The Changelog: Software Development, Open Source - Venture capital meets commercial OSS (Interview)

Episode Date: October 25, 2018

Joseph Jacks, the Founder and General Partner of OSS Capital joined the show to share his plans for funding the future generation of commercial open source software based companies. This is a growing landscape of $100M+ revenue companies ~13 years in the making that’s just now getting serious early attention and institutional backing — and we talk through many of those details with Joseph. We cover the whys and hows, why OSS now, deep details around licensing implications, and we speculate the types of open source software that makes sense for the types of investing Joseph and other plan to do.

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It's not like you have to go there and spend money to get this opportunity. And if you get a job through Hired, they're even going to give you a bonus. It's normally $300. But since you're a listener of the changelog, they're going to give you $600 instead. Even if you're not looking for a job, you can refer a friend and Hired will send you a check for a thousand three hundred and thirty seven dollars when they accept the job. As you can see, Hired makes it way too easy. Get started at Hired.com slash changelog. From ChangeLog Media, this is the ChangeLog Conversations with the hackers, the leaders, and the innovators of software development. I'm Adam Stachowiak, Editor-in-Chief here at ChangeLog. On today's show, Jared, I talk with Joseph Jacks, the founder and general partner of

OSS Capital. He joins the show to share his team's plans for funding the future generation of commercial open source software based companies. This is a growing landscape of $100 million revenue companies that's just now getting serious early attention and institutional backing. And we talked through many of those details with Joseph. We cover the whys, the hows, why open source software now, deep details around licensing implications. And we speculate the types of open source software and companies that make sense for this type of investing. So Joseph, we're here today to talk about oss capital i think this is a first in the industry a uh a company that invests exclusively in commercial oss startup companies so very cool you announced

this recently first of all welcome to the changelog thank you so much for having me it's really really cool to be here so is this a first of its kind? I mean, I feel like maybe it's a threshold moment for the open source community. We have not just venture capital, but like specifically exclusively capital focused on open source startups. Yeah, I mean, I think it is pretty much the first of its kind. It's sort of happened organically. We've been thinking about the sort of nature of open source as it relates to company building and this sort of broad class of companies that you could call commercial open source

software companies. And I mean, there's certainly been venture capital investors who have an affinity for open source and they've certainly invested quite a lot. People like Peter Fenton come to mind, Mike Volpe, Martin Casado, Dan Skolnick, others. And it's certainly a really exciting area, but what we felt needed to exist,

just in terms of the critical, profound nature of open source as it relates to kind of changing the world and changing the technology industry and the software industry at large is really a focused firm that also has a bit of a different structure. But yeah, we think it's pretty novel and super excited to be talking about it here. We actually shared some interesting things that you share recently on our news feed,

which was an index that you have, an open source software company index of companies with $100 million plus in revenue. Now, the caveat also is recurring or not. And then also an or which adds that also potentially could just generate the equivalent of $25 million in a quarter. And, you know, I put my own sub note there saying these companies have found a way to build a very large business around one or many open source software companies or sorry, one or many more software projects. And I think, you know, maybe a place to begin might be the fact that exists and there's I didn't even count them. I think let me count the real quick. I think it's 36 or 37 in there. There was only I know I know there's i didn't even count them i think let me count the rows real quick i think it's 36 or 37

in there um there was only i know i know there was only six or seven about four years ago meeting that criteria so it's quite quite a lot i imagine we'll be a little over 40 by the end of the year but yeah definitely growing growing space for sure you're pretty close there's 37 rows not including the header or including the header. Well, 38, not including the header, so that means 37. So you're pretty accurate. And this is over a 13-year period. So it makes sense to see a fully focused venture capital firm

come into this space, but it's 13 years later. Why, why suddenly, or I guess why so late? It's almost late. Yeah. Yeah. That is a really, really good question. Um, I think one way to answer that, there's lots of ways to answer that question, but one potential way of looking at it is, um, 2018 is, is a really huge year for commercial open source. I guess open source overall is about 20, 25 years old. Right. Open source software.

And just in the last sort of five-ish years, we've seen a huge amount of growth in this sort of, you know, kind of emerging category of companies that you could kind of classify as commercial open source software companies. Like your mention of the index that we've been managing, maintaining for several years kind of indicates that obviously there's quite a lot of activity and companies that have formed that have reached huge levels of scale. $100 million in revenue or $25 million revenue quarter, so sort of a run rate of $100 million hundred million in revenue or a 25 million revenue quarter. So sort of a run rate of a hundred million revenue was chosen as a metric just based on like that revenue number being pretty relevant to companies that can kind of go public or have large outcomes. And so, yeah, I mean, why now I think is really a function of 2018. So 2018, we had, and I'm actually just at the GitHub universe event right now. So GitHub is a good one to mention.

