OPEN BUSINESS MODELS AND VENTURE CAPITAL FINANCE

Do entrepreneurial ventures that adopt an open business model obtain VC finance from higher quality VC investors in comparison with entrepreneurial ventures that adopt a closed business model? Are VC investments in open business model ventures are more likely to be syndicated and more frequently staged? In this paper we consider these questions on a sample of 6,555 VC investments in 514 software entrepreneurial ventures that received the first round of VC finance in the period 1994-2008. Of these ventures, 124 adopted an open business model based on open source software (OSS) and the remaining ventures adopted a closed business model based on the development and sale of proprietary software. Our findings indicate that OSS entrepreneurial ventures received funding from higher quality VC investors, with VC quality being measured by general experience, industry-specialization, IPO success, raised capital and connectedness in syndication network. Also, VC investments in OSS entrepreneurial ventures were more frequently staged. Conversely, we do not find any difference between OSS and proprietary software entrepreneurial ventures as number of VC participated in syndication.