Why and how we raised VC funding for an open-source project

Why and how we raised VC funding for an open-source project

The open-source movement gave us many of the software such as operating systems, browsers and databases. They hold a prominent place in the world that we are living in today. The internal projects of large companies such as Kubernetes, React, Angular and Tensorflow that was later open-sourced have become industry standards, adding to the momentum of the OSS movement. Traditionally the OSS companies used to make money by selling support and services. This free software and paid support approach were adopted by many companies including pioneers like Redhat and MySQL. Now the open-source software  (OSS) has started eating into the SaaS space. Many OSS projects now have a hosted solution.

For those who haven't heard about ToolJet, ToolJet is an open-source low-code framework for building custom internal tools.

The first commit to our GitHub repository was on April 1, 2021, and we made the repository public on June 7, 2021, and launched it on Hackernews.

The initial signs of product-community fit were seen when our GitHub repository got more than 1000 stars within 8 hours of HN launch. We have raised $1.55 million in funding within 2 weeks of the HN launch.

There are a lot of cool open-source projects out there. Hoping this article and our story will be helpful for someone who is looking to build a business around their open-source projects.

What were our options?

At the time of launch, the ToolJet team had only me as a full-time member. ToolJet was built with an aim of building a business around it. I tried to find investors for funding ToolJet from the very initial days. When we got some initial traction after the launch, there were a few options in front of us to build a company around ToolJet.

a) Bootstrapping: Growing by using the money that your customers pay is a great concept. But during the early stages of a product, it might be hard to find such paying customers and I did not have enough savings to fund the project until that happens.

b) Building as a side project: The project can be maintained by a team of maintainers who also work for another company full-time. While it works great for smaller projects, it might not work for ToolJet as we have to build dozens of integrations and UI widgets before the platform can become useful for the customers. As a side project, it might take months or years before we achieve that.

c) VC funding: if there is a possibility of building a profitable and scalable business in the future, VC funding is a good idea. We chose this path. Let's discuss more on this in the next section.

Why did we choose VC funding?

We chose VC funding because we wanted to grow quickly. We realised that it could take us months to build the platform that we wanted to build if ToolJet becomes a side project. We wanted to accelerate our growth by expanding the team.

By choosing VC money, you also have to commit to an exit or a total failure. Also, this means you have to talk to a bunch of investors to get funded and to talk to those who funded you on a regular basis. On the bright side, you get to talk to amazing folks who have funded similar companies over the years ( or decades ) and have closely watched their journeys.

Is it for everyone?

Definitely not. There are many bootstrapped open-source companies making good revenue/profits. We chose this path because, maybe a decade later, we do not want to regret missing an opportunity to build something great just because we wanted to build it as a side project.

The benefits of VC funding for OSS
a) Can build a team of talented and experienced folks.
During the initial days of ToolJet, a few of my friends were excited about working on the project. But they ( and myself ) were not in a position where we can quit our jobs and work on the open-source project that we are passionate about. The funding definitely helped us become full-time.

b) Gives more confidence to your customers.
We have seen a lot of open-source projects being abandoned due to a lack of funding. Many of the maintainers cannot work for free for a long time. Unless there is a business that makes money or if there is a constant stream of donations, the maintainers will have to move on with their life. Being VC backed means the maintainers have to be committed to the project.

You can read more about the funding issue of open-source projects here.

The timeline

March 2021 - I sold one of my side projects and quit the job and decided to work full-time on ToolJet for up to 6 months.

March 31, 2021 - The first commit.

April 2021 -  More commits. Reached out to investors, applied for YC ( everyone rejected ).

May 2021 - The beta users ( mostly the companies that I personally knew ) and working on feature requests and suggestions.

June 7, 2021 - Launched on ProductHunt and HackerNews.

June 7, 2021 -  1000 stars for our GitHub repository.

June 16, 2021 - The first cheque ( 200k USD )

June 21, 2021 - Wrapped up the seed round at 1.55m USD. We had offers for more than what we were looking for (enough to raise more than 2.5m ). But we did not want to raise ( a lot ) more than what we needed.

Since then - Expanding the team while improving the platform.

How we raised the fund

Before the launch, I reached out to the folks in my circle who could connect me to the investors. I also tried cold mailing a bunch of angel investors. Some of them were convinced about the vision but wanted to see some metrics to prove that it will work.

When we launched, there was inbound interest from a few VC firms and angel investors. After getting the first cheque it was easy to talk to more investors. And once we got the lead investor, closing the round wasn't difficult. Everything including the pitching and the negotiations were done through Zoom, Google meets and WhatsApp calls.

Raising funds can easily become a full-time job which mostly involves talking to many investors every day. The process of some of these investors can span over weeks. We wanted to close the round quickly and get back to product development. We were able to find investors who move quickly and this helped us spend less time looking for money and spend that time instead on what we really love.

What's next?

We are a team of 12 now. Since the launch, we were able to build and ship a lot of awesome stuff such as real-time collaboration, integrations with cloud storage, a bunch of options to deploy ToolJet, integrations with new data sources, more than a dozen new widgets, etc. We also got contributions from more than 100 contributors who are from a dozen different countries.  With the constant feedback from the open-source community, we aim to build the platform that we envision over the next months and years.

We would love to hear your thoughts about ToolJet, here is our repository: https://github.com/ToolJet/ToolJet