But so far in aggregate, we've had over $30 billion in either IPOs, private equity events, or mergers and acquisitions of commercial open source software companies. Most of those are companies that have been in existence for several years, at least five or six or seven years, in some cases ten years. So it takes it takes the sort of similar or same amount of time roughly for commercial open source software companies. I believe it's possible to do this in the shorter period but roughly roughly, you know, between eight to 10 years to sort of become large, large, sustainable sort of public IPO-able companies. And I think 2018 has been sort of this tipping point year for sort of public markets and then seeing like lots of these large outcomes occur where most of these companies are venture funded. But like, as we talked about kind about in the opening, we haven't really seen a focused firm, I think

mostly because there just hasn't been the synthesis of appreciating these companies are fundamentally different as compared to proprietary closed source enterprise software companies or just software companies in general. We very, very strongly believe that commercial open source software companies are fundamentally different functionally in almost every way as compared to proprietary closed source software companies. And that's kind of another motivator for starting OSS capital is, you know, the founders need to be served differently. Um, the sort of support structure is, is, is, is sort of very different along lots of

different dimensions. And the, the companies kind of just grow and evolve and go to market and build, build, build products, build businesses also quite differently. Um, so, but just to answer your question, I think 2018 has been a really, really remarkable year for large open source outcomes. Obviously, GitHub being bought by Microsoft, MuleSoft having their second exit to Salesforce

after IPO-ing last year, Magento getting acquired by Adobe, Suse getting acquired by a private equity firm, Elastics IPO, CoreOS getting acquired by Red Hat, Alfresco getting acquired by a private equity firm. We think that there's quite a lot of IPO

sort of dominoes, if you will, that are going to fall over the next several months even. We think there's probably a couple more, a few more between now and the end of the year. So that's one of the other factors of 2018. And I guess maybe one last comment. In 2018, almost on a monthly basis, like January, February, March, April, May, like every single month, we've actually seen a large commercial open source outcome like every single month. So it's been pretty amazing so far as a year. Definitely ahead of steam going. I want to hear from you

on these differences between these types of companies. But before we get into that, let's talk about yourself and your team and what what makes joseph jacks you know the guy to be the founder and general partner of oss capital as i mentioned you have a team you're not the only one you have a seem islam uh from micro you have heather meeker who we've had on change log shows uh amongst others but uh what makes yourself well positioned to head up a fund like this and why are you so specifically not just focused on OSS, but excited by it and want to put money there and put efforts there? Yeah, that's a great question. I mean, first of all, I'll say this whole thing kind of happened organically.

I've never had a master plan in my mind to go out and say, hey, I'm going to go become a venture capitalist or like go and invest in, you know, startups for, for like a full-time thing. Um, I am, I am hugely honored, like, and blown away by the reception that we've had. And just on the team, Heather, Heather is really incredible. Awesome. Um, Nick, Nick white, Kevin wing, we have this sort of support, support, support structure of founders kind of behind the firm and a handful of other folks will be, will be, um, making announcements on over the next couple of weeks. standpoint. I've really just been thinking about commercial open source software company sort of dynamics and developments and stuff like this for many, many years. That was part of why I started maintaining the spreadsheet and part of what kind of has drawn me into working at different open source oriented kind of companies, whether it was Talend almost 10 years ago or early on at Mesosphere, kind of working around the Kubernetes community. I think open source is just

fundamentally changing the world, will change the world, continue to change the world. But I think for me personally, it really came down know, this just needs to exist. We're at a point in time in history where the sort of investing model for companies that are fundamentally commercial open source companies is, I think, kind of broken. It's not that people can't get funded. It's not sort of a function of funding the unfundable. It's more of like this architecture, this sort of structure needs to exist. And in terms of me myself, like why, why would I do this? It was sort of, if not me, who is, who's going to step up and who's going to actually do it. Um, and so I just sort of thought, you know, well, no,

one's really stepping up sort of months went by a month after month sort of thought, well, this is pretty obvious. Someone, someone should take a shot at doing this. And so I sort of thought if, if not me, who, and then if not now, when it's sort of the second question, if, if, if, if not, you know, right now it doesn't make better sense to do this next year, a couple of years. Um, and then sort of, I think I ultimately just poked, poked on that a little bit more and like now ultimately became very, very clearly, um, the, the, the sort of the right thing to do. So, um So yeah, that's kind of organically how things came together. But yeah, you mentioned Heather.

Heather's really incredible. She's sort of been leading a lot of really amazing projects and work and initiatives around the legal side of open source software in terms of commercial IP and licensing and things in that area for almost 20 years.

