
How we raised $3M for an open source project - illuminated
https://posthog.com/blog/raising-3m-for-os
======
malisper
For those not familiar with Posthog, it's open an open source product
analytics tool. That means you install some javascript on your website. It
then collects information on what features people are using on your website
and let's people run charts and graphs to ask questions about feature
engagement and product usage.

Product analytics is a pretty large space. The three main existing product
analytics tools are Mixpanel[0], Amplitude[1], and Heap[2] (I used to work at
Heap). Notably, Mixpanel was valued at $865MM as of 2014 and Amplitude was
valued at $1B as of two weeks ago.

Posthog is an open source competitor to these tools that you are able to self
host. This is interesting for several reasons. If you don't feel comfortable
sending data to third party tools, you control the data yourself. In addition,
existing product analytics tools can get expensive. After you get off the
public pricing, you will likely find yourself paying >$12k/year for one of
these tools.

There are also challenges I see for them going forward. In my experience, the
person who makes the decision to buy a product analytics tool isn't in
engineering. It's usually a product manager or sometimes a marketer. I imagine
the fact that it's open source is less interesting to one of the traditional
product analytics purchasers. Compare this to a company like Gitlab where the
end users are engineers.

Scaling these tools is also a huge challenge. My job at Heap was to basically
scale Heap. If you want to self-host a product analytics tool, you will
basically be responsible for scaling the system. On top of that, because each
Posthog instance is isolated from each other, Posthog won't be able to take
advantage of the shared compute power. Imagine a product analytics tool that
has 100 customers and 100 servers. If the compute power was shared, each query
would make use of all 100 servers. If the servers were isolated from each
other, each query would only be able to make use of 1 server. That's basically
a 100x slow down in performance. Posthog does sell a managed version which in
theory shouldn't have this problem. It will be interesting to see long term
whether that's a big driver of revenue for them.

[0] [https://mixpanel.com/](https://mixpanel.com/)

[1] [https://amplitude.com/](https://amplitude.com/)

[2] [https://heap.io/](https://heap.io/)

~~~
james_impliu
(I'm the person that wrote the article)

A few thoughts:

As you say, the thing that's really different about us is exactly that we are
focussed on engineers not PMs with our tool. PMs are of course welcome to use
it too, but it's a little more technical feeling.

We felt the people building the thing should have the context of usage data
and this shouldn't only sit in another team - which was a behavior we saw
happening quite frequently when we did user interviews early on.

We started with the fundamentals of product analytics with some features we
wanted ourselves but are now focussed on features that are much engineering
specific. For example, we are about to release (an optional) "inspect element"
for usage data:
[https://github.com/PostHog/posthog/issues/870](https://github.com/PostHog/posthog/issues/870),
so you can pop that up whilst working on localhost.

We had _no idea_ if that hypothesis was correct - that engineers would care.
We did a launch HN to find out and got quite a lot of good feedback and
growth.

Re scaling, you are spot on - this is definitely hard! We have users doing 5
million events/day on Heroku's cheapest standard tier dyno. We offer paid
support for people who need something higher volume still if it doesn't work
well out of the box. We're working on supporting databases other than Postgres
as people need them.

~~~
malisper
> We felt the people building the thing should have the context of usage data
> and this shouldn't only sit in another team - which was a behavior we saw
> happening quite frequently when we did user interviews early on.

What is preventing the engineers from getting access to that data? Existing
product analytics tools usually don't charge by seats, so if they wanted to
look at the data, they should be able to get access to Mixpanel, Amplitude,
etc.

Compare that to Posthog's pricing of $25/user/month which incentives you to
minimize the number of people at your company that have access to Posthog.

> We had no idea if that hypothesis was correct - that engineers would care.
> We did a launch HN to find out and got quite a lot of good feedback and
> growth.

Heap also found a lot of success on HN when they launched:
[https://news.ycombinator.com/item?id=5424206](https://news.ycombinator.com/item?id=5424206).
While there was a lot of excitement early on, the kind of crowd it attracted
wasn't a good demographic to sell to long term.

> We have users doing 5 million events/day on Heroku's cheapest standard tier
> dyno.

