Open source is the new normal. It’s time to introduce our community to why we… | by Federico Wengi | INSIDE THE PAUA | May 2022

At Paua we are not new to open source investments, for example ViewStoreFront, Codasip + a still stealthy web3 company, we never made public our investment thesis in the open source space…

… it’s time to change that and present to our community why we want to double down on open source. Additionally, I’m happy to share the (non-obvious) areas of open source I’m specifically looking for for future investment.

A quick note: for this article, I’m going to focus almost entirely on commercial open source software (COSS), so when I say open source (OS), know that what I really mean is COSS.

I always thought open source was cool the first time someone told me about it. People from all over the world, who have probably never met, come together and create software on an openly shared code base available to everyone for free. Closest thing to a “collective brain” I can think of, such a powerful concept.

And what amazing technologies have been built on this premise! Web browsers (Mozilla Firefox, Brave), operating systems (Linux), programming languages ​​and frameworks (Python, React, VueJS) and cryptocurrencies (Bitcoin, Ethereum).

And the developers love it! Data suggests that more developers are contributing to open source projects every year. In 2021, 3M raw developers contributed for the first time to an open source project compared to 0.8M in 2016.

Data from Github “Octoverse report”
Bessemer Ventures data on open source companies eclipsing their open source counterparts

Besides the empirical observation that many large companies (think Elastic, Hashicorp, Gitlab, Confluent, etc., etc.) are in fact open source and growing faster than their comparable closed source counterparts, I can think of 6 structural advantages of open source companies over traditional companies. closed-source companies:

1. True USP vs Big Tech [building or demolishing🏰]

In 2022, cloud software is a mature industry that has spawned some of the biggest companies in human history, the so-called “big techs”. Next to them is a long line of other 100 billion+ B2B software giants like Workday, Salesforce, Adobe, Shopify, etc. I would say that if any of these companies really wanted to enter the market where a new startup is, they would win it or at least cause critical damage. Unless…this new startup can offer something no big tech can…a commodity product with transparent and accessible source code that can be downloaded and self-hosted if really needed…in other words open source !

Or looking at it from the other side: If you’re a founder starting a business in 2022 and want to enter a market where a $100 billion+ company dominates and continues to grow, open source may be your best bet. In the words of someone smarter than me:

You try to commoditize your competitors and then sell something else to your installed base.

2. Look under the hood before buying [sales cycle ⏲]

From a buyer’s perspective, being able to see how a product is actually built under the hood can build trust, also from an IT security perspective. This is especially true if the supplier is not a well-known and established company. I would even say that for vertical markets where open source is king (big data, dev ops, infrastructure, web3 tools), a 100% open-source product would almost raise eyebrows. A 180° change from the last decade when open source was considered the exception.

Looking under the hood and testing a product is even more important when a developer is the primary purchasing decision maker and I think that’s also why many of the biggest open source success stories have been tool companies of development.

3. Get early validation from many users [community validation 💡]

One of the hardest things when building is finding the fit between the product and the market. To find a suitable product for the market, a company needs feedback from many users. But how can a business have many users to begin with? Open source is a fantastic way to solve this chicken and egg problem, as users will often be more willing to test an open source product and be more forgiving of bugs (they get a version of the product for free forever ). Hopefully, your testers might even help fix bugs or build with you. Of course, the main team of maintainers, especially in the beginning, are supposed to do the heavy lifting.

4.Co-develop with the community [community building💪]

In addition to gathering early community feedback when starting a new project, the power of an active community can manifest itself in many forms later on; one of the most interesting is to co-develop part of the product with active contributors from the community. For example, a group of contributors might develop code for a niche use case that is initially useful to them when that use case would not have been large enough to warrant internal development efforts. main team. Contributors can be individuals but also companies and generally, the larger and more successful a project, the more contributing companies there will be involved. The biggest and most famous example of what I mentioned earlier is Linux, where hundreds of companies contribute substantially to the codebase.

Data from the state of the Linux kernel in 2022

5. Qualified Leads [community distribution model 🚚]

Open source as a “distribution model” is a term you hear a lot these days, some would even say that open source is in essence a distribution model (I disagree!). In short, users who come for the free product and the community are also a pool of qualified leads for commercial products/services that can be sold in addition to the open source product.

It may not be easy to keep track of who is doing what with an open source product, so community tools like Discord and Discourse can help identify users.

Airbyte’s Discourse Community Page

6. Qualified HR Leads [hiring model 👨‍💻]

Hiring is a pain for almost any tech company and this is especially true for engineering roles. Additionally, bad hires are very costly and can hamper the growth trajectory of tech start-ups. Finally, the start-up time of new hires is also a factor to consider when budgeting.

I argue that open source companies have, also in HR, structural advantages over traditional companies. In fact, open source companies are able to easily identify engineering candidates based on their repository contributions. Additionally, companies have plenty of data points on how a contributor works, reducing the chances of a bad hire. Finally, new recruits are by default already familiar with the source code since they have already worked on it.

Of course, it is clear that open source companies will not be able to meet 100% of their technical HR needs by hiring contributors.

Camunda Github Contributor Data

I argue that the “most organic verticals” for open source are already saturated, such as databases, ML, and infrastructure. I expect 4 other areas to see major pull from open source in the immediate future and I will be looking in particular at those for investment:

1. Alternatives to existing closed-source tools

“If only there was an open source version of….”

I believe that there are interesting opportunities to offer an open source alternative to certain existing products. As mentioned above, open source products provide certain structural advantages like a free base offering, the ability to look under the hood and test, having a community providing bottom-up feedback on the product. Why not have some of the best tools available but with these features? Wouldn’t you like a free car that you only pay for if you turn on the IC or drive over 80 km/h?

Examples of OS alternatives:, Supabase, Peppermint, NocoDB

Obviously I’m not the only one betting on this space as NEA’s Rajko wrote a whole article about it and Runa Capital posted a long list of open source alternatives on Github called “great alternatives oss

2. Open-source tools

“Can I trust/use this open source project?”

As more and more companies decide to build their product with an open source approach, it makes intuitive sense that a series of “enabler” products will start to emerge to support this wave of new companies. Examples of such enablers are companies that facilitate the creation of an open source business/product, the maintenance of a community of contributors, and the safe adoption of open source business tools. In particular, I’m bullish on topics like security and open source community tools. A fantastic example is a company like Pit

3. Financial services/banking infrastructure

“From software to “bank the unbanked” to software to manage the best banks”

Core banking and financial services software has traditionally been resistant to “open source” due to higher security standards and a lack of tools to facilitate open source adoption in heavily regulated industries. . Big OS projects like Apache Fineract focused on microfinance or banking the unbanked. I argue that a new wave of open source products in the banking/financial services industries will emerge with more tools to facilitate open source adoption, more decision-making power moving into the hands of developers, and pressure increased on the banks to modernize their infrastructure.

Angela from A16Z has a similar opinion and wrote a whole blog post about that.

4. Web3 Tools

“Why do Web3 founders use closed-source products to build their products/communities?”

Web3 may or may not be considered a subcategory of open source, but one thing is undisputed: web2 open source products are technically and philosophically much closer to web3 than corporate traditional closed.

As web3 applications and especially DAOs (decentralized autonomous organizations, basically communities sharing a token-based capitalization table) are about to take the main stage after layer 1s and NFTs, I think a set of enabling tools will appear to support web3 entrepreneurs and my bet is that a good portion of them will be open source and a portion of them will have a token-based model.

Sam D. Gomez