I list below some common arguments against venture capital mixing with open source and the counter-arguments to each of them. You as the reader can make up your own mind.

As for myself, I remain very neutral to the issue – meaning that I believe that at the present moment there is only a minority of venture capital firms that can work effectively with open source companies, and I hope this will change in the future in a way that benefits both open source and venture capital. Now that I’ve stated my position, the arguments…

Argument 1

Venture capital is obsessed with the possibility of exit, which may not be good for open source after all, especially if the exit is a sale to a proprietary software company (like what happened to MySQL inadvertently through Sun?). And frankly, it’s not necessarily good for innovation (which I believe is the real goal of venture capital, not profits ).  See Fork Well: It Could Be The Last, Best Hope for Community for a “free software centric” but very understandable reaction early on in the Oracle-Sun merger news cycle.

Counter-argument 1

There are many possible good investment exits for open source companies that are good for open source in general, such as a merger with or an acquisition by a larger and more influential open source player (e.g. Red Hat), or an IPO. If companies like Novell who are increasing their open source portfolio become more oriented to open source and successful at the same time, it can also be beneficial. And in the Oracle case, there are others that have argued that they have supported many other open source projects after acquisition, such as JBoss and BerkeleyDB (but admittedly it is difficult to analyze what would have been if these stayed independent or were acquired by other organizations instead).

Argument 2

The whole venture capital industry is based on valuations through traditional corporate measures, which is ill-equipped to value open source communities. In fact, it can be argued that the open source communities transcend corporate boundaries and therefore company-based investment simply is somewhat antithetical to the structure. It’s like fitting a square peg into a round hole.

Counter-argument 2

The venture capital industry is in a state of turmoil (CNET News: Big changes needed in the venture capital market), and coping with the nature of open source is part of the transformation that it needs to have in order to reinvent itself. Part of that is finding new models for valuation, adjusting to different investment timeframes, and part of that might involve some drastic changes (which are coming).

Argument 3

The perceived legal risk around commercializing on top of open source licensed technology scares many venture capitalists.

Counter-argument 3

Venture capitalists and their lawyers are gradually understanding that not all open source licenses are the same, and that the legal text together with an understanding of the community reflects a clear enough line (and therefore measurable risk) that is drawn between what should be “community property” and what falls within the prerogative of the companies operating in the community. With more information, entrepreneurs that are cognizant of these constraints (which are in fact strengths if the business plan is sound) should be able to convince potential investors that risks are mitigated.

Argument 4

Venture capital investment could crowd out and discourage community involvement. There could be many reasons for this but in general it might have the potential of disrupting the well-functioning status quo within an existing community which may reduce the contribution of other members who feel that they benefit less from the investment that the company directly being invested in. There may also be a perception of conflict of interest affecting the judgement of community leaders who are founders, employees or significant shareholders of the company receiving venture capital.

Counter-argument 4

Founders, employees or significant shareholders of the company receiving venture capital can “walk-the-talk” and give back generously to the community. In fact, they must, if their business is to be successful. Venture capital has been shown in many cases to have resulted in successful open source companies that are good for open source. After all, venture capital was invested in Red Hat, Zimbra, Xensource, and many others.

On the other hand, many venture capital companies have traditionally prided themselves of being actively involved in adding value (not just financing) to the companies that they invest in. How many venture capital companies invested in open source companies can say the same in terms of their role in helping the community? But I suspect that this again is more of a “lack of understanding” problem and not necessarily the fundamental conflict of interest that many perceive. Things might be better as more and more successful open source entrepreneurs/investors gain experience. Some organizations that clearly benefit a lot from open source clearly have more role to play, say (possibly controversial), e.g. Google Ventures?

For more information:

1. Remarks by Matt Asay, one of the influential people in open source today in an interview about how open source and commercialization mix: http://www.infoworld.com/d/developer-world/open-source-roundtable-matt-asay-176?r=54
2. Open-source VC investments: Time for payback (post on The Open Road blog at CNET) http://news.cnet.com/8301-13505_3-10217824-16.html
3. Report of venture capital investment in open source related firms from 1997 to 2008: http://blogs.the451group.com/opensource/2009/04/08/the-past-present-and-future-of-vc-investment-in-open-source/

And as a postword, perhaps one day open source may not need venture capital as we know it today, but then maybe venture capital may not be what it is today tomorrow anyway, at least for open source.

