 Welcome to theCUBE's coverage of KubeCon EU 2024, live from Paris, France. Join hosts Savannah Peterson, Dustin Kirkland, and Rob Stratche, as they interview some of the brightest minds in cloud-native computing. Coverage of KubeCon cloud-native con is brought to you by Red Hat, CNCF, and its ecosystem partners. The CUBE's coverage of KubeCon EU 2024 begins right now. We're a new and open-source community and welcome back to Paris. We're here at KubeCon cloud-native con all week streaming live for theCUBE. My name's Savannah Peterson, joined by my fabulous co-host Rob Stratche. Rob, we're fucking killing it right now. This is great, we're in a groove. This is, and we got so many interesting guests coming on today that it's just, it's not even like work. Really, I know, and that's why I'm super excited. You were hanging out with her last night, little jelly. Welcome, Megan, to our stage. Hi. Thank you for being here, Megan. Hi. Thank you for having me. You're just radiating. How is the show treating you? Yeah, it's, well, it's been, we've not had much of it yet, but so far it's been going well, been enjoying it. Was at the startup fest yesterday. Yeah, how is that? Feeling all the energy. It was really wonderful, actually. I wasn't sure what to expect given where the markets have been, but the energy in that room, my God, the questions, like it felt like a lot of people were really starting to start up new companies. I was gonna say, you were on stage with Kelsey at it. I was, yeah. I had just missed it when I got there right after, but I know, I know. But I got to catch up with you last night and it was a good community of Vertexes and your compadre. I can't remember that. Crane. Yes, had a number of your startups that were here and we've talked to them and we have one on later today. And I think, again, it's just the energy last night and the energy in that room was just amazing. What were some of the interesting questions that you think you got yesterday? I think it was just a lot of engagement with the foundations of how to build an open source company. The talk was all about how do you build an open source business model? How do you convert your community into a business? Yeah. And so just a lot of more practical questions about I'm going through this right now and these are the three questions I have. Like how do I get started? How do I find enterprise customers as well? So just felt like people are really in the motions of starting businesses, which is great to hear. It is definitely an exciting time. We had a guest say something really interesting today that stuck with me, that open source is good at projects, but not products. Now obviously as an investor, you're looking for companies with multiple product offerings. How do you evaluate investing in the open source space? It's really tricky in making that jump from project to product is really hard. And I'd say, how do we evaluate any company? It's really about, is this team uniquely solving a defined problem for a defined user? And that's the foundations of any seed investing. And then it's on us as investors to figure out, is it a valuable problem? And are there enough users to make that a big company? And then for open source companies, the challenge really is the burden of proof comes much earlier. And so you still need to prove, is this a valuable problem for a user? But at the same time, you also have to prove, is this a valuable problem for a developer? Are they reaching for your project? So you're really building two businesses at the same time. That's a really hard thing to do. And I think a lot of companies get very wrapped up in that building for a developer and they don't think about that, what is the problem for a business? I think that's where that transition is really hard because you do have to do those two things at the same time. Yeah, I would agree. I think from having been at Amazon myself and understanding that Amazon was built for developers, only had APIs. And then you go and look at people complain all the time about the user interface and the console. And I think taking that step back and looking at that, I think, again, it's how do you go and make sure that you've built enough value on top of that open source as well. And is that, when you're counseling these companies as they come through and get invested, is that really what you're counseling them on is, hey, build the value around the open source, you're an open source company, but really what you're selling is this. Next, that's not a sidecar, it's part of the product. This is actually the core, but hey, that's what you're looking to do. Absolutely. So as a fund, we're specialists investing in infrastructure only. And so this is a problem for a lot of our companies that serve technical users. And the way that we work as a fund is supporting companies on building out the go-to-market. And so this is the exact thing that we work on our companies with. And I'd say about 30% of our portfolio is represented here at KubeCon. And so there's a lot of companies building open source and cloud-native. Yeah, we have a lot of representation. Maybe a couple of examples. Like Hasura, for example, building a GraphQL engine, had amazing developer adoption. I think they have something like a billion users today, or like a billion deployments with Hasura open source. And so the work for them has been really figuring out, okay, what is the team value? How do we tap into an enterprise's API strategy? It's kind of the thing that they've crystallized in. They need to capture that API strategy for a VP engineering. And then similarly a company called Orcaz that's built on an open source project called Conductor that spun out of Netflix. It's a workflow engine, microservices orchestration. And for them, it's really about tapping into, what is the team problem? Because microservices is a team support, and you can't just have a single player. And so it's really about capturing that team and different use cases within an organization. So those are kind of the things that we work on with our portfolio companies. So you've got 30% of your portfolio here, which is amazing. I mean, we obviously love this event as well. Shows that you're clearly investing a lot in cloud-native companies. The funding ecosystem right now is a little funky to put it lightly. What's your advice for companies watching right now who are seeking investment from venture like you? Yeah, for sure. I think it's a really tough market. And it's tough for a number of reasons, maybe just covering that first. I think like, you know, evaluations have come down dramatically. And so the reason a lot of companies are struggling to raise is they're kind of caught in this tough spot, especially for, it's gritty, especially for if you're an infrastructure