Investment Process

Overview

The investment process starts with identifying open source projects that meet our criteria for further research, where it undergoes comprehensive validation and ultimately to an investment decision. The goal is to determine whether we should invest in forming a company around a project and, if so, what the initial strategy should be.

Pipeline Stages Overview

Our research process consists of four stages:

1. Identification - Initial screening and qualification

2. Validation - Comprehensive market, competitive, and customer research

3. CTO Recruitment - Identifying and recruiting the technical founder

4. Investment Committee - Final review and investment decision

Research is documented in OCV’s Project Sourcing Template

Stage 1: Identification

Objective

Verify the project meets minimal open source qualifications and warrants further investigation.

Process

• Quick quantitative assessment of the open source project

• Projects with greater than or equal to 20 monthly merged pull requests or 5,000 stars with permissive licensing (MIT, Apache, BSD, etc.) will be considered for initial review. Exceptions can be made for exceptional projects.

• Initial feedback from GPs

• Team member assigns project to themselves internal CRM

• Research document created, complete part A, “Open Source Project Traction & Metrics”

Stage 2: Validation

Objective

Conduct comprehensive research to build an investment thesis that answers: Should OCV form a company around this project?

Validation process consists of six key research areas::

A. Market Research

Understand the market at three levels:

• TAM (Total Addressable Market): Ultimate indicator of potential big outcome

• SAM (Serviceable Addressable Market): What can be achieved short-term

• SOM (Serviceable Obtainable Market): What can be achieved medium-term

• Historical Outcomes: Review IPOs and fundraising activity to capital environment

B. Competitive Intelligence

Map the competitive landscape to identify where we can win:

• Open source and proprietary solutions in the space

• Market segments competitors cover (Enterprise, Mid-market, SMB)

• Primary buyers and users (CIO, VP Engineering, Developer, etc.)

• Competitor strengths and weaknesses

Critical: The combination of market research and competitive intelligence should clearly indicate which segments we can approach and whether they can support venture-scale returns.

C. Customer Research

Customer research guides initial product direction and develops an early wedge into the market by talking to real users. Focus areas:

• Buyer Pain Points: What problems exist and what's not working with current solutions?

• Selection Criteria: What drives buying decisions and what makes customers switch?

• Incumbent Strengths and Weaknesses: What do customers love and hate about existing solutions?

• Identify potential early adopters: Who can we partner with on day one to validate our wedge?

D. Initial Strategy

Synthesize all research into a coherent initial strategy:

• Target Customer Segment and ICP: Which specific segment to target first and why

• Initial Product Strategy: Define what the MVP looks like and wedge opportunities to test

• Early adopter Strategy: Define what usage looked like for early adopters

This strategy will evolve once the company is live but provides critical starting direction. Develop in collaboration with potential founders when possible.

G. Thesis Development

The investment thesis must provide clear, evidence-based answers to eight critical questions in part B of the research document:

1. Is the market reasonable to support a venture-scale outcome?

2. Is this a high-priority pain point for customers?

3. Have we identified gaps or weaknesses in the competitive landscape we can address?

4. Do we have an initial strategy for developing a wedge into this market?

5. Does this investment align with where capital is being deployed?

6. What are our risks?

The thesis should be evidence-based, clear about assumptions and uncertainties, honest about risks, and highlight a compelling opportunity.

Note: Each project should receive adequate attention. Having too many projects assigned in Validation to one person indicates insufficient bandwidth to properly advance them.

Stage 3: CTO Recruitment

Objective

Identify and recruit the founding team based on the validated opportunity and developed strategy.

Process

• Present opportunity to identified founder candidates

• Share product strategy and market research

• Assess interest, strategic thinking, and founder-market fit

• Collaborate with interested founders to refine strategy

• Build shared ownership of the thesis

• Document these conversation in the sourcing templates "Contributor Notes” section

Timeline Considerations

• May begin during late Validation stage when strong candidates are identified

• Time sensitivity matters: with validation complete, founder recruitment should not stall.

Stage 4: Investment Committee (IC)

Objective

Final review and decision on whether to invest in forming the company.

Structure

• Cadence: Monthly standing meeting

• Process: Simple majority required to pass, all investments require a vote

• Live Discussion: Reveals weaknesses, strengthens thinking, improves outcomes

IC Outcomes

Pass - Proceed to Company Formation

• Vote and date documented

• Begin company formation process and operational planning

Fail - Do Not Proceed

• Document reasons for rejection

• Capture stage at which project failed

• Apply "Revisit" tag if circumstances might change

Further Research

• Revisit research or validation

Documentation Standards

Research Documentation

Maintain the linked research document. This should be comprehensive enough for anyone to understand the opportunity and include all market research, competitive intelligence, customer research, investment thesis, founder assessments, product strategy, and risk assessment

CRM Tracking

All projects tracked in OCV’s internal project CRM within OCV Pulse with current stage, assigned team member, links to research documentation, and pass/fail decisions.

Key Principles

Quality of Research Drives Outcomes The depth and quality of research during Validation directly impacts company success.

Customer Research is the North Star When in doubt, talk to more potential customers. Their insights guide product direction, market positioning, and wedge strategy

Be Honest About Weaknesses Better to fail a project in research than after forming a company. If research reveals fatal flaws, acknowledge them clearly and move on to better opportunities.

Time Kills Deals Extended timeline can cause company sourcing to stall. Balance thoroughness with momentum.

Learn and Iterate Every project generates learnings. Continuously refine the process based on what we learn.