Open-source startups are booming—but most of the money is flowing west. A new report from French VC firm Serena highlights a stark reality: despite a surge in investment, Europe’s commercial open-source software (COSS) companies are still playing catch-up with their US counterparts.

The numbers tell the story. In 2023, COSS startups raised a staggering $26.4 billion globally, nearly 5% of all VC software investments. That’s a dramatic rise from the $9 billion annual average between 2019 and 2024. But a huge chunk of that capital—especially mega-rounds like Databricks’ $10 billion Series J—stayed in the US. Serena’s research, which analysed 850 VC-backed COSS firms from 2000 to 2024, found that 65% of these companies are headquartered in the US, while just 25% are in Europe. Given that Europe accounts for 20% of the broader software sector, its share of the COSS market remains disproportionately small.

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The Business Of Free Code

Open-source software, by definition, is free. That’s both its strength and its biggest business challenge. “There’s a collective belief that you should sell software, not give it away,” says Matthieu Lavergne, Serena partner and report lead. But modern COSS companies have found ways to turn open code into serious revenue—typically by offering a free core product while monetizing advanced features, security, or governance tools.

And the strategy works. Serena’s research shows that COSS startups reach a Series A round 20% faster than proprietary software firms, with valuations 1.33x higher at that stage. The payoff is even bigger at exit: since 2000, COSS companies that went public had a median valuation of $1.3 billion—compared to just $171 million for closed-source software firms. The largest IPO? GitLab, which debuted at $15 billion in 2021.

Europe’s Missed Opportunity

Despite the strong fundamentals, Europe has been slow to back open-source companies at scale. “Few investors here truly understand the business model,” says Lavergne. As a result, many of the region’s most promising COSS startups—including AI firms like Mistral and Black Forest Labs—end up looking west when it’s time to scale.

The data backs that up. While 25% of COSS firms that IPOed since 2000 were founded in Europe, only 8% actually listed on European stock exchanges. The US, meanwhile, attracted 91% of those IPOs.

Part of the issue is market size: “Half of the total addressable market for software—open-source or not—is in the US,” Lavergne notes. For European founders, that often means a choice between struggling to raise late-stage funding at home or moving operations to where the capital flows freely.

Can Europe Catch Up?

There are signs of change. A new generation of European open-source startups—including Coqui, Formance, and Zylon—is making waves, and investors are starting to take notice. But without deeper support from European VCs and public markets, the continent risks remaining a talent incubator for startups that ultimately scale and succeed elsewhere.

For now, the US isn’t just leading—it’s lapping the competition.