Three years after the announcement of the sixth fund, OpenView Venture Partners is back with $570 million in capital commitments for its new, seventh fund. It represents a 25% increase over the company’s sixth $450 million fund, claiming it’s largest to date.
The Boston-based venture capital firm indicated its intention to raise the fund back in January 2022, according to an SEC filing OpenView noted that with a $800 million hard limit. In another filed last Septemberthe company reported raising just over $517 million toward that goal.
“The way we’ve always built the business and the funds is to stay relatively small and focused,” Mackey Craven, OpenView partner, told australiabusinessblog.com. “When we went out to raise the fund, the way we assess them is bottom-up: looking at how many partners we have, the average investment size they make, how many investments we make in a year and how many years we want are from. That gives you a range, and that range is from about where we closed the fund.
The company will continue to focus its investments on “high-growth software startups” and invest globally in various enterprise software categories, including infrastructure, applications, cybersecurity and vertical software.
While there is some turmoil in the financial markets and the banking system, Craven says that broadly speaking, software product markets are “stronger than ever.” He notes that global software spending is about twice what it was five years ago and is still growing at double-digit rates.
He attributes that 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 partners Kyle Poyar and Blake Bartlett to describe what made businesses more efficient.
We profiled OpenView in 2020 as it closed its sixth fund, and in terms of when it invests in companies, Craven told my colleague Alex Wilhelm that the company is looking for companies with between $1 million and $10 million in annual recurring revenue .
Three years later, Craven said the criteria haven’t changed much, explaining that OpenView is usually the first investor in a company after it generates revenue, regardless of whether they started before or were backed by a company. For example, he said his first investment was in cloud monitoring platform DataDog after it had $1.7 million in ARR.
“It’s over 1,000 times bigger than that today, but that’s very consistent with the scale of companies we’re currently investing in,” Craven said.
Kyle Poyar further explained: “It’s more about the underlying qualitative characteristics of the company. It specifically says we’d like to see the company find the product market that fits their customers, and they’re showing signs of being ready to scale with building out their teams and their go-to-market moves. That usually corresponds to that revenue range rather than the revenue range being the focus.
When asked how different it was to look for funding in the current economic climate than when OpenView was raising its sixth fund, Craven replied, “It’s definitely a more challenging fundraising environment,” but that the core partners of the company have been working together for more than a year. decade, so there was still a “strong set of supportive limited partners” who were open to getting into another fund and one that was larger as well.
OpenView invested in 16 companies with its sixth fund and expects to invest in up to 20 companies with its seventh fund – which is 25% larger – in the coming years.
As of today, the company made its first Fund VII investment in a company called Rewst, which performs robotic process automation for the managed service provider industry.
“Rewst is in a combination of themes that we’re excited about, such as vertical software and the increasing automation of software workflow,” said Craven. “It turns out that in the managed services ecosystem, the vast majority of the work they do and outsource is workflow oriented. The entrepreneur has already built a business in this space and is off to a good start.”
Meanwhile, enterprise software spending is expected to grow despite analyst predictions that consumers will scale their spending. When it comes to trends in this area that the company is tracking, Craven said companies continue to spend in areas associated with risk, such as cybersecurity.
Another is automation: companies are increasingly relying on software rather than humans to perform some of those activities. As a result, the company is looking at domain-specific applications of machine 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 remain under investment.
“In terms of vertical software, there are a lot of people who really need software but don’t have great solutions because that’s a market that has historically been underserved by software players,” added Poyar. “We coined the term ‘radical growth’ in 2016 because of trends we saw in the software market. That’s now part of the market that continues to grow as product-driven companies. By simply building products that customers love, they grow in a way that is more efficient and effective than their peers.”