For the past 19 years, Ben Nye sought out promising infrastructure software as co-managing partner of Bain Capital Ventures. Now he and a group of four partners, collected from his time at Bain and as CEO of Turbonomic, are doing the same thing but out on their own with Venture Guides.
Nye said the firm’s name was a nod to his fly-fishing days after college when he would be a guide for people salmon fishing in Alaska.
“The reason that you hire a guide is you get a better experience and more yield,” he told TechCrunch. “We’re not going to give you a fish, but we will teach you, show you and help you, and that’s the idea.”
The team comes with quite a successful track record: Nye’s team’s early-stage track record returned 7.9 times to BCV investors, while eight of 21 investments reached unicorn status, including Turbonomic, which the team led to a $2 billion sale to IBM in 2021.
Venture Guides recently closed on $215 million in capital commitments for seed and Series A infrastructure software companies. Nine weeks after securing ELJ Ventures as its anchor investor in November, the fund became oversubscribed when ELJ Ventures increased its initial commitment 80%, amid a family office and four other groups doing so as well.
Nye spoke with TechCrunch to discuss, among other things, the fund, the fundraising environment and what excites him about infrastructure software. The following has been lightly edited for clarity and length.
IBM is acquiring cloud app and network management firm Turbonomic for up to $2B
Ben Nye, founder of Venture Guides (Image credit: Venture Guides)
TechCrunch: After being part of Bain, um, you know, what was it like to go out on your own and start a new fund?
Ben Nye: It’s actually been a really steep learning curve, in some respects. In other ways, it’s exactly the same as it always was. What we say when we’ve been out in the market is, ‘we’re a new firm, but we’re not a new manager.’ With Bain, we had an IR department that was rather large, and all of a sudden, we had no IR department, so in that sense, it’s much more like a startup.
What did you learn as you went out to raise for the fund?
The original thought was to talk to the traditional endowments and foundations, but they’ve had a rather rough go of it between two things: the enormous amount of capital drawn from the damaged foundations at a pace that took some folks down to like single-year vintages, which is really a fast pace of investing. Second, when the market started to turn and the cost of capital rose instead of 35 years of declining, you saw the public markets compressed.
With that dislocated market, we had to think about the markets differently and about who is going to make rational investor decisions. It’s not an allocation, it’s an investment decision. ELJ Ventures, who’s our family investment office and their family out of the Dominican Republic, is a really strong investor, and they’ve been in some Bain Capital spinout companies. They were ones that helped get a whole bunch of family offices behind them. We were then able to get over 30 firms, a large group of founders and a larger group of partners from the executive C-suite. It’s a very interesting group of people who can appreciate why our message is going to be such a good method.
Was this fundraising environment unique or have you encountered it before?
I spent five years as a political appointee in the U.S. Treasury and that gave me a lot of exposure to the importance of having an opinion about where interest rates are headed, and what the macro impact is on your investing climate. Today, when you look at inflation, it’s obviously moderated. And if you look at the pricing environment, it’s a little more realistic in terms of the private markets as well as in the public markets because the public market led the way. It’s setting up to be a very, very strong vintage, if you know what you’re doing.
So how do you know if you know what you are doing?
You have to know what you own, know why you own it and know how you can improve it. That’s a big piece of what differentiates us. We’ve got a collective across the five partners of over 100 years of domain experience. That’s not just on the investing side, which has a strong track record, but also on the operating side. We think about what the customer needs and why. And to be a thought partner.
One of my colleagues wrote about micro funds being the future of venture capital. As an early-stage investor, do you agree?
There appears to be a fair amount of congestion in the growth equity world. There’s also a scarcity of companies that are in that growth equity trajectory that are good targets, so what they leave behind is only the most important part of the market today. When you think about the ability — and venture is really about yield and power loss — you want to be able to make sure you’re very effective at selecting the right kind of companies.
A love letter to micro funds, the backbone and future of venture capital
As you spoke with your limited partners, did they have any concerns in investing?
No, a lot of people were pretty excited about it based on the track record we have with the 21 investments, which represents the full tenure of time and capital. When you put the investor’s lens on it, it wasn’t that they had dry powder, it was more ‘I’d like to get some exposure to this.’ Again, new firm, old manager. I think that’s what drove a lot of their thinking.
As you look across the infrastructure software sector, what are you looking for in an investment?
We have a framework that we use to evaluate every investment and it’s all data driven. We use a scoring process with eight different parameters that make us strong. If you fall in love with one part of the deal and you forget to look at the rest, the rest is what kills you. Our job is to make sure that everything we do is done in a data-driven format, so you can be somewhat dispassionate and frame the risk.
We take that same framework used to the selection process and use it all the way through the life of the company, chronologically over time, and that’s a big piece of why we’re able to deliver such strong returns over time. It’s also a reason why we make such good co-investments, because if you go to many of these early seed investors, they’re not typically domain-driven. They’re usually more geographic and only too happy to say, ‘Come look at our portfolio and help us get to the next level of growth.’ We’re not interested in 50 companies, but in those three. And that’s where we know we can be helpful.
How many investments have you made so far with this fund?
Two seeds done and two others in the works.
In terms of your deal flow, are you taking a more inbound or outbound approach?
It’s much more inbound. One of the nicest things is most of these founders, or people that we’ve known before, are coming to us. Co-investors are also coming to us saying, ‘Hey, we’d love your help on this,’ because they know that we actually do the work that we promised we’re going to do. Ten percent of every check we write is our own, and that differentiation is strong as are the approach and the results.
What sub sectors are you seeing some really neat technology come out of?
A whole bunch, how much time you got? First, what we call infrastructure software are applications and how they’re architected: DevOps, cloud-native architectures, things like that. That’s a big chunk of the market. Then there’s security and compliance. All of that is a $4 trillion market growing in two-and-a-half-times world GDP. It’s been an exciting domain for the last few decades. Every seven to 10 years, there’s a new platform that governs one of these or multiple components. I’m interested in many more applications, practical applications of AI and how DevOps can make businesses more productive. There’s a super-exciting young company in the space of infrastructure-as-code, but the trend is we’re only in the second inning of migration to cloud. And without security, we wouldn’t be able to leverage the web. Another company that we’re investing in looks at websites and improves their security so we can transact over the web. It’s really a pretty neat opportunity in the market right now.
Ben Nye’s new VC firm won’t just give you a fish, but will guide you to the best lake by Christine Hall originally published on TechCrunch