And yeah, we're very, we're very honored and excited to have the team that we have. Yeah. For Heather, she wrote a book called the business of open source, which I highly recommend reading of recent, some controversial licensing around common clause. I believe she penned that. Something I thought of when you were saying this was I was thinking about the different types of venture-backed or common venture-backed ventures. So a typical might be a startup, which is, I'll just say, bring your idea and customers.

VC may back you in terms of, say, an or say and i i'm sorry i'll back up and say ico world initial clone offering bring your white paper and then maybe an open source it's bring your code and community is that fair to say is there some more layers to add on there wow that's interesting i i'd never i'd never look at it from those sort of dimensions like sort of code code to um code and community to DC white paper, and what was the, what was the third one? The first one was just bring your idea and customers. Cause like, and Shark Tank is like, you know, what's your idea? What's your customer?

What's your sales, right? I see. I see. I was like, Hey, bring your white paper. If your white paper is clear enough and your idea is big enough and it's whatever. Right. And then maybe here it's more like, do you have code? Do you have community? Right. I think that's an interesting way of looking at it. I mean, all of those things, not to be pedantic, I think all those things probably matter a lot in any kind of conversation with either going and doing something in the cryptocurrency blockchain world or as a venture capital

sort of oriented thing, or just as a general startup raising money, whether it's open source or not. I think for us, we fundamentally take a very technical sort of approach and definitely look at the code and sort of authentic open source nature of a given company and team and project, and then sort of reason up from there. So I definitely say the distinction of, at least for like maybe white paper to ICO sort of reasoning is different for sure. But yeah, that's definitely an interesting way of looking at it. Should also mention while we're, I guess we're past Heather slightly, but before we go completely past Heather request for commits episode nine,

Michael and Nadia had Heather Meeker on talking all about open source and licensing. So we'll link that one up. Definitely a good one for the archive. Go back. It's evergreen. And listen to Heather. She has tons of knowledge about this stuff. And for me, where I get it over my head, just thinking about the challenges of commercial open source is in the nitty gritty of the entities and the licensing and the legal. And so I think you're well positioned to have her on your team for those things because, I mean, you can make or break a business model with those details. Isn't that right? I think that's absolutely true. So one of the, one of the things that, um, were, I think

we'll be talking about a little bit more as we sort of share our sort of perspectives and views of the world and different, different things that we believe in. But, um, we think that business model innovation is a really, really, really critical topic in the world of kind of commercial open source company building. So, um, we, we have, I think if it's, if it's, um, possible to build on what you're saying around, you know, kind of ICO bowl VC fundable and just generally open source or sort of general company funding kind of dynamics. We think that there's maybe like three or four reasonably well

understood and implemented business models for commercial open source software companies. And you could sort of categorize them as, you know, maybe one is the Red Hat business model, where you don't have any intellectual property that you're holding back. You're just selling support services and subscriptions. And there isn't any sort of proprietary code that you're holding back through closed source license, kind of license-based mechanisms where people have to sign a contract

and get access to a key and then use the proprietary features. And then there's sort of open core model, which I think we don't really quite yet have industry agreement on in terms of what that actually means. But I wrote a little blog post about this a few months back,

sort of just defining open core, what that really means. And sort of a spectrum, it's not really a binary thing. And then what some of the trade-offs are between different approaches. We think open core is another model, another business model.

Maybe a third one is hardware-based distribution. So like a kind of Sourcefire or Snort, the IP intrusion detection project, or for example, Cumulus networks, the kind of custom Linux-based network operating system that Cumulus goes and distributes through like white box switch vendors like Supermicro and others. So that's like more of like a hardware based distribution model. Those are sort of maybe three, a fourth that we're starting to see emerge. But again, I think we really strongly believe that there needs to be even more business model innovation, kind of even broader than these four.

A fourth is potentially the sort of like decentralized network-based supply-demand dynamics between consumption and the production of a given open source project's primitives, either over a network or over a storage service or what have you. So there's one storage network that is sort of based on a kind of decentralized model called Storage A or Storage. And they made some announcements a couple months back or a month back around partnering with different storage-oriented open-source projects for that sort of decentralized, developer-oriented business model so that you can have more of a fractional alignment of the compensation between the developer consuming a service and the author of the

project producing the service on the network. And that's also very interesting, but I think we really deeply believe there's definitely going to be more business model innovation, but there should be more business model innovation. And I think the main reason for that, the main reason that causes us to have a strong conviction here is that we really believe open source software creates or generates orders of magnitude, many, many orders of magnitude more value than any constituent can capture. And that includes cloud providers. So if cloud providers are building a really differentiated service, like, you know, say RDS for Postgres or MySQL or other, say, open source databases, but then you also have the vendor ecosystem behind those projects directly building, you know, perhaps competitive cloud services or

