Open source might be the future and the infrastructure and the operating system. But one thing, by most estimations at least, is not a business model. Still that hasn't stopped Joseph Jacks and OSS Capital from seeking out some of the earliest-stage open source startups and funding them through their formative years.

These include the likes of open source Qualtrics alternative Formbricks, which raised a pre-seed round of funding last year. Elsewhere, for example, is Notion alternative AppFlowy; Jira alternative Plane; Calendly alternative Cal.com; Postman alternative Hoppscotch; and, for those who want an alternative to Okta, Cerbos is worth a look. The one thing they all have in common: they are open source, and they've all raised cash from OSS Capital.  But they also show how the free and proprietary domains are locked in perpetual struggle, two chiasmic ideas presented in conflict-squeezing poles at opposite extremes, something for free and making a profit.

"The cool thing, though, about these open-source companies is they are inherently philanthropic, while at the same time capitalistic and pursuing business models that actually generate sustainable revenue outcomes, Jacks said in an interview with TechCrunch. "And I think they are very paradoxical, from the very beginning all the way to when they're large companies."

At the heart of OSS Capital's investment thesis, Jacks says, is this juxtaposition of 'philanthropy' and 'business'. He believes that there should be more open source in the world, and his way of expressing that belief is one built around the idea of capitalism.".

"I think capitalism can promote positive and sustainable behavior much better than philanthropy can for positive and sustainable behavior," Jacks said. "I believe that capitalism itself is the penultimate manifestation of philanthropy, and commercial open source networks and startups are the most well-suited type of capitalism toward accelerating open source innovation in the world."

Open for business
Jacks co-founded one of the first commercial companies to emerge in the Kubernetes neighborhood. Kismatic spun out the Google-spin-off containerized application platform, then was acquired by enterprise software company Apprenda in 2016. Jacks also founded the community conference KubeCon, which the former company Kismatic donated to the Cloud Native Computing Foundation in 2016.

After Kismatic, he co-founded another company, a cloud data management startup called Aljabr, where that company went nowhere, but about this time, Jacks began blogging his impressions of open source companies.

The fund wasn't a huge grand plan; I mean, it was a process of being super obsessive over these open-source companies and I started this blog series that made me start a fund," Jacks said. "I didn't have any VC or investing experience.".

And so, in 2018 OSS Capital was born with Jacks being the sole general partner and investor. OSS Capital has raised now three funds sized around $50 million, with a fourth that will close by early 2026.

While most of its investments are at the seed stage, OSS Capital does some follow-on funding, including leading on a Series A round last year into W4 Games, which is commercializing the open source game engine Godot. It has also done some larger checks for follow-on rounds, though for that it has used a special purpose vehicle (SPV), which involves setting up an entity for single investments.

There are, of course a few exits to mention, but one great one is the full-stack web framework Remix, which Shopify acquired mid-2022 and which is now the recommended way for users building Admin apps on Shopify.

"It was a small outcome for uswe made a few times our money, but it's had great outcomes for Shopify," Jacks said.

So far, OSS Capital has invested in the range of 80 ventures, and just earlier this week, Jacks declared he would take his firm from an exempt reporting adviser (ERA) to becoming a registered investment adviser for regulatory purposes around crypto. While Jacks puts out a disclaimer to avoid any perception of "diversifying into crypto," they have made a few investments in the space over the past couple of years, including $40 million in capital into Parallel Studios, Bittensor, and ResearchHub from Coinbase CEO Brian Armstrong.

Today OSS Capital boasts a pretty long list of limited partners — largely individuals — many of whom, one would assume, are best acquainted with at least one corner of the open source software universe. These include Automattic CEO and WordPress co-creator Matt Mullenweg; Red Hat co-founder Bob Young; Cockroach Labs' co-founder Spencer Kimball; and MongoDB co-founder Eliot Horowitz. Other YouTube founders Chad Hurley and Steve Chen are investors, and so are Shopify founder Tobias Lütke, GitHub co-founder Tom Preston-Werner, and founding Google investor Ram Shriram.