company, infrastructure software company in the cloud-native space or building something open source. A lot of those companies raised a very high premium over the last few years. A lot of companies are very highly valued. And so for them, you know, now in an environment where evaluations are coming down to like 10 or 12x revenue even at series A, it's a really harsh adjustment. And so that's a challenge. And I think, you know, for companies just going through that, I think it's tough. I think you just have to prove more earlier and you have to show efficiency. And so for open source businesses, it's just really showing like, how do you build that commercial engine? How do you show the proof that that engine is starting to work? And there's kind of no shortcuts either at all. Either you can get it working or you can't and it's a really tough environment. Do you think it's tougher with the open source companies than it is for companies that are, you know, private, no, not private, but licensed non-open source, close source type companies? It's a tough question because I guess it kind of depends but if you're an open source company that can cross over that having a strong community and showing community growth and showing that you have a strong business, to be honest, some of those companies will still raise at the multiples and the valuations that we were seeing in the last few years. And so if you're a company that can do that in the open source space, like, it's very valuable. Whereas if you can't show that, it's almost impossible to raise. And so we're really seeing this kind of game of haves and have nots. And it's a really tough, yeah, it's a tough environment. It's interesting because, I mean, the whole show is a lot about community and in the open source community, you need, and in these open source businesses, community is at the core. Curious for you just personally, when you're evaluating, when you're weighing these two sides, right, the business solution as well as the community, how much do those metrics matter to you when you see the volume of community? Is that a pretty heavy factor in your check cutting? For sure, for sure. I think like if you're looking at two similar companies and one of them has a wild developer adoption, developers really love the product and you're seeing usage engagement, all of those metrics ticking up, that compared to a company that maybe has figured out the valuable enterprise problem, but doesn't have that developer adoption. The challenge you have there as you grow the company is that you end up in a situation where maybe you'll sell contracts, but then if you try, you then look at engagement metrics after you've sold that contract. And if those engagement metrics don't go up and developers don't reach for your tool, that contract's going to churn. And so that's the thing that we're trying to balance is if you're a tool for developers, even if it's someone else buying it, you still need that adoption, you still need that love. And so that's a really hard thing to balance, but you do need both. You can build it, but if they don't come, it doesn't matter. You can sell it. You can sell it and if they don't come, contract won't last long, you know? So that's what we look for. More of the series A stage, like is there a good user adoption? Is it when you close an account, is product engagement good? Something that I really don't think enough founders and companies think about is once I've sold my product or once it's implemented, are people still using it and then does it become mission critical to where we'd never want to let it go? Which is actually what you're trying to solve for and not just empowering your VP of sales. So when we were in Amsterdam last year, the talk tracks had all closed before chatGPT came out. So AI was like this funny, low key, beyond the elephant in the room. I mean, it was definitely a big topic. I'm curious how you see AI and open source from an investment perspective. Yeah, it's a big question. Maybe I could spell it in a few segments of what we're watching. So I think like the first, so there's three things I'd say, like AI for developers, you have the changes in data infrastructure and data streaming. And then you have like observability. And those are the three of the queries we're looking at. And so maybe starting on AI for developers, speaking to engineering leaders and like senior people with large engineering orgs in the enterprise, the thing that they are now conscious of with automated code is how do I keep control of my software development life cycle? Now that I have humans developing and I have AI theoretically starting to build right code. And so in that space, companies like Gitpod, which is a portfolio company of ours, they have software for kind of developer environments in the cloud. And so for them, this is a big tailwind because it gives enterprise engineering leaders that control over the life cycle, whether it's a human or whether it's AI developing, you can still control that development point and so that's a space we're watching. The second is data infrastructure. Workloads are getting more complex. As engineering orgs start to build more complex AI driven applications, especially where there's kind of a responsive element. So applications are becoming responsive. You need that two-way dialogue and to build applications with that kind of streaming infrastructure right now there's no good tooling for developers. For developers to build that you need data engineers involved. And so that's a space we're watching and there's companies like Warp Stream making that process very efficient, the more low cost. And yeah, a number of different companies doing that. We also have observability. So they're having the same challenges like as you have like, as an organization is processing 10 times more events with all of this data for AI to debug and observe those systems becomes way more complex. And you fast, you kind of, you project data dogs pricing model onto that new system where you have 10 times, you know, maybe an order. Agment or event. I was just going to say that. I know. And it really is like, if you show them that and so something's going to break there. And so we're watching that space closely with companies like Axiom who have kind of rebuilt the data store to make that much more cost efficient. And companies like Deductive which is a new company really thinking about root cause analysis using AI. And so those are kind of the spaces that we're watching very closely and the kind of companies that we're excited about. Are you hoping to make some investments with other companies that aren't already in your portfolio here? Yeah, I'd say most of those companies are just mentioned on our portfolio. So I'll definitely be sending them this. But