I'm in the process of starting a company that's developing a PaaS product to help developers deploy and roll back releases across development, QA and production environments. This is a venture that will, at some point, require seed funding to take it past the MVP stage.
The model we're leaning towards currently is to release the software as open source, to encourage a more rapid adoption, while the company sells ongoing support contracts, custom integration, training and consultancy. Because of the nature of the project, it doesn't make sense for it to be offered as a hosted service.
When does it make sense to do this, and when is it more likely to cause failure? Is it something that would immediately put investors off, or would they still see value in it? Is it a model suitable only for bootstrapped companies?
But a deeper question is what problem are you trying to solve with another PaaS product that is not already served by the likes of Heroku, Dotcloud, Stackato, OpenShift, CloudFoundry, etc?
The last two (OpenShift and CloudFoundry) are already open source PaaS solutions that you can use either on-premise or hosted externally. Read more on my post comparing these four providers. http://appsembler.com/blog/paas-bakeoff-comparing-stackato-o...
I can tell you from experience that building and supporting a PaaS is a lot of work, and I think it will be difficult to make it sustainable unless you are offering it as a hosted service.
The only other provider that I know that is not offering a hosted PaaS is ActiveState's Stackato, and they have 15 years of experience selling to enterprise customers.