The Good News, Linux Fans, is Venture Capital Is Harder to Find

"One thing that Mr. Updegrove does not mention is the VC management fees. Way back just before the turn of the century I had a boss who wanted to be a Player, a Mogul, the Go-To Guy. So he got cozy with this venture capital firm, let's call them Moneybags, Inc., who had a real nifty setup. They did not invest their own money, for that would be scary and risky. Instead they courted investors and put their money into a single fund that was used to finance several startups. Moneybags, Inc. then worked with the startups in the traditional venture capitalist fashion. I attended a number of presentations to potential investors, and even though I knew what was coming every time, it still gave me a jolt when they got to the part where they divulged that their management fee was 20% off the top, plus participation in the profits. So the investors were 20% in the hole from the start.

"Maybe this is a typical arrangement, I don't know. All I know is Moneybags, Inc. was guaranteed a fat payday no matter how badly they performed, while everyone else assumed all the risks."

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• Business vs. FOSS: Six Pressure Points(Nov 18, 2008)
• Portrait: FOSS Legal Leader Andrew Updegrove(Nov 14, 2008)
• VC Funding for Open Source Rises Again in Q2(Jul 01, 2008)
• VC Funding for Open Source Hits an All-Time High(Apr 01, 2008)
• VCs Regain Interest in Open Source(Mar 08, 2008)
• VC Funding for Open Source: A Tough Sell(Dec 21, 2007)