Using public information from websites and the snowball method of sampling, the top five most influential vendors in the business intelligence space are identified using two measures:

1. The number of direct technology partners (degree centrality)
2. How closely the vendors are connected with the rest of the network (closeness centrality)

Degree centrality ranking

1. Business Objects (66)
2. Cognos (44)
3. IBM (41)
4. Oracle (41)
5. Microsoft (34)

Closeness centrality ranking

1. Business Objects (0.68)
2. Oracle (0.61)
3. Microsoft (0.58)
4. Cognos (0.56)
5. IBM (0.55)

Even though Cognos ranks 2nd in terms of number of partners, it only ranks 4th in terms of well-connected it is. This is explained by the more diverse and broadly connected partnerships possessed by Oracle and Microsoft, who are ranked 4th and 5th in terms of number of partners, but 2nd and 3rd in terms of closeness centrality.

Check out the social network visualizations of the 107 vendors in the network from the perspective of each of these five firms. Note how the partnership networks of Business Objects and Cognos overlap with that of Oracle, who occupies the more central position within the network.

The 107 vendors are connected by a total of 401 partnership links. The average number of partners of each vendor is 7.5. This market has seen quite a bit of consolidation in recent years, resulting in an average path length which is relatively short although distinct clusters can still be clearly identified – vendors are on average 2.3 partnership links away from each other.

Sampling has been restricted to those listed as technology and independent software vendor partners, to focus only on cooperation in technology development. A partner search was also not done on the websites of large diversified firms such as SAP, Microsoft, and IBM, as their partner lists do not reflect relationships specific to the business intelligence space and manually screening them would have taken too much time. The list excludes:

1. Companies listed as resellers, system integrators, or marketing alliance partners.
2. About a dozen small firms listed as technology partners but function mainly as system integrators without any significant technology development role, and do not have any technology partners listed on their website.
3. A few large companies whose main function is almost exclusively systems integration, consulting, or content provision, e.g. SunGard, Unisys, and Edgar Online.
4. Enterprise search providers such as Google and FAST. These are supported by many business intelligence platforms without necessarily being listed as technology partners.
5. Enterprise content management solutions, e.g. Hummingbird /Opentext, which have been assumed to be in a distinctly separate adjacent market.

SARS has made thousands of people around the world sick, and has killed hundreds. But are fears of contracting SARS greatly overblown? The alarm that is being raised by health authorities worldwide is not so much because of the present danger posed by the disease, but because the potential threat of SARS could be very high indeed.

The new millennium was entered into in the midst of much euphoria and optimism, when the world’s worst fear then was the Y2K bug that proved to be generally benign. However, the events of the new millennium so far have done much to temper such lofty expectations. Just as the post-9/11 economy has begun to implement added security measures as part of daily economic activities, the post-SARS economy will adopt additional health care measures into the routine of life.

The use of broadband communications technologies to work at home will become more widespread. Firms will reduce their dependency on travel in their operations, and increase the use of technology where possible to replace travel. The healthcare sector is also poised to undergo significant restructuring, since SARS has highlighted many weaknesses in the current system.

Just as the greater war on terrorism is likely to carry on after the elimination of any particular terrorist group, the even broader war on disease will carry on after SARS. But even a defeated SARS will have provided us with a timely reminder that this particular struggle is far from over, or perhaps even impossible to overcome entirely.

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The role of government intervention in education remains a hotly debated topic especially in the context of developing countries. Much of the argument revolves around whether substantial positive externalities exist in the consumption of education by individuals. If social rates of return to education are significantly higher than private rates of return, government intervention is more likely to be warranted. This paper will review existing literature on the social rates of return to education and critically examine the arguments for the presence of positive externalities in education.

This paper will attempt something new, borrowing concepts from the literature of network economics, in order to better conceptualize education as a social public good. Network economics has its roots in the study of transport and telecommunication networks, both of which like education are goods that were once thought of as pure public goods, but have in recent times been considered more as private goods. The modern economy will be very much diminished without the transport, telecommunications, and information networks that are central to the process of economic and technological development. Education is similarly central to the process of economic development, even while there is debate over its status as a social public good or a private good.

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Interesting results obtained include the positive effect on the husband’s bargaining power within the family with increased housework contribution, and higher net family welfare with increased participation in the labour force of the wife.

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For more information on family economics, click here to go to Professor Siow’s home page at the University of Toronto.