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Examining Investment Strategies of Venture Capitalists in Open Source Software

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  • Mario Schaarschmidt

    (University of Koblenz-Landau, Institute for Management, Universitätsstr. 1, 56070 Koblenz, Germany)

  • Harald von Kortzfleisch

    (University of Koblenz-Landau, Institute for Management, Universitätsstr. 1, 56070 Koblenz, Germany)

Abstract

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 × 2 matrix of different investment approaches. While theX-axis represents the average age of a community/OSS product at the time of investment, theY-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.

Suggested Citation

  • Mario Schaarschmidt & Harald von Kortzfleisch, 2014. "Examining Investment Strategies of Venture Capitalists in Open Source Software," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-19.
    • Handle: RePEc:wsi:ijitmx:v:11:y:2014:i:04:n:s0219877014500199
    DOI: 10.1142/S0219877014500199
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    References listed on IDEAS

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    1. Robert E. Hall & Susan E. Woodward, 2007. "The Incentives to Start New Companies: Evidence from Venture Capital," NBER Working Papers 13056, National Bureau of Economic Research, Inc.
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