competitive products. We just believe that open source software is so widely deployed and sort of so widely permeates the world in so many different environments. And it's free to use. So the friction is basically zero in terms of the distribution cost of the code and the project itself. It's actually impossible to calculate this precisely, but we just believe that there's sort of a fundamental math constant that you could model potentially that sort of will say

open source software will always generate and create orders and orders of magnitude more value than any constituent in any of those sort of dimensions can capture. So cloud providers, commercial open source companies like Elastic, like Cloudera, like many others, and then even including the creators. And so this is a more controversial topic, even including the authors that they can capture. So we just think like those four business models, if you could sort of categorize them in a way that, you know, we have industry agreement are, are, are necessary, but not sufficient. And we should,

we should encourage, and we should try to move, move towards just more business models in general. So at, at OSS capital, we tend to sort of be, be of the sort of like inclination that we're not, we're not opinionated around a given business model and generically sort of say, oh, this is the one that works. It tends to be more contextual. It tends to be more project specific in many cases. But we just know for sure that there's a lot of innovation that needs to happen here, and we're going to be very supportive of that. Sounds like potentially a manifestation, finally, of the actual 10x developer, right? It's the open source developer, which is able to generate far more value than they can even

capture over proprietary, perhaps. Maybe 100x, like you said, in orders of magnitude, maybe not just in order of magnitude. But the elusive, the unicorn, the 10x developer might just be an open source developer. I think that's actually true. I think that's true. I mean, one way of looking at this is if you, and this is actually a study we're currently working on, so I can give you a quick preview. Some data we'll be releasing here and some research. But if you go and survey or interview, say say three or four of the large commercial open source

software companies, and I'll just pick out some random ones. I'm not, I'm not selecting these for any reason other than, you know, just maybe they're good candidates, but say Confluent, the company behind Apache Kafka, say Docker, Inc., the company, the company behind Docker and the Docker tools, and let's say maybe Cloudera. So Cloudera, the company that's commercializing Hadoop and recently merged with Hortonworks. So if you were to go and survey those companies and say how many people are using those open source projects in the industry at large, how many end users, how many deployments, and then sort of tally up those numbers per company, sort of say, okay, maybe there's, you know, two or 3 million deployments of Hadoop. I'm just kind of picking a random number. It's probably,

you know, smaller, might be larger. I'm not, I'm not sure for Docker, maybe it's, you know, five or so million people using the Docker, the Docker tool chain or Docker Docker container runtime, perhaps, um, for Kafka, maybe it's, you know, hundreds of thousands of deployments or companies using Kafka. So whatever those numbers are, pretty large numbers, let's say. And then if you were to ask each one of those companies also how many customers they have, how many paying customer entities they have relative to the number of deployments of those open source projects, it is probably, and we've sort of done anecdotal estimations of this, but we actually want to get the hard concrete data to publish that so it's useful for the industry and also useful for our founders. But it's probably likely in the range of, on the low end, a fraction of 1% that can actually go and convert over. All the way up to the very high end, potentially, depending on different constraints and situations, maybe 3% to 4% at the absolute most. And we actually don't think that that's a bad thing.

We think that that's totally fine and just a function of how open source works in general. You can still build enormously huge successful companies by just converting a very small fraction of users because the value that open source creates is always orders of magnitude more than any constituent can capture, which is great. Just something that I think we should all accept as an industry is just one of the awesome

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To learn more about GoCD, visit gocd.org. It's free to use, and they have professional support and enterprise add-ons available from ThoughtWorks. Once again, this big difference. You said there's a fundamental difference in many aspects between commercial open source companies and commercial proprietary software companies. And that is why the focus of OSS Capital is important because you have specific people like yourself, like your partners, who know the difference, who get open source and can help guide and invest in those projects.

So if you had to break down where this chasm is and why they're so fundamentally different, help us understand that. Yeah, that's a, that's a really big question. I'll try, I'll try my best to give you sort of, sort of a concise answer. Um, maybe in the, in the context of how we're sort of building out the, the firm and, and sort of, maybe I'll just, I'll just constrain that to the first two functional, um, portfolio partners that, that are focusing on two really core things that we believe are very fundamentally different in commercial open source software companies as compared to

proprietary closed source software companies. So if you look at legal, which is obviously Heather's domain, she's extremely knowledgeable and has just deep, deep experience for a couple of decades. The legal side of open source in the business context is one of the most sort of non-standardized, hairy, polarizing, complex, and sort of error-prone topics and areas in the industry. And so that's probably like the first functional part of a company that I can talk about where things are really fundamentally different. So if you consider sort of a proprietary or closed-source software company approach to licensing, it's pretty simple. It's pretty straightforward. You, you, you know,