yeah, I hope so. That's why we're here. That's why we're here. It would seem like just being in the startup track for a little bit yesterday that they're trying to bring a little bit more business in. And I thought it was interesting in the keynote this morning, they went, they were, it was very just out there in the open that they pushed on Apache 2 licensing. And I know licensing's not your gig but it was very funny because they went hard on Apache 2 and MIT licenses. Being a little bit of a licensing geek. And I look at that and I go, okay, well those two licenses allow you to basically anybody can take it. Anybody can do stuff. There's no contribution back per se. And you get into a thing. How many conversations do you have to have with the companies you invest in about what percentage do they develop versus what percentage does the actual community develop? And what do you think is a good balance between those? It's a killer question. And I think it's something all like kind of seed series A early stage open source companies struggle with is how do you drive, how do you drive your own product roadmap internally? And how do you drive an external product roadmap with contributions from the community? And I think balancing that and keeping the incentive side is really, really hard. I can't say I have a silver bullet for that but it is important. I think with all open source companies it's just communication. How do you openly communicate with your community? How do you set the direction, set the vision? As you would internally with a product roadmap you really have to set that even more strangely, even more over communicating what that roadmap is externally because it's important to have external contributions. So what's the point in doing open source if you're not trying to get those contributions and so it's hard to manage but it's important to manage it. It's interesting because I was talking about it our keynote wrap up or keynote. Analysis. Analysis, not wrap up, we're not there yet. We got a ways to go but that there's 114 sandbox projects in the CNCF. Now, obviously they can't go through them all in the keynote but some of those are already in production. Some of them have big communities, some of them have small communities. I looked at it and I said that it was very amusing if a company called themselves an open source company but 95% or greater of the code was coming from internal. To me, are you an open source company or are you doing a freemium product? When you're looking at the projects and where they are in their stages does that factor in like if they're sandbox versus incubated or what have you within the CNCF? It's a good question and I think it's something we're always aware of and where that relationship is within the CNCF and I guess more specifically how they're using that relationship strategically. I guess that bringing value to the company, are they getting access to more customers through that and usually the answer is yes which is why we're so present here and our companies are so present here. So I think that's the important thing. Yeah, I think it's always an assessment. I don't think it would necessarily dictate our investment decision if it was or wasn't but I think it always has an impact. Yeah, I mean it makes sense and especially getting to see all these different projects. Is there, so taking off your VC hat for a second. Okay, I'm sorry. Yeah, I mean I can imagine this tricky but just thinking from a personal lens are there any projects or even an application of AI that has you personally very excited? Good question. I mean like the core thing and I kind of mentioned earlier is really just like what does the role of the developer become with AI? I guess where everything is kind of shooting towards right now is like AI tooling for developers. So for developers to write software more efficiently. But I guess like one of the big questions and something we talk about a lot internally is like are the developers going to be the owners of their own automation? Or actually is it, you know, does someone else own that automation? Is it end-to-end app building? And so I don't have any answers on that but it's something that like kind of sci-fi-wise is very exciting to think about. Like you know, what does even application building look like in the next six years, let alone the next like 10, 20 years? Things are going to change a lot. A lot, yes. I love that perspective. All right, we could talk about this all day. I've got one more question for you. Okay, okay. And I like this because you touch a lot of different companies and industries through that. What do you hope you can say next time we have you on the show at KubeCon that you can't yet say today? Along what kind of lines? Like what kind of? Like, hey, the market's going back 40% of our companies are here and stuff like that, you know. Could be anything. Could be anything. You know, I think Mr. Prediction. We're starting to get inklings that budgets are coming back online. But you know, I don't think there's any definitive data that shows that yet. And so, you know, this time next year whenever I'm allowed back on the show, you know, I think it's really like, you know, enterprise spending is at an all-time high. You know, we've realized the value and importance of AI. We actually understand how to build those applications now and that's having, you know, tailwind effects across all of like cloud-native infrastructure. I think that would be something I'd love to be able to say because that would be a real tailwind for a lot of our companies that we have now and we will continue to invest in. Well, it's interesting. We do, we have a partnership with ETR and actually looking at the spending intentions data. We do see it coming back in the, towards the tail end of the year. Right now, they're looking a little bit of a lull in the second quarter, third quarter up a little bit. Fourth quarter seems to be, people are a little more bullish on the fourth quarter but we'll see, we're all hoping for that. Yeah, I hope so, yeah, I hope so. Well, I think we all know everyone's going to invest in AI anyway and hopefully an open source is definitely going to be a big part of that. Megan, thank you so much for being here on this show. Really cherished insights. We will allow you on any time for the record. All right, that is. Yes, don't worry about that. Rob, always a pleasure. We're not even working today. We're just hanging out. Just hanging out. Rob and Sabi's bar, I love it. It's a great time, it's a great time and thank all of you for tuning in as always. We are here at KubeCon, CloudNativeCon, CNCF's flagship European event in beautiful Paris, France. My name's Savannah Peterson. You're watching theCUBE, the leading source for enterprise tech news.