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Neo4j’s new round was led by Ìý²¹²Ô»å (seeing investment banks into venture rounds isn’t new). The firm did note in a release that several of its preceding investors took part in the round, including , , and .

Open Source

While Neo4j’s new Series E is notable, its sector is almost more so.

Open source is having a moment. After Microsoft spent huge dollars buying GitHub, committing its , IBM spent more money than anyone would have thought possible to buy Red Hat, the archetypal enterprise-commercial open source company.

In light of Red Hat’s news and his company’s new capital infusion, I spoke with Neo4j’s CMO, about the space. He agreed that while Red Hat and Neo4j are different (operating systems compared to graph databases), open source was doing well.

Notably, Crunchbase News research from 2017 underscores how well the sector has performed in recent years. The recent M&A and venture investment in and around open sources should, therefore, be less surprising than it feels.

I had our own update the key chart in that so we could share it here:

Narrowing back to the startup in question, Walter cited the Neo4j developer community as a driver of the firm’s success so far. Open source-focused companies, provided that they work with popular technology, can benefit from having external developers work on the code from which they generate revenue. When it works, the enterprise open source model is pretty neat.

Neo4j

It’s been almost exactly two years since Neo4j raised a $36 million round raised from Eight Roads, Creandum, Greenbridge, and .

That means that the startup waited an extra six months longer than the normal 18 months venture funding pace that we generally see. That can imply that the startup in question was more capital efficient than some of its peers. If you can stretch your capital out another quarter or two, you can put more revenue to work when you raise.

My impression after talking with Neo4js’s CMO was that the firm has taken a rational approach to growth so far, keeping it as a focus but avoiding some pitfalls that some venture-backed companies run into (for example: raising huge rounds, and pushing them through lackluster sales operations leading to expensive ARR growth at the cost of extreme dilution).

On that point, Walter said, during a discussion of the firm’s new round, that Neo4j will grow at a “rate that doesn’t explode in [its] face,” which is probably the best encapsulation of “we are going to grow as fast as we can without wasting money” that I’ve heard recently.

Of course, the company now has more capital than ever, so it will have the standard set of risks in front of it that fresh cash brings, including focus crisis, choice paralysis, and the lot. How well it navigates its newfound wealth will be the usual balancing act that all startups manage when their cash-on-hand spikes to new heights.

What Neo4j has in its favor is high contract value (starting sales are “low six-figures,” per Walter), and traction in sectors that are driving noise in technology. The firm’s tech can work in the AI and ML space, along with analytics and other data-intensive work.

More when we have it, but Neo4j is worth keeping an eye on.

Illustration Credit:

The subscription-powered startup has an interesting business model which we’ll dive into shortly, but it’s worth noting that the open source space as a whole is quite active. It’s something that Crunchbase News covered last year, describing how startups working with open source software have enjoyed a dramatic rise in investor interest.

That puts Tidelift in the midst of a trend.

How Tidelift Works

Tidelift’s key offering is a subscription product that with an annual commitment, putting it squarely outside of the consumer and prosumer developer market.

Tidelift Subscription, as it is creatively known, is a two part service. First, it provides “commercial-grade security updates, maintenance, and quality assurance” to developers using open source technology, per the company’s website.

The startup also distributes a hefty percentage of its monthly fee to the folks working to build and maintain those same open source products. Crunchbase News asked the company for details concerning how the monies are disbursed to the open source community, to which Tidelift’s CEO provided the following comment:

“Tidelift tracks which open source components its subscribers use, and directs subscription payments to participating maintainers of those open source projects, aligning everyone’s interests. Subscribers get better maintained software, and maintainers get paid. It’s a win-win.”

Right, so how much of the money goes to developers versus Tidelift itself? The firm isn’t merely a middleman, sitting between the paying developer and the open source project as it helps manage updates and the like. But, according to Fischer, the firm’s “goal is to pay out at least half, and ideally more of subscription revenue to open source maintainers.”

More than half seems like a good goal. But, at a 50-50 split, Tidelift is still taking in $6,000 in ARR per seat, after carving off for the open source world. That price point gives Tidelift plenty of room to use spend to go after customers. (Which it can do, now that it has $15 million fresh new dollars.)

I’d normally argue for more details regarding how well the subscription product is currently working, but Tidelift only launched it in on the last day of February, giving it only a quarter or so in the market. We’ll check back in with the company in a few more months to see how well it found balance between price. the correct portion of the pie to consume, and how much it can send to external developers in aggregate.

What will be interesting is whether the company makes regular disclosures of the total funds it has sent to external developers. If it does, we’ll be able to reverse engineer its revenue to date to a pretty reasonable range. But in case you’re worried that we just put them off sharing those numbers, don’t worry too much. It will be hard for the firm to not share the data in time, as it will act as a critical calling card for its place in the open source world.

More when we have it.