you flesh out what you want to build in a, you know, a design doc or an idea or a napkin, or, you know, you go through whatever product development methodology that gets you to understanding what needs to be implemented. And then you go and build it, implement it. And then you find you work really hard to get early design customers or companies to agree to use your product and give you feedback and probably sign different agreements to make sure that confidentiality is maintained. And it's quite a costly process from the sort of first highly valued customer to the 10th and the 20th and onwards. It requires lots of manual effort. With the licensing side of that, though, as it's a sort of proprietary company, you don't really think through too many complexities in terms of the customization of a license

or the sort of nuances of open source licensing. In fact, if you could actually look at, um, one example where we have a huge number of startups getting created, in fact, mostly software companies and, and look at how licensing is standardized there. Uh, it is actually in fact standardized and I'll, I'll pick on, I'll pick on one really great organization. And I'm not going to say anything bad. I think they're doing amazing things. But they actually, so this is Y Combinator, the YC incubator program in Silicon Valley. What Y Combinator has is a sort of set of standard legal documents that they've sort of distributed out to their incubator companies, companies that get enlisted in Y Combinator.

And they actually do have one for a sort of standard subscription agreement for access to software that their startups go and license and sell to customers. And it's really valuable. It sort of short circuits the cost and complexity of hiring a lawyer and drafting a custom agreement and figuring out exactly what terms you want to implement. Because all those things are pretty standardized, Y Combinator just says, hey, just use this template subscription SaaS software agreement, whether it's an actual SaaS offering delivered over an API hosted on a cloud provider, or you're going to ship a custom proprietary binary to someone. Whatever it is, just use this license. And it's really helpful. It's sort of extremely useful for the companies

in Y Combinator because it just gets them going without any friction. There's really no need to hire a lawyer. And you can oftentimes just get customers to look at that. And it's something that the industry has sufficiently agreed upon as terms that aren't super complex and onerous. So that's one dimension. We have this standardization of licensing for proprietary closed-source companies that are building software-based products. So Y Combinator produces something like, I think it's on the order of 600 or so startups per year. So that's quite a good reference point.

On the open source side of things, though, however, the complexities are astronomical. And so you first have to take into account when you open source a piece of software, which license you're going to choose. Do you choose Apache? Do you choose BSD, MIT, GPL, MPL, you know, a Pharaoh? Which version of the GPL do you choose? What copy left constraints are you interested in protecting? There's just like a vast array of choices there. However, we've sort of standardized on the open source licensing aspect.

So quite a lot of industry agreement around Apache 2.0 being really valuable. The Cloud Native Computing Foundation actually encourages, I don't believe it's a hard requirement, but they strongly encourage new projects to use the Apache 2.0 license. We also have quite a lot of industry standardization around the MIT license and around MPL2, which is great, which Heather on our team helped write and was on the team that implemented MPL, Mozilla Public License Version 2. And then we also have quite a lot of industry agreements on the trade-offs and the constraints and the reasons why, say, Apache 2.0 is a really good license to standardize on. So let's just say you're a startup and you say, okay, great, we've got a new project. We're going to release it as an Apache 2.0 licensed piece of code.

We're going to open up the repo and call it a day. And that's a pretty fast decision. However, when you want to build a product around that commercial sort of open source company that sort of builds on that Apache 2.0 based project, you run into all kinds of complexities. It's not a simple matter of saying okay, we've got 20,000 companies using this open source project and we want to go and use the Y Combinator. So for example, again, not picking on Y Combinator, but we're going to just bolt on the Y Combinator, but we're going to just bolt on the Y Combinator terms of service and IP and warranty and indemnification and trademarking and all the sort of template terms.

We're going to just bolt on that agreement to our open source license and maybe hold back some code in a private repo and then just distribute that to customers. That would not work for myriad reasons. And so what we sort of see with commercial open source licensing in these commercial open source companies, what we've observed and Heather's been very close to this, is there are actual full-time legal teams, typically headed up by a general counsel, which is a similar role in proprietary software companies, but what they do is basically they spend a huge amount of energy and effort case by case relative to the projects or the project that the company is based on.

And they write custom agreements from scratch. And the cost and complexity of writing those custom agreements for the sort of commercial proprietary bits on top of the open source project are very, very sort of nuanced and tailored to what kind of product they're building and how they're going to market and what kinds of sort of transaction volume looks like in terms of the size of the customer base, how large the deals are, how strategic kind of customers are, what kinds of needs the customers have in terms of the indemnification side of things and multiples and the warranties.

