Joseph Jacks bets on open source startups, ‘philanthropy chaos and capitalism’ | TechCrunch

Open source may be many things, but it’s one thing it’s not a business model – by most estimates, at least. However, that hasn’t stopped Joseph Jacks and OSS Capital from looking for some early stage, open source startups and funding them in their growth years.

These include the likes of Qualtrics open source-alternative Formbricks, which raised a series of pre-seed funding last year. Elsewhere, there is the Notion alternative AppFlowy; Jira other types Plane; In contrast Cal.com; Postal Hoppscotch; and for those looking for an Okta alternative, Cerbos is worth a look. The one thing they all have in common is that they’re open source, and they’ve all raised money from OSS Capital. But they also highlight the constant battle between open source and proprietary domains, showing two diametrically opposed ideas – of giving something away for free and making a profit.

“The nice thing, though, about these open source companies is that they are philanthropic in nature, while at the same time they have capitalism and business practices that really produce sustainable results. ,” Jacks said in an interview with TechCrunch. “And I think they’re pretty amazing, from startups to big companies.”

This combination of “philanthropy” and “business” is at the heart of the investment thesis of OSS Capital, according to Jacks – he believes that there must be more open source in the world, and his way of “creating faith that” is built around this. the concept of capitalism.

“I think capitalism can encourage good and sustainable behavior more than subsidizing good and sustainable behavior,” Jacks said. “I believe that capitalism itself i The first manifestation of philanthropy, and the open source network of businesses and startups is the most suitable form of capitalism to accelerate open source innovation in the world.

Open for business

Jacks founded one of the first commercial startups around Kubernetes, a cloud-based application platform spun off from Google in 2014. Kismatic, as Jacks’ startup was called , was acquired by software company Apprenda in 2016. Jacks also started the Kubernetes community. The KubeCon conference, which Kismatic presented to the Cloud Native Computing Foundation in 2016.

After Kismatic, Jacks founded the cloud data management company Aljabr, and although this company did not go anywhere, it was during this period that Jacks began to write his thoughts on and open source companies.

“The fund wasn’t a big plan – it was a process of being very concerned about these startup companies, and I started a series of blogs that eventually led to the start of the fund, ” said Jacks. “I had no VC or investment experience.”

So OSS Capital was born in 2018, with Jacks as the sole general partner (GP) and investor. OSS Capital has already raised three funds, each about $50 million in size, with plans to close a fourth in early 2026.

While most of its investments are in the seed stage, OSS Capital has provided follow-on funding, including a lead Series A round last year in W4 Games, a source game engine business open Godot. It has also made some larger checks for the following stages, however it has used a special purpose vehicle (SPV), which involves the creation of an entity for sole investment.

There are also several ways we can talk about, including the full-stack web Remix, which Shopify acquired in mid-2022 and is now the recommended way for users to build. Admin apps in Shopify.

“It’s been a little productive for us — we’ve made our money a few times over, but it’s been very productive for Shopify,” Jacks said.

To date, OSS Capital has made in the region of 80 investments, and earlier this week, Jacks announced that he will change his firm from ERA (non-reporting advisor) to RIA (advisor registered financial advisor) to fulfill regulatory requirements around crypto. . While Jacks emphasized that they are not “diversifying into crypto,” they have made a number of investments in the space over the past few years, including $40 million in venture capital from Parallel Studios, Bittensor, and Coinbase CEO Brian Armstrong. o ResearchHub.

Today, OSS Capital counts a very broad list of limited partners (LPs) – mainly individuals, many of whom are connected to the world of open source software. These include Automattic CEO and WordPress co-creator Matt Mullenweg; Red Hat co-founder Bob Young; Co-founder Spencer Kimball; and MongoDB co-founder Eliot Horowitz. Elsewhere, YouTube founders Chad Hurley and Steve Chen are also supporters, as are Shopify founder Tobias Lütke, GitHub co-founder Tom Preston-Werner, and Google co-founder Ram Shriram.

