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Oct 1, 2025
How do developer tools startups monetize an open-source project? Compare open core, managed cloud, support, and licensing models with Konvoy.
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Everyone wants an open-code business these days. But how do developer tools startups monetize an open-source project without alienating developers?
Below we’ll explain it in detail.
Konvoy's newsletter Open Source: Brace for Impact points out that around 90% of organisations use open source software and the cost of that dependency is going up.
That dependency is what gives rise to the willingness to pay.
The same thing is happening in gaming with AI and open source driving the great unbundling of game engines.
They keep the code free and take companies paying for what they need at scale (hosted infrastructure, enterprise controls and reliability).
The open source project is the driver of adoption and the commercial layer is the business.
Here's the root of this model.
The core is free, the team/enterprise features (SSO, role based access, activity logs, advanced security etc) are the paid ones. GitLab is the textbook example.
The rule is gate features by buyer not by developer. The individual engineer gets everything they need, the managers and execs pay for governance.
That governance layer is what drives the majority of enterprise technology spend.
The company runs the project for the customers and charges on a per usage or per seat basis.
MongoDB Atlas and Elastic Cloud are both following that playbook.
They require SRE and billing investment but they scale the best and generate the kind of recurring revenue that investors like.
Here the product is the guarantee: SLAs, security patches and long term support.
Red Hat proved this at scale. As Konvoy covered the Red Hat, Open Source and the Future story,
Red Hat was at $3.2bn in annual revenue prior to IBM's $34bn acquisition of the company.
Copyleft for the community, a commercial license for companies who are going to embed the code in their proprietary products.
Some of the vendors (MongoDB, HashiCorp for example) have moved to source-available licenses in order to stop the cloud providers from re-selling their work.
License changes can of course lead to forks and community backlash.
The vast majority of successful commercial open source companies end up stacking models (open core plus a cloud offering).
Konvoy's guidance on how to raise capital for developer tools and open source infrastructure and for a B2B software engineering platform all go into the type of adoption proof that investors will expect.
Developer tools startups make money on an open source project by keeping adoption free and charging for scale, control and reliability via open core, managed cloud, enterprise support and licensing.
The best of the lot will match the model to the buyer, track adoption at the company level and protect the community.
Konvoy is backing the founders of these businesses via its Developer Tools & Infrastructure focus.
Have a look at Konvoy's investment theses to see where it's deploying capital.
They leave the core free and functional, charge you for the enterprise bits (SSO, compliance, hosting, SLAs etc) and are very open about what they're doing and what changes they're making.
Typically a cloud and/or open core model as those both generate scalable, recurring revenue. Service based models will tend to have lower margins. For how those expectations change by round see Konvoy's guide to the stages of VC.
When it's companies rather than individuals that are running it in production and starting to ask for enterprise features and support.
Konvoy is a thesis-driven venture capital firm that invests in developer tools and infrastructure, from version control to code-based hardware design. Read why Konvoy invested in Diversion to see what it looks for in developer-first founders.
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