And there's just a huge mass of legal customization that goes into those agreements. And they're often called MSLSAs or master software license and service agreements. And so we think that on the legal dimension, if, and so this is like one of the things that we're, we're kind of scratching on and working on, um, you mentioned commons clause, which, which caused quite, quite, quite an uproar, a lot of excitement in the industry, which, which Heather did, did, did, um, author. I didn't see anything from her though, on the response, just earmarking that. Yeah, for sure. For sure. Um, for sure um i'll come back to that in a

sec but basically just just commenting on the standardization side of things if you if you look at the opportunity to potentially have a level of standardization um on the commercial licensing side of things for open source that we have for the open source licensing part of projects. So Apache and GPL, let's say, being really standardized. If we had some industry agreement on the sort of terms and the constraints of how intellectual property is protected for the commercial proprietary parts of an open source-based product. That would radically deliver efficiencies to large commercial open source companies on one dimension, and it would reduce the burden and the cost of, building building a product going to market and dealing with

dealing with um a bunch of other downstream effects that that come from you know costly legal legal agreements overhead negotiations large large contracts and and and many other things that's sort of the like the the legal sort of how how the legal side of commercial open source company uh building is very different from the sort of proprietary company the legal side of commercial open source company building is very different from the sort of proprietary company but it's a very long answer well it's super hairy and it's definitely probably the main it's probably the main problem space that the people need help solving right out of the bat or maybe as they you know as they bring their product to market it could even it could even um have implications on how you go about building things

so definitely i mean a huge difference like you said with with proprietary companies licensing is very straightforward like you said yc has for startups has like a canned thing i'm sure you can buy off the shelf ones or you could hire a lawyer and you basically build a license and you're done. But for open source corporations or commercial open source companies, it's a quagmire. So definitely need counsel, need advice. I think that's a place where y'all can bring a lot of value for people getting started. Is that the big one you said you were going to give us too?

I know that was a big one. Do you want to dive into another difference or should we move forward from the conversation? I'm happy. I'm happy to dive into. So, so I'll just, I'll just say at a top level, if you were to sort of stack rank by function and legal is obviously a really important, like super critical function, but if you were to stack rank by function, by function, where these commercial open source companies are fundamentally different as compared to proprietary closed source software companies. Legal would, I totally agree with you, legal would definitely be at the top of the stack. Perhaps the second sort of rung in that stack would be finance,

sort of how you deal with accounting, revenue recognition, reporting, auditing, general P&L management, and just overall the finance function. And so we have Nick White as our portfolio partner for finance. And Nick is a really experienced open source company veteran on the finance dimension. He was the sort of founding finance executive through to the large outcomes. So very early on through to the large outcomes of companies like Spring Source, which joined VMware, that's the company behind Spring. Talent, where Nick and I worked together many years ago, which IPO, this is sort of ETL, middleware company.

Talent is a public company now. Obviously, he helped and consulted a bit with Hortonworks, but he was also the sort of founding finance executive and head at Elastic, the company behind Elasticsearch, through to setting them up to IPO, which happened very recently. So Nick has a lot of wisdom and experience there. I can go into lots of the reasons why the finance kind of function is very different fundamentally in many ways for open source companies. I mean, that one confuses me or surprises me because once you get past the licensing and you now have a model that's working, I would assume for any corporation you have, I mean, profit and loss works very similar across all organizations, right? Or the accounting, you know, the checks and balances. So I don't necessarily want to camp out here for the rest of your time because I know you have a hard out here, but maybe just enlighten me on what I'm missing here with regards to finances being different? Yeah, that's a good, really good question. So, I mean, I'd say that for managing a P&L,

for doing the sort of duties of a finance role in terms of generally accepted accounting practices and just the sort of rigor and industry standards there, Just overall, like legal, I don't think things are radically different. It's contextual to the approach of applying those functions very differently in commercial open source software companies that you start to see a lot of divergence and just a huge amount of behavioral uniqueness.

So for example, when you're actually looking at managing a budget and applying constraints and priorities around where dollars are spent, for example, and how you actually run a budget and manage the flow of money in and out of a company. With commercial open source companies, you're doing a lot of upfront. Typically, you're doing a lot of upfront R&D and development for a given product. And maybe you're also investing pretty heavily in becoming a really influential core part of the community and the ecosystem around that project or the set of projects that you're building around. And perhaps also, maybe you're investing in non-product development work,

which is quite different from proprietary companies. And so you sort of recognize and account for those expenditures very differently in an open source company because the value that you'll accrue from them is somewhat indirectly correlated with your valuation as a business. So if you're a venture capitalist and you're saying, well, we're pouring in $20 million into a company and we expect that $20 million to come out the other end as a business that's generating $10 million in revenue, you probably aren't going to have anywhere near

the same level of decisioning with a commercial open source software company. You might relax the constraint of, well, we're not looking for $20 million in revenue out of a $20 million investment. Maybe we're looking for $5 million more end users of the project that the company is based on. And we want to measure ourselves against spending that capital to achieve those goals. And so it's just sort of the flow of the investment and sort of how, how the accounting side of things works to, to, to accomplish those

