Raising funding for your open-source startup
Some notes on raising funding for commercial open-source startups.
I have been getting emails from open-source founders who are trying to raise money for their startups. Thought it would be better if I can write down my answers as an article.
I am not an investor, I am the founder of ToolJet - an open-source (https://github.com/ToolJet/ToolJet) low-code platform.
Should I raise money for my commercial open-source company?
If you are raising VC money, you are committing to an exit in 7-10 years. Some of us wants to do that while some of us wants to run a stress-free business that is profitable even from early days. If you want to run your company as a small profitable business in a stress-free manner, raising funding is not an option.
I asked a few OSS founders why they raised funding, here are the answers:
The main reason for us comes down to having sufficient resources creating a lively open source project that appeals to people and actually solves real problems. Additionally at one point you want to live off of your project and ultimately need to start selling it.
If you have funds at hand it helps to engage people with experience on executing such a task.This does not mean hiring advisors, it rather means you need to have people that work in selling your project.
- Florian Forster ( Founder of Zitadel - Backed by Nexus )
We raised funds to expend for our future development & infrastructure costs, to hire full-time staff to manage the product and work on development, to add new features, to support the community by organising events and providing resources for users and contributors, and to establish a sustainable business model to continue to grow and improve the business.
- Liyas Thomas ( Founder of Hoppscotch - Backed by OSS Capital )
I realized that building a serious product requires a team. Additionally, if I had continued to work on it as a side hustle, I would have been competing with my employer, AWS, and would not have been able to fully devote the necessary time and resources to the project. Products need features for people to use, whether they are open source or not, and a project needs sustained development to add features, which requires funding.
- Prabhat Sharma ( Founder of Zinc - Backed by Nexus & Dell Technologies Capital )
Why I raised? here is an entire article explaining it.
What investors look for in an open-source company
Reading further? looks like you’ve made your choice.
NOTE: These are just my personal opinions and thus may not be relevant for every OSS startup.
It can be angels, accelerators or VC firms. What investors are looking for is returns.
Open-source? You should have an answer for why your product needs to be open-source.
Can the product be monetised - If there is no strong business model to make money, there won’t be any returns for the investors.
Market for the product - You have a plan to monetise the project but is there a huge market for the product? if your target market is only 100 companies, it may not be a huge market.
Initial traction - How is your GitHub/GitLab repository doing? nope, stars aren’t enough. These questions might be relevant:
- Is there activity from contributors?
- Is there a community building up around the project?
- How did Hacker News or Reddit launch go?
Team - Does the team have relevant experience to build the product?
How to reach out to investors
Cold emails might work but if you can get another founder to connect you with an investor, that works better. If another open-source founder can make this connection, that would be the best way!
Before reaching out, make sure your pitch deck is ready. There are many pitch deck templates out there but try to include the following slides:
Market - The size of target market.
Problem - Problem that you are solving.
Solution - How your product will solve the problem.
Team - and experience relevant to this problem/solution. (It is okay if you are a solo founder - I get this question a lot. Do not find a co-founder just for the sake of this slide.
Traction - number of signups, activity on GitHub, etc.
Competition - How is your solution different from existing solutions (if any).
Ask - How much money you need and how are you planning to spend it.
If you got great feedback from your target users already, mention that as well in a slide.
Once the deck is ready, it will be a good idea to ask other founders in your network to review it.
Getting initial traction
Since I mentioned initial traction multiple times, thought of adding a few ways to get some early traction:
Launch your product on Hacker News, Reddit and ProductHunt.
Be active in communities where developers hangout.
Start building a community from early days.
Whatever you do, make sure you are tracking the results.
Do not post frequently or comment on not so relevant posts. It can easily annoy your target users.
Who can I reach out to
Things can go wrong if your investors doesn’t understand open-source. Make sure the investor has previously funded open-source companies before reaching out. Once there is an offer, you can ask to connect to founders of their portfolio companies to make sure you are not making a bad decision.
Everyone who says they are bullish and excited about open-source in the intro call may not know much about open-source. Don’t trust those words without facts to support the claims 😅.
If you are reaching out to a firm, make sure that you are reaching out to the right partner. Not everyone at the firm will be interested in open-source. You can check the past investments of partners on Crunchbase.
The list is not exhaustive, just adding a few investors that fund open-source companies:
This Crunchbase list might also help in finding investors and companies that they funded.
Good luck and happy to help if you have any questions. I am available at navaneeth@tooljet.com.