Open Source As Much About The People As The Code

One of the most interesting (and relatively subjective) business discussions in IT today is around what exactly constitutes "Intellectual Property" in open source start-ups.

From the VC perspective ... before delivering a term sheet to a potential open source start-up, it's about crossing off potential risk areas at every step of the way. Can the company build a product around the technology? Is there a market for the product? How do you market it, scale it, execute on the plan? Are the multipliers on the original investment attractive enough to justify the investment risk? These are all the sorts of well-known questions that the VC's examine, pre-investment.

But the muddier waters are around the personalities and commitment of the engineers who created the code. How long do they intend to stay? What is their level of commitment? These are fuzzy types of questions - but we know from history that when the core team of engineers that best understands the code up and walks out ... it tends to send a company into a death spiral.

At that point the company must find new developers / engineers that understand the technology, and it can take months and months for them to decipher from a code perspective how the product works -- meanwhile, no one's at the wheel with respect to evolving the product to keep ahead of the competition. You basically have complete technological stasis when key engineers leave, and often there's no recovering.

"The code without the people is worth nothing," according to Phillipe Cases, partner at VC firm Partech International. "A million lines of code is like a million problems that you have to solve. So the risk on any open source investment project is that the 2-3 guys that created it and maintain it could leave. The commitment of the developers is often the IP -- not the code itself."

And this doesn't just apply to tech start-ups and their VC's ... it applies to big companies that acquire open source start-ups. If you acquire the company, only to have the core engineers split after a short period of time, what's your return going to be on that acquisition? Just ask Computer Associates, who shortly after acquiring Ingres, experienced a 'mass exodus' of developers immediately thereafter, and from there certainly struggled to pick up the pieces and profit from the acquisition.