How I Stumbled Upon The Internet’s Biggest Blind Spot
Let’s make software even better.
I left my job in venture capital last May. When I said goodbye, I explained that I initially joined Collaborative Fund to help launch a nontraditional, non-venture fund, but ended up in a traditional venture role instead. (So it goes.)
Let’s get this out of the way first: everybody likes to complain about VC, yet most successful tech companies are venture-backed. The accessibility of venture capital today might be gluttonous, sure, but we also owe our industry’s success to its existence.
When I talk about finding alternatives, then, I don’t mean replacing what is clearly working in some contexts, but rather expanding the pie. And it starts with a question: What is not venture backable in tech right now?
I haven’t been the first to ask this question. YCombinator funds nonprofits and now, research. OATV launched indie.vc last year. Peter Thiel created Breakout Labs. Elon Musk created Open AI.
Yet, I felt, something was missing. So, after a couple months of relaxing and soul searching, I spent last fall treating this task like an investigation.
I decided to approach the question like any other investment opportunity. What is not venture backable in tech right now? I got myself up to speed by researching everything that had to do with this question. I read blog posts and articles, collected links in Google docs, summarized my findings in memos, then started sourcing.
I cast my net wide. I went through AngelList, CrunchBase, accelerator portfolios, blog posts, articles, and Twitter accounts, hunting down names of interesting companies, organizations, and projects. Each time I asked myself, Is this venture backable? and if the answer was no, I added them to a spreadsheet.
What did it mean for a project not to be venture backable? Likely, it met one of the following criteria:
- There was no business model (ex. no customers to charge, or no advertising model)
- The project was not structured as a C corp
- The project could not conceivably return an investment at venture scale
My first round of research yielded hundreds of projects, which fell into the following categories:
- Businesses that generated revenue, but were not venture scale (some call these “lifestyle businesses”)
- Nonprofits
- Product “studios” (independent developers who make apps, some of which generate revenue)
- Public data projects
- Academic collaboration or research
- Blockchain and decentralized protocols (plenty of VC $ in this space broadly, but not everything fits cleanly into a C corp)
- …and others.
I pulled up contact information for each of these organizations and got to work cold emailing the founders. In addition to email exchanges, I spoke to over a hundred founders, trying to understand their situation. How were they funding their efforts? Why did they choose this path?
I crossed out projects that seemed to be doing okay. Small businesses, for example, had a path to revenue. Product studios seemed happy to fund their creative work through contract work.
For the remaining projects, I heard all sorts of answers. “We don’t want to compromise our mission.” “We can’t find funding.” “We’re too risky for VCs.” “We don’t want to get that big.” “We don’t have the right legal structure.”
Eventually I started seeing patterns and divided my list of projects into five categories, including:
- Data (ex. APIs or data science for public benefit)
- Knowledge (ex. education curricula, wikis)
- Infrastructure (ex. blockchain, dev tools)
- Media and communications (ex. activism, journalism, crime reports)
- Government (ex. public services, voting)
My next step was to talk to funders. I reached out to my network and solicited feedback from different types of funders — VCs, angels, grantmakers — on my “investment thesis”: that these projects were interesting and useful to society, but lacked an institutional source of funding.
And here, I crashed and burned. Funders were skeptical. They didn’t understand why these projects mattered. They wanted to see a return on investment. They quibbled over the details.
After hearing the same pushback from multiple people, I realized I had been asking the wrong question.
“What is not venture backable in tech right now, that tech absolutely cannot do without?”
Funding opportunities need to look like the shiniest toy in the toy store. Nobody wants to fund things that should exist. They want to fund things that inevitably exist.
I went back through my spreadsheet and asked myself a revised question. If this project disappeared tomorrow, would Silicon Valley notice?
As I went through my list and crossed off company after company, I felt disheartened. It was difficult to admit to myself that so many of these projects didn’t have the cachet I needed to support my thesis.
Upon reviewing my work, I quickly realized that only one category had consistently not been crossed out: open source infrastructure.
Open source infrastructure refers to all the tools that help developers build software. On a deep level, it includes physical things like servers, but closer to the surface, it also includes things like programming languages, frameworks, and libraries.
If you’ve ever built an app before, maybe you used Rails, Django or Node.js. Maybe your app was written in Ruby or Python. Maybe it made use of something like jQuery or React. All of these projects are open source.
There is no question that these developer tools are vital to startups and technology: we couldn’t build anything without them. There is also no business model in many cases. You couldn’t charge people to use Python, for example, any more than you could charge someone to speak English.
“But”, I thought to myself, “it’s open source. Isn’t open source…doing just fine?”
I thought about Red Hat, the most famous open source enterprise company I knew. I thought about Docker. I thought about all the big software companies I’d heard about, like Facebook and AirBnB, who were releasing open source projects. Open source didn’t seem like it had a problem. It seemed like it was thriving.
