Three years after announcing its sixth fund, OpenView Venture Partners is back with $570 million in capital commitments for its new seventh fund. It represents a 25% increase from the company’s sixth $450 million fund, saying it is the largest to date.
The Boston-based venture capital firm announced plans to raise the fund in January 2022, according to an SEC filing this noted that OpenView was aiming for a hard cap of $800 million. In other filed last septemberthe company said it had raised just over $517 million to achieve this goal.
“The way we’ve always built the business and the funds is to stay relatively small and focused,” OpenView partner Mackey Craven told TechCrunch. “When we’ve gone out to raise funds, the way we scale them is from the bottom up: looking at how many partners we have, the average size of investments they make, how many investments we make in a year and how many years we want to be out. That gives you a range, and that range goes from where we closed the fund.
The company will continue to focus its investments on “high growth software startups”, investing globally in enterprise software categories including infrastructure, applications, cybersecurity and vertical software.
Although there is some turmoil in financial markets and the banking system, Craven says product markets for software, broadly defined, “are stronger than they’ve ever been.” He notes that global software spending is about double what it was five years ago and continues to grow at double-digit rates.
He attributes the growth to what he called a “go-to-market model” for software companies for product-driven growth, a term Craven says was coined years ago by software companies. partners Kyle Poyar and Blake Bartlett to describe what makes businesses more efficient. .
We profiled OpenView in 2020 when it closed its sixth fundand in terms of when he invests in companies, Craven told my colleague Alex Wilhelm that the company looks for companies that have between $1 million and $10 million in annual recurring revenue.
Three years later, Craven said the criteria hadn’t changed much, explaining that OpenView tended to be the first investors in a company after it generated revenue, whether seeded or backed by a company before that. For example, he said his first investment was in cloud monitoring platform DataDog after receiving $1.7 million in ARR.
“It’s over 1,000 times larger than that today, but it’s very similar in the scale of the companies we’re investing in right now,” Craven said.
Kyle Poyar further explained, “It’s more about the underlying qualitative characteristics of the business. He says specifically, we’d like to see the company find the right product market for their customers, and they’re showing signs that they’re ready to scale with their team builds and go-to-market moves. It tends to fall into that income range rather than the income range that is the focus. »
When asked how different it was to go fundraising in the current economic climate compared to when OpenView was raising for its sixth fund, Craven replied, “It’s absolutely a fundraising environment more difficult”, but that the main partners of the company had worked together for more than a decade, so there was still a “strong set of supportive sponsors” who were receptive to participating in another fund and another who was also more important.
OpenView has invested in 16 companies with its sixth fund and expects that with its seventh fund – being 25% larger – it could invest in up to 20 companies over the next few years.
To date, the company has made its first investment from Fund VII in a company called Rewst, which does robotic process automation for the managed service provider industry.
“Rewst is into a combination of themes that we’re passionate about, like vertical software and increasing software workflow automation,” Craven said. “It turns out that in the managed services ecosystem, the vast majority of the work they do and outsource is workflow driven. The entrepreneur has already built a business in this space and is off to a great start. »
In the meantime, enterprise software spending is expected to increase despite analysts’ predictions that consumers will increase their spending. Regarding the trends in this area that the company follows, Craven said that companies continue to spend in areas that address risk, such as cybersecurity.
Automation is another: companies are increasingly relying on software rather than people to perform some of these activities. As a result, the company is exploring domain-specific applications of artificial intelligence and software around integrations, automation and workflow, he said.
Poyar also said vertical software and product-driven growth are two additional themes that will continue to feature among investments.
“When it comes to software verticals, there are a lot of people who really need software, but don’t have good solutions because it’s a market that has historically been underserved by software players,” Poyar added. “We coined the term ‘radical growth’ in 2016 because of the trends we were seeing in the software market. It is now a part of the market that continues to grow as product-driven businesses. By simply creating products that customers love, they grow more efficiently and effectively than their peers.