Examining Investment Strategies of Venture Capitalists in Open Source Software

A growing body of literature has explored the motivation of firms to take part in open source software (OSS) development, yet the role of venture capitalists and their role in OSS projects is largely unattached. Based on information from publicly available data, we investigated the investment behavior of 37 VCs investing in 45 OSS projects. To understand how these venture capitalists try to reduce their perception of uncertainty and risk, we developed a 2 x 2 matrix of diffrerent investment approaches. While the X-axis represents the average age of a community/OSS product at the time of investment, the Y-axis reflects the average round of a venture capitalist's entry. This exploratory study illustrates how venture capitalists limit the level of risk inherent in certain OSS investments and results in a number of implications for communities seeking for external funds as well as for investing firms.