Merit Systems raises $10 million from a16z, Blockchain Capital

Inside the Domino Sugar Refinery in Brooklyn, a 19th century landmark perched on the banks of the East River, three engineers have transformed 3,000 square feet of the former factory into a workshop housing their new startup, Merit Systems.

Sam Ragsdale, Ryan Sproule and Mason Hall are five months into creating Merit, which they hope will solve a longstanding challenge in software: rewarding open-source developers. On Thursday, Merit announced it’s raised $10 million in a seed funding round co-led by Andreessen Horowitz’s crypto fund and Blockchain Capital.

Sproule says Merit is trying to address the “attribution problem” in software development. In the world of open source, which underpins more than 97% of the apps consumers use on a daily basis, tech giants and independent programmers alike contribute to products that are freely available for anyone to access and improve.

“Because the price is zero, and there is no attribution to the people that created it, there is not a very sustainable set of economics to keep it alive,” said Ragsdale, Merit’s CEO, who previously spent three years at Andreessen Horowitz and before that worked as a software engineer at Google.

Substantial amounts of open-source code can be found in artificial intelligence frameworks, databases, web browsers and mobile operating systems. Some of the best known open-source projects include Android (now owned by Google), GitHub (acquired by Microsoft) and Apache Spark, data analytics technology at the heart of Databricks.

While many companies have been able to commercialize versions of open-source software or sell support and services as a way to generate revenue, there’s no consistent model for rewarding individuals or small groups of contributors who often do valuable work.

Chris Dixon, managing partner of Andreessen’s crypto fund, said that open source is “poorly funded and too reliant on altruistic contributions.”

In comments he’s posting on X, Dixon wrote that Merit “is building a protocol that properly attributes and rewards contributors proportionally to the value they create.”

Ragsdale, who worked with Dixon at the venture firm, first met Sproule as an undergraduate at Washington University in St. Louis. Sproule went on to crypto-focused firm Blockchain Capital in San Francisco, and the pair then teamed up with Hall, who was also on Andreessen’s crypto team.

The project is still in development, even as the company says it’s obtained a post-funding valuation of $55.5 million. Most of its current users are friends and acquaintances of the founders. Merit expects to roll out a broader release by the end of February after gathering and incorporating feedback from its early testers.

Sproule, Merit’s CTO and a former Amazon Web Services engineer, says the startup has the opportunity to sit “in the middle,” connecting software buyers and users with the actual creators of the technology.

“If you can solve this attribution problem, you can essentially get users to pay directly for the software people build,” he said.

The Williamsburg community in the Brooklyn borough of New York, where the small Merit team is based, has been transformed over the past few decades from a former industrial district, first into a vibrant arts and music center and more recently into an upscale neighborhood filled with new high-rise apartment buildings and luxury shops.

But the old Domino factory, two blocks north of the Williamsburg Bridge, remains a relic of the past. The refinery was the last operating industrial facility on the waterfront before closing in 2004.

After years of neglect, the building has been reimagined as a hub for modern innovation, with panoramic views of Manhattan visible through the original brickwork. The facility opened as a modern office complex in 2023, and now offers carved-up startup space as well as full floors for bigger organizations.

Ragsdale says the building’s history is important to the startup’s story.

The name Merit Systems is a “throwback to the companies of the ’60s or the ’70s, which had very industrial names that explain exactly what they do,” Ragsdale said. Merit is meant to be a straightforward description of the company’s mission.

There’s also a coveted view of Manhattan.

“You can see the skyline through the old brick in the windows,” Ragsdale said.

Inside the office, there are four desks and eight chairs. Whiteboards covered in notes and math equations fill the only corner of the office currently in use, while 3D printers from Ragsdale’s home produce prototypes, including the company’s tesseract logo.

“We’re definitely not using all 3,000 square feet,” said Ragsdale. “We’ll get there eventually.”

Merit plans to add seven new hires in the coming months and is specifically looking for people who want an in-person work culture.

“The idea flow between people when you’re sitting next to them is really important,” says Sproule. “We don’t really believe in the fully decentralized remote work model for an early-stage company.”