The challenge isn't ingesting the data. Especially with an analytics tool
where you can turn off synchronous_commit so ingesting an event doesn't
require writing to disk. The bigger challenge is around processing queries
that span years of data. Queries get proportionality slower the more data
you've collected. A query over 12 months of data is going to be 4x slower than
a query over 3 months.

~~~
hitekker
> Heap also found a lot of success on HN when they launched:
> [https://news.ycombinator.com/item?id=5424206](https://news.ycombinator.com/item?id=5424206).
> While there was a lot of excitement early on, the kind of crowd it attracted
> wasn't a good demographic to sell to long term.

I hope posthog's founders heed this crucial implication: the paying customer
for analytics are analysts, not engineers.

Analysts want analytics that work. Engineers want analytics to go away. An
analyst wants to augment their data analysis, in order to produce more
conclusions or support more decisions for the decision makers they report to.
An engineer wants to focus on building technically challenging, long-lived
systems, not on churning out short-lived weapons in the justification-
explanation wars waged between Data Science, Business Intelligence, Product
Management and the C-Suite.

To use a market analogy, the engineer-as-a-customer will pay on cost, not
value. Analytics are necessary but secondary to their day-to-day work: for
most, it's just a one-line telemetry SDK logging call. If an engineer builds a
feature doesn't lead to an uptick in a business metric, that engineer can
shift to another org with little fuss. The analyst, on the other hand, is tied
to proving the performance of their feature or subject-of-analysis. The longer
an analyst has to wait for engineering to build a tool to analyze (sell) a
feature, the riskier their position is in the company. Analysts like Product
Managers or embedded Data Scientists or BI experts, will accordingly pay a
value-based price for analytics. They need it for their jobs.

Posthog will likely work for companies where engineers are also analysts. But
in larger companies where the roles are more clearly divided, I forsee
posthog's current focus leading them astray.

------
d0m
>> By hosted, we mean charging customers for the hosted version of the open
source product. The risk is that a cloud provider decides to compete with your
hosted version.

An interesting approach is what cockroachdb did, which basically forbid this
very specific use case, and is otherwise standard open-source.

~~~
koolba
> An interesting approach is what cockroachdb did, which basically forbid this
> very specific use case, and is otherwise standard open-source.

I have no qualms with what they’ve done. It’s their intellectual property and
they can do as they see fit. But it’s not open source. There’s plenty of
proprietary software that also provides the source code (generally without
support).

Maybe we need to settle on a new term like “source available”. Or “source
provided”. But it’s not open source.

To quote Arthur Dent, it’s almost, but not entirely unlike, closed sourced.

~~~
Retric
If you can host it on your own systems for free and edit the source code it’s
more open than an open source software encumbered by patents.

Really I think we just need a new terms like unencumbered software (do
anything), open license software (give credit and include source code),
trapped software (beware patent minefield or infections nature), etc. Because
frankly people toss around incompatible definitions of open source all the
time.

~~~
mikekchar
At the risk of being cynical, I don't think it was common to toss around
incompatible definitions of open source until very recently. There seems to
have been a considerable push by a number of people to dilute the meaning of
open source -- in my tin-foil-hat opinion with the intent of destroying the
community behind it. Free and open source software has weathered these kinds
of attacks many times before and it certainly looks very similar to the kinds
of things I've seen before.

I think it's a matter of people with vested interests throwing spaghetti
against the wall until something sticks. We've often seen cries of "But how
will programmers get paid if everything is free?", and "You don't need to
modify the code as long as you can see it", and "Free and open source software
is incompatible with commercial endeavours". What's new now is, "If you go
with a free or open source piece of software, you are playing into the hands
of the likes of Google who will gobble you up". This approach has be
demonstrably far more successful than others.

From the perspective of someone who values free (as in freedom) software, I'm
wary of diluting the brand of both free software and open source software. I
think it only really serves the interests of people who do not value free and
open source software. Given that the OSI actually has a _trademark_ for open
source, I hope they enforce it. I'm worried they don't have the resources to
do so, though.

~~~
nindalf
> There seems to have been a considerable push by a number of people to dilute
> the meaning of open source -- in my tin-foil-hat opinion with the intent of
> destroying the community behind it.

A cynic always looks cleverer than someone who takes people at their word. I
prefer to do the latter even if I look stupid.

Companies like CockroachDB and Sentry invest years of work and millions of
dollars making useful products. A concern they have is that someone swoops in
just as they find product market fit and hosts a version of their own. If
AWS/Azure/GCP offer hosted CockroachDB, fewer people will pay Cockroach for
their product. It’s as simple as that.

At the same time these companies also want to make sure that firms have the
option of self hosting. If you’re too small to be able to afford it, self
host. If you’re large and need to be on prem for regulatory reasons, self
host. If you want to make a custom fork, go right ahead. If you want to
upstream any changes, you can also do that. Customers have options! The only
companies left out in the cold are AWS/Azure/GCP.

This seems like a reasonable compromise to me. I’d rather these companies
stayed in business and continued innovating rather than being put out of
business by the big boys.

When they say this is their reason for going with a different license, I
believe them. I don’t come up with conspiracy theories that they’re
maliciously trying to harm something I love. Even if I was prone to conspiracy
theories, I’d at least come up with a mechanism for _how_ the movement would
be harmed. I wouldn’t just fling a serious accusation at people who are
working hard just for the sake of farming upvotes

