Unison Computing's seed funding and why our investors are special

Most investors aren't interested in funding innovative OSS

This is a hard truth. Companies like Unison Computing that are based around open source software usually form and raise money after the core technology has already been incubated elsewhere and reached some critical mass. In fact, many investors, even those comfortable with open source businesses, won't even take you seriously until somehow, miraculously, there's a popular open source technology for you to commercialize. But this typical approach of waiting for innovative OSS to be incubated by someone else has serious limitations:

• Technology that's incubated within a big company tends to be pretty conservative and related only to the immediate needs of the business. So Google funds open-source work on Go and Kubernetes, tech that lets them more efficiently do the things Google is already doing. More generally, big companies that can afford to fund this work often have different ideas about what's pressing and worth solving than the rest of us. Who will build the technology that empowers tiny teams to build "the next Google"?
• If the tech is incubated within academia, it is often is more innovative but undercapitalized. And incentives in academia prevent the necessary level of engineering polish, since the emphasis is more on proving concepts in peer-reviewed publications, rather than releasing a practical piece of technology.
• And if the tech is incubated by individuals working nights and weekends, it's also undercapitalized and hard to produce something of significant scope. This is roughly the position Unison was in before we raised money, and it became clear that Unison was a project that needed dedicated professionals working on it full time.

Rather than forming a commercial entity after the technology exists, it's possible to fund the creation of OSS by identifying a business model that fits the technology, raising initial funding from investors on this basis, and eventually supporting continued OSS development with the proceeds of the successful business. This was the idea behind Unison Computing: use the business side of the company to capitalize truly innovative work on better programming technology. (And to open source anything that's not our core business model.)

We adopted the structure of a public benefit corp to make it clear to everyone involved that we have a mission we care about and that we're not just building a soulless profit-maximizing machine. Though we had some concerns that investors might be frightened off by the benefit corp structure, so far it's turned out not to be an issue. One of our investors told us that anyone frightened off by the benefit corp structure is probably not an investor we'd want to have anyway. 😀

"Horse-betting" investors versus "gardener" investors

At the risk of oversimplifying, there are two kinds of investors: "horse-betting" investors and "gardener" investors.

The horse-betting investors tend to focus their energy on identifying companies that are obviously on a path to success. They treat their job a bit like betting on a horse race. Rather than helping to develop and train a winning horse and jockey, they instead show up with a check after it's more clear "we've got a winner on our hands". This mentality is incredibly common, even among early stage investors.

At first I found this surprising. Isn't the whole point of seed stage investing to provide capital and support to nascent ideas with big potential, before this is obvious to everyone? Isn't this the activity which is so inspiring and important about venture capital? You'd think so, but it isn't that simple. The horse-betting strategy of investing works, so plenty of people and firms employ it.

Why does it work though? It seems like a horse-betting VC is more of a commodity, at risk of competing with everybody else for the same obviously great startups and therefore not landing many deals, right? Not quite. Investors at every stage are competing with each other not just on the basis of how well they can evaluate startups; they also compete on deal-flow. Even if you are 10x worse at evaluating the potential of startups, if you are 10x better at finding out about startups and convincing them to take your money when you offer investment, you can still come out ahead and run a very profitable fund.

The most famous investors can get away with this strategy to an even greater extent. They tend to see more deals and their offers are accepted more often; if they want, they can "just" sit back and invest in the lowest-risk companies that already seem to be on the path to success. Name brand investors also tend to have stronger networks of connections (which is useful for startups) and more of a halo effect (your company can sound more legit if it's funded by some big names) which makes founders more inclined to accept their offers.

To be clear, not all big name firms and not all partners at these firms operate this way; it's more that they can employ this strategy more effectively. There's nothing wrong with the more conservative approach, but its pervasiveness even in early stage VC does mean it can be hard to find investors willing to take a chance on something as ambitious as Unison.

Another factor that can get in the way of making investments in companies like Unison is the tendency to focus on investments that are "easy to justify". Just like "No one ever got fired for buying IBM", no VC ever got fired for picking investments based on the same signals used by all the other VCs. This is why you see odd dynamics like ex-Google or ex-UnicornStartup™️ engineers getting piles of money for their startup, or chasing the latest hype train. No one would credibly argue that only ex-UnicornStartup™️ founders are qualified to be startup founders, nor would they claim that only startups in hyped markets can be successful. But it's easier to justify such investments and it brings less scrutiny even if these investments don't pan out.

All this is to say: it can be hard to find investors who are willing to invest in nascent ideas in less hyped markets before their potential is obvious.

Our investors are gardeners.

Our investors are special. I think of them a bit like gardeners. They looked at Unison in its early days or half-finished state, when it was at its most nascent and fragile, and they said, "It's worth planting these seeds and taking good care of them." They weren't horse-betting. They didn't assume the hard work was already done and they just had to pick the winner. They saw their role as helping to bring about a new thing in the world that would take years.

I want to thank them now. And, if you like Unison and what we've built so far, I hope you'll join me in expressing gratitude for their support. While I won't list everyone on our cap table, here are our current major investors:

• Good Growth Capital, in particular Maureen Boyce and Carolyne LaSala, who helped advise us before the company even had a business model. Y'all are amazing!
• Uncork Capital, in particular Andy McLoughlin. Andy is an all around good human, super supportive, and he also seems to know literally everybody.
• Amplify Partners, in particular Lenny Pruss, who took a leap of faith in leading our pre-seed round, back when Unison was just a science project. Thanks, Lenny!
• Bloomberg Beta, in particular James Cham, an incredibly thoughtful and kind person who is always pushing our thinking.

Thanks also to Bob Mason at Project 11 Ventures, Lime Street Ventures, and all our our angel investors and advisors.

Building Unison has been a long journey with a lot of twists and turns. Being on that journey with good and supportive people who believe in what we're doing has meant a lot to us. And it's not just about good vibes and support; our investors are incredibly helpful in practical ways, too. They make introductions. They give good and eminently reasonable advice. They help with "boring" but important questions on the mechanics of running a company ("how do we hire an employee not based in the US?" or "can you recommend a good accounting firm?"). In short, they provide a network of people and resources to "make Unison happen better."

Conclusion

It doesn't take a huge number of people to have a big impact in software. Even a small team like ours building on the right ideas can go a very long way. But seeing all this through requires time and money. Seeds must be planted, watered, and given sun and time to grow. Most early-stage investors will at least pay lip service to this "gardening" style of investing. They'll certainly talk about how they like to fund big new ideas and support their growth. But in practice, people like this are rare.

Though maybe they shouldn't be. 🌱

Thanks y'all. 💜

– Paul