goals is, is quite, it's quite different. And then, you know, also I'll say one other thing, which is kind of just scratching the surface, it's a much deeper, more complex topic, but commercial open source software companies, the best ones, the ones that scale, the ones we've like researched and, and, and sort of observed over the years, are geographically distributed. And they are not centralized and fundamentally centralized in one area. And that translates to running the space, lease management, the size of leases, the sort of overall scope of office space and international expansion, subsidiaries, the cost of setting up those subsidiaries, country-specific labor laws. There's a lot of things that can kind of come out of that. And so there's a couple of areas to kind of double click on in the finance function, but it is definitely one of the

things that we think is a fundamentally different aspect of commercial open source companies. And one thing I'm seeing here, too, is since you mentioned common clause or commons clause, sorry,

and just tell me if I'm poking the wrong direction here, but the connections I've seen is that commons clause definitely minister began with about a month ago where you know what was the re-license that the the name is gap me i hate that when it happens right here on the air that's redis redis redis was re-licensed or some parts of it were the open source sorry the commercially

viable open source sides of it were licensed under this new Commons clause. It created a stir. It seems that the source code, at least, for the license was about a month old. I'm wondering, Kevin Wang, also strategic advisor for you, was the open sourcer of that via his company, which is FASA. Heather Meeker obviously was the person, the lawyer who had penned it, and she's also a partner in OSS Capital. And you mentioned a couple times YC and their way to roll out and make easy legal documents, talk through sort of all that

you just went through there. Is that, is this well orchestrated? Is that all connected or am I just reading between the lines here? I would say a lot of those things are connected or sort of inter interrelated slightly. Um, maybe, maybe just to summarize, yeah, maybe just to summarize sort of like, uh, uh, uh, a thought of looking at commons clause maybe as a stepping stone or a building block. There's a useful way of, I think, framing this, which is if you look at the problem and then reason up from there, it's maybe easier to understand all the moving parts because there's quite a lot of things kind of happening in this in this area um so i i think the problem can be summarized as we don't have commercial open source licensing agreements um we don't really have industry agreement around how to implement the protections for products that are built fundamentally on top of a given open source project or a small number of them, right?

And that's where we have all this inefficiency and sort of duplication of effort and lots of overhead in terms of legal effort and spend. And so Commons Clause was really an effort to protect against a couple of things. And Redis certainly has a focus area in terms of their relationship with cloud providers. I'd prefer to hold off on commenting there specifically, given that's a pretty hot topic.

Yeah, it's deep. Too deep. is basically trying to get industry agreement on how we can have standardization of some kind, or at least some agreements around the legal constraints and the legal terms for a proprietary-based product that has a sort of thin layer of proprietary code, or a thick layer potentially even, but that's going back to sort of business model implementation on top of an open source project where you already have a huge amount of distribution in that open source project and the base kind of open source project licenses is agreed upon and standardized,

whether it's Apache or GPL. That's kind of the general problem space. This is a super hugely complex topic. The way I sort of summarized it there might even be an oversimplification. But that's kind of like how I look at the broad problem space. I guess maybe a real easy yes or no question might be, is this – is Commons Clause fundamental to what you're doing with OSS Capital? That's a really good question. And I think what I'll say is Commons Clause is a good building block. And there's lots of benefit to the industry starting

to talk about these problems with more rigor, with more focus. And I think Commons Clause accomplished that. Even though there's a polarizing sort of dynamic around how certain vendors might be for Commons Cons clause many others might be against it i think what's what's happening and what's important is it's getting the conversation started and it's it's a really good building block so on your website there's four big goals you have a strategic 15-year goals and one of those number four is commercial oss license best practices and so this is like a big goal of yours is to help create this similar to the way YC did with their kind of off the shelf licensing.

It's like, let's come around some best practices of how to do this. You call it kind of a creative commons for commercial OSS. And so this is a goal of yours. And so tell me if I'm reading it correctly. What you're saying is right now commons Clause is a stepping stone towards that. It's a beginning point, but it's by no means the end game for the way you think commercial OSS companies should move forward. I absolutely 100 percent agree with what you just said. So for sure, it's a really big area. It's something that we think is hugely important to have, like as a big strategic goal like that.

And Commons Clause is a great is a great stepping stone for sure could you maybe just give a quick explainer why it's so important i know we kind of covered a bit just a quick version of it like what is the biggest going to commercial issue that companies face you mentioned i guess maybe reddish it would take in reddish maybe too far potential but like Let me maybe summarize it what I think as quickly. And then you say, yeah, I agree with that or no. And add to as you need to. But there seems to be an organized effort around hackers that create open source because they're passionate about it. They eventually open source it, build a community around it.

