To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn't scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.
This is a quote from http://www.paulgraham.com/startupfunding.html
Well... it certainly seems that funding is not considering with a nice eye the open-source start-ups :-D
What about Twitter, Facebook and Google? Their *initial* success was not based on selling (or at least not in the common sense of earning money). However, they are all considered as having been successful start-ups, or aren't they?