~~~
kiba
_When they say this is their reason for going with a different license, I
believe them. I don’t come up with conspiracy theories that they’re
maliciously trying to harm something I love. Even if I was prone to conspiracy
theories, I’d at least come up with a mechanism for _how_ the movement would
be harmed. I wouldn’t just fling a serious accusation at people who are
working hard just for the sake of farming upvotes_

Look, free software and open source have a certain tradeoff and definition. If
you don't like it, don't use the license and don't call your products open or
free software.

~~~
nindalf
I specifically referred to Sentry and CockroachDB in my comment

> This means that CockroachDB core is no longer Open Source (according to
> OSI’s Open Source Definition), although the complete source code is still
> available, and any commercial usage is allowed with the one exception of
> building a DBaaS

[https://www.cockroachlabs.com/blog/oss-relicensing-
cockroach...](https://www.cockroachlabs.com/blog/oss-relicensing-cockroachdb/)

> Although we’ve come to refer to the BSL as eventually open-source since it
> converts to an OSI-approved license at the conversion date, due to the grant
> restriction, it is formally not an open-source license.

[https://blog.sentry.io/2019/11/06/relicensing-
sentry](https://blog.sentry.io/2019/11/06/relicensing-sentry)

Does that satisfy you?

------
brainless
First of all congratulations on this. It is nice to see Open Source being on
the table for VCs. I am not sure how it pans out from a business point of view
though.

If you truly want a product built with the community then you might lose some
control - or give control to the community, at least voting. Unless you want
a* "source available" type of thing. Open Source is ideology and tool.

The less control might mean that you prioritize what is good for the
community, not necessarily for your VCs. I started working full time on an
open source product, which like PostHog, I feel is going to be core
infrastructure to any business that runs on data/software.

I want to build a sustainable business around it. I have enough money in bank
to sustain product building and marketing with my cheap living costs and get
traction. Once there, I will have to think of next steps, but I do not feel I
want to get into accelerated growth that comes with VC money. Mentors are
highly appreciated though.

*Edited typos.

------
treelovinhippie
>> "Going for VC means you are committing to an exit or a failure - you can't
really change your mind later that you want to take things more steadily"

Exactly. And that is a huge reason NOT to use VC-funded opensource.

~~~
cercatrova
Not exactly, you can still back out by not raising future rounds, or buying
back their shares, as Gumroad did.

~~~
treelovinhippie
It's too late. The intent has been signaled. PostHog is leveraging the
goodwill of the "opensource" meme for personal profit-seeking. Their intention
is literally to sell this analytics product to a Google/Amazon/Microsoft.

If you're going to raise VC with the intent to sell, why even bother going
opensource other than to manipulate a percentage of developers who will
convert on the basis of "opensource = good".

~~~
satvikpendem
What's wrong with being open source but also for profit? I'd rather they be
open source, make money and be sustainable than be closed source. At least
this way I know I can continue using it if any unwanted changes are made,
perhaps via someone forking it, and also continue to self host it.

~~~
lmeyerov
Early-stage VC-funded isn't the opposite of sustainable, but it's close.

The intent is (generally) to overshoot by mythical-man-month'ing for ~1yr, and
on failure, firesale/acquihire to a likely inherently sociopathic bigco, vs
keep going. Ex: When hiring folks, you're pitching a fat VC-dependent salary
and promise of IPO-or-sale, and as that pressure increases & expectation
solidifies, if revenue doesn't grow artificial growth levels (2-4X YoY for 3-5
years straight), you're now facing layoffs + non-giant compensation. Morale
plummets, senior staff disappears, etc. Founders will feel the same. There are
additional inherent reasons why this is the default, such as a now-broken cap
table.

I'm for it and wish them luck, but it's asking for an internal + external
disaster to delude yourself, team, and users relying on you about such a
fundamental assumption.

(It's a very different story if there's already a popular federated OSS
project _not_ reliant on the founders+VCs lucking into reliable recurring
revenue, and hey, the startup may be the lucky 1%.)

