After an impressive 19-year tenure at Bain Capital Ventures, Ben Nye, a seasoned investor in infrastructure software, has embarked on a new venture. Together with a team of four partners, cultivated from his experiences at Bain and as CEO of Turbonomic, Nye is launching Venture Guides, a firm dedicated to nurturing the next generation of infrastructure software companies. This move signals a significant development in the venture capital landscape, particularly for early-stage ventures in this critical sector.
The name Venture Guides itself is deeply rooted in Nye’s personal history. Recalling his time as a fly-fishing guide in Alaska after college, Nye explains the philosophy behind the firm’s moniker. “The reason that you hire a guide is you get a better experience and more yield,” he shared in a recent interview. “We’re not going to give you a fish, but we will teach you, show you and help you, and that’s the idea.” This guiding principle underscores the firm’s commitment to actively supporting its portfolio companies, leveraging deep industry expertise to enhance their growth and success.
The team at Venture Guides boasts a remarkable track record. Nye’s early-stage investments at Bain Capital Ventures generated a 7.9x return for investors. Notably, eight out of 21 investments achieved unicorn status, including Turbonomic, a company that the team steered towards a $2 billion acquisition by IBM in 2021. This proven success instills confidence in their ability to identify and cultivate promising infrastructure software startups.
Venture Guides recently announced the successful closing of $215 million in capital commitments for seed and Series A investments in infrastructure software companies. The fund experienced rapid oversubscription, solidifying its position in the market. ELJ Ventures, a family office, served as the anchor investor. Within nine weeks of securing ELJ Ventures’ commitment in November, the fund was oversubscribed, with ELJ Ventures increasing its initial commitment by 80%, joined by other family offices and groups who also expanded their investments.
Nye recently engaged in a discussion to provide insights into the new fund, the current fundraising climate, and his perspectives on the exciting potential within infrastructure software. The following sections present key excerpts from this insightful conversation.
IBM is acquiring cloud app and network management firm Turbonomic for up to $2B
Ben Nye, Founder of Venture Guides, Discusses Infrastructure Software Venture Capital
Navigating the Venture Capital Landscape: From Bain to Venture Guides
TechCrunch: After your extensive experience at Bain Capital, what were the key transitions in establishing your own fund?
Ben Nye: The process has presented a surprisingly steep learning curve in certain aspects, while in other ways, it feels very familiar. When engaging with the market, we emphasize that ‘we’re a new firm, but we’re not a new manager.’ At Bain, we benefited from a substantial investor relations (IR) department. Suddenly, without that infrastructure, the experience felt much more akin to launching a startup itself. This shift demanded a new level of direct engagement and operational agility.
Fundraising Strategies in a Dynamic Market
What were the crucial lessons learned during the fundraising process for Venture Guides?
Our initial strategy involved approaching traditional endowments and foundations. However, these institutions were facing significant challenges due to substantial capital withdrawals from endowments, impacting their investment pacing. Furthermore, the market shift, marked by rising capital costs after 35 years of decline, led to compression in public markets.
This market dislocation necessitated a revised approach to identifying rational investment decision-makers. We shifted our focus from allocation-driven strategies to investment-centric decisions. ELJ Ventures, our anchor family investment office from the Dominican Republic, proved to be a pivotal partner. Their prior investments in Bain Capital spinouts and strong network were instrumental in attracting a broader base of family offices. Ultimately, we secured commitments from over 30 firms, a significant group of founders, and numerous C-suite executives. This diverse and experienced investor base recognizes the value proposition and methodology that Venture Guides brings to the infrastructure software sector.
The Current Fundraising Environment: Unique or a Recurring Cycle?
My five-year tenure as a political appointee in the U.S. Treasury Department provided valuable insights into the critical influence of interest rate trends and macroeconomic factors on the investment climate. Currently, inflation has demonstrably moderated. The pricing environment is also showing greater realism in both private and public markets, with public markets leading this correction. This setup suggests the potential for a robust investment vintage, particularly for those with a clear understanding of the market dynamics and strategic focus.
Expertise as a Differentiator in Venture Capital
How do you ensure Venture Guides is well-positioned to capitalize on these market opportunities?
