RE: Charging the Charger

A much more simple way to say what you're saying, and one that avoids 
painting challenges as showstoppers, is that early-stage investors are 
attracted to opportunities that show:

* defensibity against competition
* superlinear returns (the amount of money it takes to earn an additional 
$1 declines with growth)
* proven track record by the founders
* a compelling value proposition to customers (with evidence)
* a credible projection of costs and revenues (with evidence)

It's possible to get all of that without a lick of licensing revenue.

As to your last point - JBoss bootstrapped itself entirely with support 
and custom development services and was profitable long before taking a 
very healthy chunk of VC investment.

 	Brian


On Wed, 18 May 2005, Anderson, Kelly wrote:
> If you have a wonderful idea for some software, and you want to keep it
> proprietary, you can go to Sand Hill Road in San Jose, go down to the
> park, shake a tree and a venture capitalist falls out. You tell him all
> about your wonderful idea, and hopefully for a percentage of the
> company, he gives you bootstrapping capital.
>
> Now, you can do the same thing for open source software, but you have to
> have a much more innovative business plan. I couldn't just go to the
> folks on Sand Hill Road and say, "Hey, there's this cool new software,
> Open Office, but it needs technical support. I'm going to set up a 1-900
> number and charge people $2.99 a minute to answer people's questions
> about Open Office. I'll advertise in PC Week." and hope that he's going
> to drop $1,000,000 in my lap for 10% of the company so I can set up a
> call center. It's just not going to happen. There's no barriers to
> entry, and frankly it's a weak plan as I've stated it here.
>
> If on the other hand, I say "Hey, I have this idea for software that
> will change the way people do X, and it will save Y kinds of people N
> dollars so that their ROI is 7 months, and there are 350,000 Y people
> out there and here's how I can reach them. Oh, and here are my projected
> financials." then I'm going to get the money if the numbers work and are
> believable.
>
> All that being said, there are some indications that the VCs are (in
> their typical lemming like fashion) investing in open source companies
> without doing as much due dilligence because it's a new model and how do
> you do due diligence on a new economic model anyway?
>
> Now, I don't disagree with the fellow who wanted to bootstrap through
> consulting either, for lots of projects that can work as well. In my
> last endeavor, I used that together with venture capital to great
> success. But for some projects, you just need money (or lots of donated
> time) up front to get to the point where you have anything worth
> selling.
>
> If you want to bootstrap a support organization like Brian suggests,
> that's possible. On the other hand, it's hard to leverage a business
> successfully with that kind of approach. I'm not saying it can't be
> done, far from it, but I am saying that it's more likely to stay a Mom
> and Pop operation than a business that is leveraged through the
> appropriate application of capital investment. If you like Mom and Pop,
> that's great, at least until WalMart comes to town.
>
> -Kelly