If you want to sell your own proprietary software, make sure you have a strictly enforced policy against using open source. Here’s why: even if you agree that open source has crossed the chasm in the lifecycle that is technology adoption, your investors have not. Even the inclusion of an inconsequential open source tool can cause headaches, or stop a deal altogether.
Here are the concerns often raised about open source at the due diligence stage:
– there is no meaningful warranty or indemnity for this portion of the product
– how do we know the open source license is enforceable?
– do the terms for this piece of open source contaminate the rest of your product?
– if this was inadvertently incorporated into the product, what else was?
I should emphasize that I don’t necessarily disagree with the concerns she notes. They are concerns. Particularly in the specific instance she notes – i.e. selling proprietary software (as opposed to using an open source business model). That being said whether or not the benefits will outweigh the risks will depend on many things, including the business model of the startup (even if one chooses to go the route of developing proprietary software), the license governing the open source code and of course how its used. I don’t necessarily think that companies (including startups) should just have a flat policy not to use open source. But I’ve already rambled on about this in my previous post.
But then again, I’m not a VC. And Suzie apparently used to be one. It would be interesting to know what VCs generally think. Are you a VC? If so it would be great if you could go to the poll at the bottom of the left column. Nothing super scientific, admittedly, but I’d be interested in seeing what the general sentiment is.