Success in this environment hinges on a deep understanding of your investments: knowing what you own, why you own it, and how you can enhance its value. This is a core differentiator for Venture Guides. Our five partners collectively bring over 100 years of domain expertise. This experience spans not only investment but also operational roles. We prioritize understanding customer needs and motivations, positioning ourselves as strategic thought partners for our portfolio companies. This blend of investment acumen and operational insight is crucial for navigating the complexities of the infrastructure software landscape.
The Rise of Micro Funds in Venture Capital
Considering the increasing attention on micro funds as highlighted in recent analyses, do you see this trend as the future of venture capital, particularly for early-stage investors like Venture Guides?
There is apparent congestion in the growth equity space. Simultaneously, there is a scarcity of high-quality companies that fit the growth equity trajectory. This dynamic leaves a significant opportunity in the earlier stages of the market. Venture capital, fundamentally about yield and mitigating power loss, necessitates effective company selection. Micro funds, with their focused approach and deeper expertise, are well-positioned to excel in this environment, particularly in identifying and nurturing companies in specialized sectors like infrastructure software.
A love letter to micro funds, the backbone and future of venture capital
Investor Confidence and Venture Guides’ Value Proposition
What concerns, if any, did your limited partners express during the investment process?
Notably, we encountered minimal concerns. Investors were generally enthusiastic, driven by our demonstrated track record of 21 investments across various market cycles. From an investor perspective, it wasn’t simply about deploying available capital; it was about gaining targeted exposure to our specific expertise and approach. The sentiment resonated with “new firm, old manager,” emphasizing the continuity of experience and proven capabilities despite the new firm structure.
Investment Focus within Infrastructure Software
As you evaluate the infrastructure software sector, what key attributes and trends are you prioritizing in your investment decisions at Venture Guides?
We employ a structured, data-driven framework to assess every investment opportunity. This scoring process incorporates eight distinct parameters that we consider critical indicators of success. Avoiding overemphasis on any single aspect of a deal is crucial; a holistic evaluation mitigates potential risks. Our rigorous, data-informed approach ensures objectivity and helps us effectively frame and manage investment risks.
This framework is not limited to initial selection; we apply it throughout the lifecycle of our portfolio companies. This consistent methodology is a significant factor in our ability to deliver strong, sustained returns. It also enhances our effectiveness in co-investments. Many early-stage seed investors, often geographically focused rather than domain-specific, welcome our expertise to help their portfolio companies reach the next stage of growth. Our focus is not on broad portfolio diversification but on concentrated, high-conviction investments – identifying the select few companies where we can provide substantial value and guidance.
Deal Flow and Investment Activity
How many investments has Venture Guides made to date with this new fund?
We have completed two seed investments and have two additional deals currently in progress.
Is Venture Guides adopting a primarily inbound or outbound approach to deal flow generation?
Our deal flow is predominantly inbound. A significant advantage is that many founders and existing contacts are proactively approaching us. Co-investors are also seeking our participation, recognizing the value of our domain expertise and active involvement. They understand that we are committed to delivering on our promises of guidance and support. Our personal investment – 10% of every check we write – underscores our alignment with founders and reinforces our commitment. This approach, combined with our results-oriented methodology, is a powerful differentiator for Venture Guides.
Exciting Sub-Sectors within Infrastructure Software
Which sub-sectors within infrastructure software are currently demonstrating the most compelling technological advancements and investment potential?
There are numerous exciting areas. Firstly, the evolving architecture of applications, encompassing DevOps and cloud-native architectures, remains a core focus. This area represents a substantial market segment. Secondly, security and compliance are paramount. Collectively, these domains constitute a $4 trillion market, growing at 2.5 times the rate of global GDP. This sector has been consistently dynamic for decades. Historically, every 7 to 10 years, a new platform emerges that governs one or more of these critical components. I am particularly interested in practical applications of AI and how DevOps methodologies can enhance business productivity. Infrastructure-as-code is another compelling area, but broadly, we are still in the early phases of cloud migration. Furthermore, advancements in web security are fundamental to enabling secure online transactions. One of our portfolio companies is focused on enhancing website security to facilitate trusted web-based commerce. The current market presents truly remarkable opportunities within infrastructure software.
The bottom keeps dropping for software valuations
