Hi @dachary ! I’ll share my personal “formula” for this question of yours “Strategy applied to VC funded Free Software”. It’s something I have thought about one way or another for the last 25 years.
It’s important to start by saying that ROI is not uni-dimensional and it doesn’t require a strict timeline. The open source “economy” has proven us that there is much value outside pure money. Actually, open source (including commercial open source) is very much about leaving a ton of money on the table and being OK with that.
Without going deep into FOSS game-theory models, my approach is to support extremely altruistic emerging patterns. For this I tend to use a rather simplistic metric for an actor in such environment;
Value created
--------------
Value captured
I expect that ratio to be at least 100. That is, I give away 100 times more value that what I keep for me. As I said, it’s rather simplistic.
Now, for me, value is an asset that can be transformative. It might be just $$$ but it’s not limited to that (time, skills, etc, are also transformative assets) but we can convert everything to $$$ for the sake of simplicity.
Are you ready? Here we go.
- How much value is the software creating or giving away for free by the core team (1)
- How much of the value created is owned or shared by the community in an efficient and sustainable way. (2)
- How many other tools and products, whether FOSS or not, are benefiting from this and how much net positive impact such a tool is creating. (3)
- How much is it helping to promote open standards, accessibility and interoperability. (4)
- How much of this value is an extremely fragile offer because of the governance model of the software. (5)
- How much of the value created has a conflict of interest with the community. (6)
- How much pre-existing created value has been used by the software in order to exist. (7)
- How much value is the software “capturing” or keeping to itself. (8)
That “capture” is not only monetary ROI, it could be innovation ROI, agenda ROI, competitiveness ROI, but even if we focused on monetary ROI alone, the question for me would be, what’s a FAIR ratio between value creation and value capture WHERE value creation is of certain resilience and devoid of conflict of interest FOR a product that could not exist in the first place without value created by pre-existing FOSS?
Again, to make things extremely simple I’d say this
Effective Value Created EVC by a FOSS product = [1 + 2 + 3 + 4] - [5 + 6 + 7].
Effective value capture EVCa = 8.
Ratio = EVC/EVCa > 100.
Different people will come up with a different FAIR judgement for that ratio. For some people, it could be something as simple as “I’m happy only if the ratio is not smaller than 10000” and some other people might say “compared to proprietary software were the ratio is between 5-10 I’d be fine with a ratio of 50”.
As I said, for me, in order to feel OK to capture $1M in value, I’d have to create (give away) $100M in value. As you can imagine, there are several ways you can get a ratio of 100.
- You can make value capture tiny and not be bothered by value creation that much. A lot of FOSS projects fall into this category.
- You can make value creation massive. This is wonderful but it’s really really tough, you basically need to lead some software category.
Let’s look at NGINX example, a well known FOSS project. This source says they made $15.2M in revenue (value capture). For me to feel comfortable using, supporting and hacking into NGINX, I would have to believe that their annual created value is $1.5B. Given the fact that NGINX is powering 34% of all websites/webservers, the overall value creation related to the existence of NGINX is probably worth $100T, way more than my OK ratio of 100.
This is irrespective of whether it’s VC money or not. What VC money usually does is hope that you will be able to create big value much faster. It’s all about value creation acceleration but it’s very risky and the vast majority of investments don’t achieve that at all.
The difference between a traditional VC/investor and a (real) open source VC/investor is basically that the former is happy with a ratio of 5 because that is already yielding nice revenue, while the latter absolutely needs a ratio of something between 1000 and 10000 and thus needs to create way more value than proprietary software.
And that @dachary is the sad reality with many open source projects that took VC money. They took it from traditional VCs, not open source VCs, and they are very quickly trapped into this “capturing value” scheme (I don’t need to tell you examples of this).
I’ve always worked to make sure I give away at least 100 times what I take for myself and tried to make other people and companies do the same. I don’t want zero-sum games.
Despite the textwall, this is a very simplistic approach and it doesn’t give you the means to quantify everything but I hope to have helped you understand how some of us “engage” with this sort of dilemma.