~~~
satvikpendem
Sure, it might be better to bootstrap their product then rather than taking VC
(which I know is the point of the article but I digress). Actual revenue will
validate whether their product can work or not, and VC can definitely obscure
this validation.

~~~
lmeyerov
Sounds like I was unclear.

VC-funded is a structurally and historically bad path to sustainability.

Picking an unsustainable path is OK! People can now have a high salary while
working at a risky business operations venture! It's easier to hire better
people! I do deep tech, and VC-funded is almost necessary there. VC requires
the product to not be good, but so crazy good that you can raise $3M -> $10M
-> $20M over 4-5yrs... or close shop. Which is OK!

My caution is for founders to setup up employees & users with misleading
expectations as you're getting out the gate: Messaging sustainability when you
just lit a timebomb. This particular topic can lead to all sorts of heartache
for your team & users as reality hits, and sets up a bad cultural precedent
for future ones.

------
nednar
regarding this "you want to seem like you're having your ____* together ":

My experience is this is bad advise. There are people who care a lot about
this appearance stuff and people with skills, in any role, even as pure
investors. You don't want to work with the appearance people because even the
you-can-trust-them part often is just appearance. And the people with actual
skills don't give a shit if you sit there with a 4k camera and a straight
shirt or in your undergarments and a 3-day beard. They care about if you can
deliver something useful, if you can stick to your goals+principles in tough
times, and if your goals align with them well enough that they can believe you
stay on board until they made their profit.

So not being well prepared for the video call part is actually not a minus
point. It might even be a plus.

Kudos for the fundraiser. Keep posting, you guys are interesting!

------
peteforde
I hope that they can put some of this funding to work by hiring a copywriter,
as it's impossible to figure out what this software does from reading the
homepage.

~~~
warent
It says "Open source product analytics" front and center, and then it goes on
to elaborate. I grant you that there are features in the screenshot which are
not clearly described in the homepage, but it's hyperbole to say it's
impossible to figure out what this does from reading the homepage.

~~~
peteforde
It's not hyperbole in the slightest.

"Understand your users." So like, translation? People with accessibility
issues?

"Build a better product." But you don't know what my product is, and I still
don't know if you can help me achieve that goal because a service for everyone
is a service for nobody.

"Join 1000 companies" Is 1000 a lot? It is if they are fortune 5000 companies,
but not a lot if it's Shopify dropshippers or people selling Amway. If you
name names, I can quickly decide if I belong in this group.

"Try hosted or self-managed" I still don't know what you're trying to pitch
me, so how can I possibly know what to click on?

"Open source product analytics" \- wait, are you an open source analytics
tools, or an analytics tool for my open source product?

"Understand users and events" So it can tell me how my churn will be impacted
by COVID-19 and who is in need of special attention during the Black Lives
Matter protests?

I could go on and on, and no - I'm not being difficult or contrarian... they
have one opportunity to convince me that I'm in the right place and they have
what I need. They don't make any kind of attempt to compare or contrast what
they are offering to current products I'm likely already using or existing
behaviours that I'll be able to change.

The whole thing basically screams "if you're here, you already know what this
is". That's a missed opportunity and it's what inspired me to post.

------
gavinray
Really great to see they've raised money.

I wished the founders best of luck and have been watching from the sidelines
since their launch thread here, super solid product.

------
cosmodisk
Others covered a lot of aspects already,so I'll just add this: We are seeing
the same story again and again.A few Europeans go to the US,pitch, and get
funded. I can't imagine raising $3M+ on this side of the pond after only a few
months of starting and without having some very good connections.

~~~
billme
Raising VC funds outside of greater Bay Area is not only harder, but generally
per equity traded, you get less in return. Generally, these cluster investors
cluster around an asset-type, industry, jurisdiction, and proximity.

Bay Area startups raised roughly $46 billion in 2019, compared to Europe in
sum raising $36 billion; if you’re raising more than $10 million, not
attempting to raise funds in the Bay Area is likely poor choice.

------
gorkemcetin
Congrats guys. It is always great to see other players bringing open source
approach to product analytics. This will only bring more competition hence
better products. (PS: I am one of the cofounders of Countly).

------
jonluca
Been following PostHog along for a while and am super glad to see this!
Congratulations and excited to see what happens in the future. Love this
model!

------
tti
Open source > SaaS is a hot take.

~~~
satvikpendem
You can have an open source SaaS, they're not mutually exclusive.

~~~
brainless
Well it complicates the business model a bit. I am working full time on an
open source data/content management product. I know my reasons to do it this
way, but I also want to build a sustainable business around it. That is
something I need to figure out.

------
soumyadeb
Congrats guys. Great progress in a very short time!!

We @RudderStack also raised a round recently. Glad to see investors putting
money in Open-Source projects.

------
mrwnmonm
Congrats