Everybody thrives. Conferences. Kumbaya. Everybody's happy. And then they need to sustain and build a company around it everybody thrives conferences kumbaya everybody's happy and then they need to sustain and build a company around and they do but then there's threats from cloud providers and or other players if it's a different space and this is an effort to continue to sustain and build from the creators and or originators of a project or community. And this licensing essentially is a pushback against that threat. So they can essentially protect some barrier or ownership of something not to

keep people out, but so that they can live and survive. I have my own personal perspective on that, which is very different. And I've tweeted a little bit about this. It's very different from the way that Redis has communicated their intentions behind Commons Clause. And I think that, as I mentioned, Commons Clause as a building block could potentially be getting some good conversations started. I do not think it's the destination. And there's a lot of additional work we need to do beyond Commons Clause

to try and really move the state of the art forward here. I personally do not believe that open source authors or open source companies like Elastic, you know, Cloudera, many others should be trying to protect against cloud providers from capturing value that open source software creates. I think that is fundamentally wrong. I'm very opinionated here. And the reason I think it's actually wrong is very, very well summarized by a tweet that Doug Cutting, who's the creator of Lucene and Hadoop, sent out actually, I want to say a year or so ago.

And it would be really awesome to sort of showcase it in your show notes. But I'll read it out here. And I think it's extremely profound and concise. And I completely agree with it. And so his comment is, it is absolutely insane. And I'm slightly paraphrasing here. But he says it is insane to expect contribution back to open source proportional to the benefit from it. And I think that is very directly related. It's slightly orthogonal, but it's directly related to this topic of trying to prevent cloud providers from capturing value around open source projects because they have no legal obligation. They're actually delivering great user experiences and value to their customers. And they're furthering the distribution of the open source software through their platforms. Cloud providers have millions of customers.

So I don't subscribe to this view that we should actually try and prevent the cloud providers from capturing value around open source. Instead, what we should do is try and make open source more widely distributed, more widely adopted. We should try and push for an open future, open source future across the whole technology industry, across the software industry.

And we should try and capture the value in the context of delivering differentiated customer experiences with different approaches. And I think that'll that'll that'll make for a really great future. So to maybe transition into the topic that's probably much deeper deeper and longer but we've got about three maybe ish minutes to go through it is that seems to dovetail into maybe the kind of companies and our open source projects you may be funding so which was the real point of our call and we kind of got in the weeds with licensing and obviously this is all layered and thick and deep and that's maybe why it's taken 13 years for someone like you and your team to arrive at this table. But where are you at with in terms of the types of projects or companies or commercially viable open source companies?

Are you trying to invest in what makes them? Who are they? What are they? What are they doing? how much are you giving, whatever you can answer in those blanketed questions there. So, yeah, we announced our first investment on the 1st of October, actually, when we announced the same day we announced the firm. And it's a company in New York called Dev, the Dev Community. And they're the folks, they're really awesome folks behind the practical dev handle on twitter their their social network sort of corollary to the practical dev twitter

handle is is sort of like a reddit but for software engineers and a really awesome community they open source the whole the whole uh front end um site uh pr workflow for content generation and for engaging developers and it's it's really an exciting community. So they sort of fundamentally believe that open source is crucial to their product and they're building on an open source based model. We've done a handful of investments so far, done around 10. We're not really announcing details about our fund for now. But in terms of the focus area,

we're very, very focused exclusively going back to the sort of OSS in our name around companies that fundamentally depend on an open source project or a small number of projects to justify their own existence. And that's sort of the definitional constraint that we're operating under.

And we're super excited to back founders anywhere. We're not geographically constrained. And we're very, very excited to talk with folks who contact us and also reaching out to teams on a case-by-case basis. But for people who are interested in learning more or chatting with us, there's contact info on our website, oss.capital.

And folks can always DM me on Twitter as well. That works too. Good deal. And even on your site, you do have sort of this version of it as well where you define what commercial open source companies really are. project or projects as the fundamental building block justifying its core product slash service existence it is definitionally a commercial open source company so good job on defining that's that's sort of the hard part in most cases when it's so new and so fresh yet 13 years later right or 13 years earlier 13 years late whichever way you want to apply there, but definitions are certainly helpful because it definitely lets you draw a line and understand where

you're operating, where this is such new territory. Joseph, it's been an awesome conversation having this with you. Enjoy the rest of GitHub Universe. We'll definitely have more questions in the future, so we'll look forward to talking with you for the on the road and anything in closing look forward to talking with you for the road and

anything in closing and then to close out with or you before we let you go. No, I mean, I just I just want to say it's been super fun. This is this is a real a real thrill to chat with you guys. And thanks for having me on. Really fun. Same here. Thank you very much. I thank you for tuning in this week. If you enjoy the show, do us a favor, go into iTunes or Apple podcast and leave us a rating or review. Go into Overcast and favorite it. Tweet a link.

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