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This tech investor had a killer week thanks to two big open-source deals

Jordan Novet
  • Index Ventures partner Mike Volpi has been investing in open source since it was a contrarian bet.
  • He scored big this week with the Elastic IPO, which doubled in its debut, and Hortonworks' merger with competitor Cloudera.
  • A venture capital firm solely focused on open-source software start-ups also launched this week.

Mike Volpi of Index Ventures started investing in open-source software companies when it wasn't clear if they could make much money. This past week — more than any before it — has validated his conviction that they can.

On Wednesday, Hortonworks HDP , a big-data software company backed by Volpi, announced that it was merging with competitor Cloudera CLDR . Two days later, another one of Volpi's companies, Elastic ESTC , started trading on the New York Stock Exchange and doubled in value in its debut.

It was a whirlwind few days for Volpi, who left San Francisco early in the week for meetings in London and Paris with Index's limited partners and other investors. On Thursday, shortly after the Cloudera-Hortonworks deal was made public, he flew to New York, where he and other Elastic board members met for three hours to price the software company's IPO and allocate shares.

Finally, on Friday morning, Volpi stopped by Elastic's breakfast at the New York Stock Exchange, where he greeted some of Elastic's 240-person contingent that was in town for bell ringing at the Big Board.

"It was a zoo," Volpi said, in reference to the number of people in the room. "I barely got a coffee in my hand."

He spoke to CNBC in a phone interview on Friday afternoon from the streets of Times Square.

Investors in open source

Volpi is one of the few venture capitalists to make a name investing in open-source software, a difficult task because it often requires that companies successfully commercialize a product that also has a free version customers can use. Another big investor in the space is Benchmark's Peter Fenton, who also backed both Elastic and Hortonworks.

Volpi first poured money in Hortonworks in 2011 and followed by investing in Elastic in 2013. At the time, many of his counterparts in venture were skeptical, but today Elastic is worth close to $5 billion and the combination of Cloudera and Hortonworks is valued at over $5 billion.

Now, Volpi said, the open-source deals are much more competitive. That's to be expected considering Salesforce CRM spent $6.5 billion this year on MuleSoft, and Microsoft MSFT shelled out $1 billion more than that for GitHub. Both were venture-backed open-source companies.

"Investors are very straightforwardly motivated by making money," said Volpi, who was a senior executive at Cisco CSCO prior to his years in venture capital. "If they see other people making money they jump into the fray. Today there are a lot of top-tier venture firms who jump into open source. It was contrarian six to seven years ago; it's not contrarian anymore."

Index's current stake in Elastic, which sells software for business search and data analytics, is worth $460 million. The firm's Hortonworks shares are valued at almost $54 million, according to FactSet.

Volpi said most of the work on the Cloudera-Hortonworks deal was done last week. Part of what made it difficult was the historic rivalry between the two companies, which both commercialize Hadoop data tools, he said.

Cloudera CEO Tom Reilly said that at an all-hands meeting at the company's Silicon Valley headquarters on Thursday, many employees were in shock. But that turned to excitement when they started to realize the potential growth and cost savings, he said.


Joseph Jacks is one of the new investors in the open-source arena, having seen how powerful it can be to have large communities of developers contributing to a single project. Jacks, who previously co-founded Kismatic, a start-up focused on the deployment of the Kubernetes open-source software, announced the formation this week of OSS Capital, which aims to invest solely in open-source start-ups and provide them with advice on matters like finance and law.

"I think this is the most profoundly exciting week for commercial open source in the history of commercial open source going back 20 years," Jacks told CNBC in an interview. "Our slogan is open-source software eats everything."

In addition to the Cloudera-Hortonworks merger and the Elastic IPO — Jacks also talked up big funding rounds for companies like JFrog, which is commercializing the Artifactory open-source software. He saw all those headlines fly by this week from his office in San Francisco.

For Volpi, the long week was slated to end back in San Francisco on Friday night, after another meeting in New York with a portfolio company and a couple more press briefings.

"I'm not sure what time zone I'm in and I haven't gotten a lot of sleep," he said, a few hours before heading to the airport. "It's been a little busy this week."

-- CNBC's Ari Levy contributed to this report.




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