The company also boasts a handful of significant institutional investors, including Automattic, which has been OSS Capital's biggest corporate investor since its second fund. Other big names in the institutions' pot include Insight Partners and Summit Partners, both of which are well known for their investments across the venture capital and private equity realms.

"I haven't really pushed to get more of these institutional investors, or from the likes of nonprofits, foundations and endowments," said Jacks. "I just haven't spent time optimizing the design of the fund. The reason we have mostly individual investors is that they're people that I really admire and I respect a lot — they understand what we're doing because they've built open source companies over the years."

Open network
There are tons of niche venture capital firms out there focusing on everything from wildfires to oral health. Such vertical-specific investment philosophies might be an attractive proposition for early founders wanting deep industry expertise.

Didier Lopes, co-founder and CEO of OpenBB — often referred to as an open-source alternative to Bloomberg Terminal — raised a seed round of $8.5 million just six months after the project began, led by OSS Capital. And Lopes said that the insights and connections fostered through this initial tie-up opened doors.

"They understood well the time required to create a robust and loyal community — their perspectives in how other startups balance the scalar between open source and commercial offerings was crucial for us to help define our strategy going forward," Lopes said. "But also, being able to connect us with open source leaders."

This included introductions to angel investors like Red Hat's Bob Young and AngelList co-founder Naval Ravikant, as well as executives from Elastic and GitLab who are now members of OpenBB's advisory board.

All this flies in the face of a growing sense that overly permissive software licensing just isn't compatible with building a sustainable long-term business. For instance, developer tooling unicorn Sentry- besides several other startups-is taking the side behind a new licensing paradigm called "fair source" as acknowledgment that even though the idea of open source per se has become very popular, startups are wary of its commercial limitations.

"Open source isn't a business model — open source is a distribution model, it's a software development model, primarily," said Chad Whitacre, Sentry's head of open source, in an interview with TechCrunch last month. "And in fact, it places severe limits on what business models are available, because of the licensing terms."

Jacks, for his part, is all for this kind of talk. "I agree with him completely, it's true," he said. This is surprising, since his VC firm appears to be fully bought into the open-source way of thinking. The three-letter acronym in "OSS Capital" stands for "open source software," just in case there was still a question.

This is where things get murky, entering the grimy real world of commercial open source software (COSS), which mostly isn't actually about critical pieces of the software stack-such as the wildly popular Kubernetes-but instead more about monetizing fully fleshed-out SaaS applications that just happen to use open source as a carrot on a stick. The default model for many of these companies has become known as "open core," in which the core functionality of the software is open source but a big part of the utility sits behind a premium, proprietary paywall. Customers can tinker, inspect, integrate, and self-host—but if they want hosting or enterprise features that make some bells-and-whistles ring, they have to pay.

And this is what Jacks pains himself to point out why "open source" in itself is not what he is investing in.

"there is a fundamental difference between 'open source' and 'commercial open source',", said Jacks. "Open source is a licensing paradigm, a technology development paradigm, a philosophy-it is not what I invest in; OSS Capital does not invest in open source. We manage money for people to multiply their investment, and make them tons more money. And I do what I do because I'm also very interested in making tons of money."

Buried in amongst all this is a bet — a big bet — that "open core" will ultimately win out over pure proprietary.

In my view, this type of open core will replace closed core SaaS companies, Jacks said. "I've had this thesis since the beginning of the fund, and it builds on what Marc Andreessen said about software eating the world, but my take on that has been that open source is eating software faster than software is eating the world."

But far from alone. GitLab CEO and co-founder Sid Sijbrandij founded Open Core Ventures (OCV) in 2020, although it is somewhat different because it is taking on a much more incubator-like approach to creating and investing in companies around existing open source projects, but has many of the same philosophical underpinnings. As the venture-capital-funded startup Sijbrandij believes "open core" startups will be 80% of venture-funded startups in the future, though he concedes that may take a long time before we actually reach that stage.

"The power of open core is giving users the ability to contribute — open core provides a level of trust, agility, and speed you can't get with closed-source software," he told TechCrunch. "We see the open core model mature and more entrepreneurs wanting to start businesses under the model — open core is a broad space between completely proprietary and completely open source. We think that over time most companies will be somewhere on this spectrum, instead of on the extremes."