Nonetheless, here I was, looking at a bunch of projects on my spreadsheet that told me otherwise. I decided it was worth digging into.
I started my research process again, this time focusing specifically on open source infrastructure.
I read blog posts and articles on open source and funding. I hunted for interesting projects on GitHub. I read forum threads and mailing list archives between developers to see which projects they mentioned, then tracked down each of those projects and tried to figure out how they were being funded. I reached out to developers, asking them to get me up to speed.
What I discovered: our tools were not in great shape.
The truism I had heard repeated so often by startup founders, VCs and even big software company developers — “Open source is really well funded!” — was simply not correct.
I personally get regular *demands* for unpaid work…by healthy high profit companies large and small….If I don’t respond in a timely fashion, if I’m not willing to accept a crappy pull request, I/we get labeled a jerk. — @pydanny
I do not have the time or energy to invest in open source any more….It is not fair to expect me to do even more work outside of my regular work, and then not get fairly compensated (time or money) for it. — @ryanbigg
I’ve been trying to figure out a way of making Hypothesis development sustainable, and the answer is basically that I can’t, despite the fact that it’s clearly going to save people at the bare minimum millions of dollars over the course of its lifetime. — @drmaciver
Just relying on people’s good will isn’t going to work, we’ll end up disproportionately appealing to independent developers or developers on a personal level and that’s not as sustainable I don’t think. — @andrewgodwin
It is a bleak landscape right now….for now the only real option is to try to take care of yourself and hope that some day all of this will be viable. — @kantrn
Publishing and contributing to open source is going to continue happening regardless whether I’m getting paid for it or not, but it will be slow and unfocused. Which is fine, it’s how open source work has always worked. But it doesn’t need to be this way. — @shazow
These projects had present, not future, value. They were actively used by Facebook, Instagram, Pinterest, Netflix, even governments. They directly caused tech’s rapid rise, as Mark Suster once explained. But they hadn’t captured the financial value they deserved.
Here’s what is true about the “open source is really well funded” myth:
- Red Hat is doing great. (But nobody believes there will ever be another Red Hat.)
- Projects that are effectively “sponsored” by a company, like Go/Google, or React/Facebook, are doing fine. (But many projects are not so lucky.)
- A lot of companies make their software open source as a “loss leader” to kill a competitor, drive an audience to paid products, or build brand and community. (But these aren’t infrastructure projects.)
- VCs have poured money into a couple of open source infrastructure companies, like Docker or Meteor. (But these are the exception, not the rule, as Sam Gerstenzang recently explained.)
- A couple of really big projects, like Linux, are well funded even without a business model. (But Linux is as much of an outlier as Red Hat.)
Yes, some things with the word “open source” in them are well supported, but that does not mean other things with the word “open source” in them are also well supported. It’s like saying a red Prada dress costs a lot of money, therefore all red dresses also cost a lot of money.
Most developer tools have nothing to charge for, and are not big or centrally organized enough to get venture or corporate funding. Projects that we use, or indirectly benefit from, every day. (Every app on your phone right now is using one of these projects in its software. I guarantee it.)
In other words, everybody is building software, but ignoring the tools we need to build them.
To support that, a couple of thoughts:
- There is an enormous disconnect between project owners and their stakeholders. Every open source developer I spoke to thought there was a “funding problem”, even if there was disagreement about how to fix it. But hardly any founder, VC, or big tech employee was aware of the issue, even when they used or benefitted directly from these projects.
- This is a relatively new problem. Open source has been around for 30 years. It worked well in the early days, but from 2008–2013, GitHub and Stack Overflow made it go hockey stick. Today, more people use open source, but fewer people contribute back, than ever before. And everybody assumes that somebody else is doing it. (This is also known as the “free rider problem”. Left unchecked, it leads to a tragedy of the commons.)
What could go wrong? Well, this, or this, or this. People getting burned out and quitting. Bugs or security vulnerabilities that go undetected. But also, people just making less stuff. Society moving a little more slowly.
The better we make open source, the better we make technology as a whole. When we have really good tools, it’s easier for everybody to use them to do creative and interesting things.
Think about how much easier it is to learn to code now than pre-2013. And think about how many cool things people have made because they can code. Internet of Things, 3D printing, indie gaming: all of these movements caught on because people were given tools to make whatever they imagined.
But it all started with software.
The tools we use to build software are no different; they’re just a little less pretty.
Developer tools made tech amazing and spawned a revolution; now let’s find a way to make them amazing, too.
Over the next few months, I’ll be sharing everything I know on this topic and trying to make sense of it in a public space. (I am thankful to the Ford Foundation for supporting my work.) Feedback and suggestions are welcome!
P.S. If this all sounds interesting to you, and you want stay involved, you can sign up here to get updates when I post something new, or follow me on Twitter.
P.P.S. [edit 1/18/16] The response to this post has been incredible. I’ve started a list of OSS projects needing support here. Please add your great examples there!
