The Underdog Wins Big: Why Open-Source Software Is Outperforming in Valuation and Exits

Because the numbers aren’t just promising—they’re conclusive.

For years, open-source software (OSS) has been seen as a powerful model for community-driven innovation. But a recent study by Serena Capital now shows that the open-source advantage isn’t just technical or cultural—it’s financial. After analyzing over 1,500 tech companies across Europe and the U.S., Serena’s data confirms that Commercial Open-Source Software (COSS) companies outperform their proprietary counterparts across three key M&A dimensions: speed to funding, median valuation, and success at exit.

And the margins are not small.

By the numbers

IPO median valuations are drastically higher for COSS companies:

• COSS: $1.3 billion
• Proprietary software: $171 million

That’s a nearly 8x difference in value at the moment a company goes public.

M&A median valuations tell a similar story:

• COSS: $482 million
• Proprietary: $34 million

And when it comes to reaching Series A funding, open-source startups get there 25% faster.

These aren’t isolated anomalies—they reflect a consistent trend: open-source companies don’t just grow fast, they exit big.

Why is this happening?

Three major drivers explain the financial outperformance of open-source models:

1. Lower Customer Acquisition Cost (CAC): Open-source projects often begin as community-driven initiatives. Developers use them, share them, and improve them—without any sales team involved. This organic growth means companies don’t have to spend heavily on marketing or sales early on. Instead, they can focus on refining the product and building loyalty.
2. High Developer Trust and Adoption: In today’s software landscape, trust is everything—and developers trust what they can see. Open-source projects invite scrutiny and collaboration. Unlike black-box proprietary software, open source offers transparency, adaptability, and the ability to self-diagnose problems. This earns early and lasting adoption, especially in infrastructure, dev tools, and security.
3. Freemium-to-Enterprise Flywheels: Many COSS companies operate with a freemium model: a free, open-source core complemented by paid enterprise features. This model enables wide distribution and product validation before monetization kicks in. When it works, the transition from free users to paying customers is both scalable and capital-efficient.

Together, these three ingredients make for companies that are capital-light, growth-ready, and highly attractive to both acquirers and investors.

What does this mean for founders and investors?

It’s time to stop seeing open source as a niche or altruistic corner of the tech industry. The numbers prove it’s a mainstream—and arguably superior—path to scale and return. In fact, many of the highest-profile exits of the past decade came from COSS players: Red Hat ($34B), GitHub ($7.5B), Elastic, HashiCorp, GitLab—the list keeps growing.

What’s changed is that VCs and corporate acquirers are now expecting open-source DNA in the next wave of breakout startups. And that shift is fueling a new generation of builders who begin with openness and transparency as first principles—not afterthoughts.

For M&A professionals, this trend also points to a need for updated valuation models. Traditional metrics like license revenue may fail to capture the embedded value of a vibrant developer community or an ecosystem of integrations. A COSS company’s GitHub stars, pull requests, or plugin ecosystem can often be better predictors of long-term strategic value than its ARR alone.

Takeaway

Open source is no longer the underdog—it’s the blueprint.

If you're a founder, the message is clear: building in public and with community creates not only better software, but better business outcomes. If you're an investor or acquirer, it's time to update your playbook—because the best deals are increasingly coming from GitHub, not Gartner.

Note: The preceding text is provided for informational purposes only and does not constitute legal nor business advice. The views expressed in the text are solely those of the writer and do not necessarily represent the views of any organization or entity.

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