexities of open source, look for VCs that are:
Company-builders: We searched for investors with strategic minds who wanted to help build a lasting company. For example, Accel,who led our Series A funding round, wants to be known as investors that have moved the market in a certain direction — they look forward to industry shifts.
Understanding: Investors in the open-source space not only need to understand key revenue metrics, but also be willing to accept and even recommend other objectives and key results (OKRs) based on community participation and growth.
Experienced: Experience is everything, and your investor should have strong technical bench depth in open-source software (OSS). The right partner has a team that can help advise on what has best served the community in the past and proven recommendations for how and when to provide service.
So how do you know an investor truly understands open source? Certain VCs will ask questions about the ARR, and you’ll know they aren’t the right investors for you at this stage. The investors you want should know and understand the CNCF, open-source licensing models and the value each can provide. Most importantly, lead with the product and place it in investors’ hands. Let the product create the community; VCs in the open-source community understand product-led growth.
To find the right VCs, use previous investors for recommendations and guidance. Always stay in touch along the way. Perhaps you previously spoke to an investor in Series A, but they specialize in later stage investment, so keep in contact so you can use their advice down the road.
Advancing the open-source community
The open-source community is unique, and it needs the right investors to help the community advance ever further. As an open-source company, we knew we’d have to find the right investors who could best support our vision. By prioritizing our community and taking our time, we were indeed able to find investors who understood the value of community, and the open-source ecosystem.