OSS Capital also has a few larger institutional investors, including Automattic, which has been its largest investor since OSS Capital’s second fund. Other notable names in the fund pot include Insight Partners and Summit Partners, both of which are known for their investments across venture capital and private equity.

“I haven’t moved forward to get these institutional investors, or from people who like nonprofits, foundations and endowments,” Jacks said. “I haven’t spent time developing the fund plan. The reason we have individual investors is that they are people I like and respect a lot – they understand what we do, because they have established open companies over the years”.

Open the internet

There are many niche venture capital companies out there, focusing on everything from wildfires to oral health. Such direct investment philosophies can be an attractive proposition for early stage founders seeking deep industry experience.

Didier Lopes, co-founder and CEO of OpenBB – often referred to as the open source site Bloomberg Terminal – received $8.5 million in funding led by OSS Capital just six months after the project home is established. Ms. Lopes said that the information and connections fostered through these early connections opened doors.

“They realized the time it takes to develop a strong and loyal community – insight into how other startups navigate the balance between open source and commercial offerings was important to us in explain our strategy further,” Lopes told TechCrunch. “But also, being able to connect us with open source leaders.”

This included introductions to angel investors, such as Red Hat’s Bob Young and AngelList co-founder Naval Ravikant, in addition to executives from companies such as Elastic and GitLab who are now on OpenBB’s advisory board. .

However, reliance on “open source” as a form of investment is flying because of the growing perception that excessive licensing of software is incompatible with building a long-term business. . For example, unicorn hardware developer Sentry, in cahoots with several other startups, is putting its weight behind a new licensing paradigm called “right source,” a tacit acknowledgment that Although open source as a concept is still popular, startups are wary of it. business limitations.

“Open source is not a business model — open source is a distribution model, it’s a software development model, primarily,” Chad Whitacre, Sentry’s head of open source, told TechCrunch in an interview last month . “And of course, it puts severe limits on the types of business that are available, because of the terms of the license.”

Jacks, for what it’s worth, fully owns this opinion. He said: “I completely agree with him, it’s true. This is surprising, since his VC firm appears to be open source. The three-letter designation in “OSS Capital” stands for “open source software,” in case there was any lingering doubt.

But here’s where we get into the real nitty-gritty of business open source software (COSS), which is often less about critical software components like the popular Kubernetes, and more about trying to monetize open source SaaS tools like a carrot-on-a-stick. The approach for many of these businesses is now known as “open core,” where the core functionality of the software is open source, but a large portion of the application is locked behind a premium. , the host’s paywall. This allows customers to tinker, test, integrate, and service themselves — but if they want the business features of the bells and whistles, they have to pay.

This is where Jacks is at pains to point out why “open source” itself is not what he is investing in.

“There is a fundamental difference between ‘open source’ and ‘commercial open source’,” Jacks said. “Open source is a licensing paradigm, a technology development paradigm, a philosophy – that’s not what I invest in; OSS Capital doesn’t invest in open source. We manage money for people to grow their investments, and we make them a lot of money. And I do what I do because I’m also interested in making a lot of money.”

In the midst of all this is the bet – the big bet – that the “open key” will finally win the true owners.

“My view is that this kind of [open core] this approach will replace closed SaaS companies,” said Jacks. “I’ve had this theory since the beginning of the fund, and it’s based on what Marc Andreessen said about software taking over the world yes, but my view has been that open source eats software. Fast more than software that eats the world. ”

And he is not the only person who thinks this. GitLab CEO and co-founder Sid Sijbrandij launched Open Core Ventures (OCV) in 2020, and although it’s a little different in that it uses a participatory approach to building and investing companies around existing open source projects, has the same basic philosophy. . Sijbrandij believes that “open core” startups will represent 80% of funded startups in the future, although he admits that “it may take a long time” before we reach that stage.

“The power of open source comes from giving users the ability to participate — open source provides a level of reliability, capability, and speed that you can’t get with closed-source software,” Sijbrandij told TechCrunch . “We see the open source model has grown and many entrepreneurs want to start businesses under the model – open source is the wide area between open source and fully open source. We think that over time lik Most companies will be somewhere in this area, rather than overdoing it.”