Over the past 19 years, Ben Nye has pursued promising infrastructure programs as co-managing partner of Bain Capital Ventures. Now he and a group of four partners, culled 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 name of the company was a reference to his fly fishing after his college days when he was a guide to people catching salmon in Alaska.
“The reason you hire a mentor is because you get a better experience and a bigger return,” he told TechCrunch. “We won’t give you a fish, but we will teach you, show you and help you, and that’s the point.”
The team comes with a track record of success: Nye’s early-stage track record returned 7.9 times to BCV investors, while eight of 21 investments have reached unicorn status, including Turbonomic, which led to a $2 billion sale to IBM in 2021.
Venture Guides recently closed on $215 million in capital commitments to the upstream and Series A infrastructure software companies. Nine weeks after acquiring ELJ Ventures as lead investor in November, the fund is oversubscribed when ELJ Ventures increases its initial commitment by 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 it teases about infrastructure programs. The following has been lightly edited for clarity and length.
Ben Nye, founder of Venture Guides (Image credit: Venture Guides)
TechCrunch: Now that you’re part of Bain, you know, what did it feel like to go out on your own and start a new fund?
Ben Nye: It’s actually been a pretty steep learning curve, in some ways. In other ways, it’s just as it always has been. What we say when we’re in the market is, “We’re a new company, but we’re not a new manager.” With Bain, we had an IR division that was fairly large, and all of a sudden, we didn’t have an IR division, so, in that sense, it’s very much like a startup.
What did you learn when you went out to raise money for the fund?
The original idea was to talk to endowments and traditional foundations, but they had a somewhat tricky thing between two things: the massive amount of capital drawn from affected institutions at a pace that made some people love the bachelor-year, and it’s already a fast pace of investment. Secondly, when the market started to turn around and the cost of capital went up instead of 35 years down the line, I saw the public markets squeezed.
With such a turbulent market, we’ve had to think about the markets differently and who is going to make rational investor decisions. It’s not an allocation, it’s an investment decision. ELJ Ventures, which is the family investment office and his family out of the Dominican Republic, is a really solid investor, and they’ve worked on some spin-offs from Bain Capital. They were the ones who helped get a whole bunch of family offices behind them. We were then able to acquire more than 30 companies, a large group of founders, and an even larger group of partners from our executive C-suite. It’s a very interesting group of people who can appreciate why our message is such a good method.
Was this fundraising environment unique, or have you encountered it before?
I spent five years as a political officer at the US Treasury, and that gave me a lot of exposure to the importance of getting an opinion on where interest rates are headed, and what the overall impact is on your investment climate. Today, when you look at inflation, it’s obviously moderate. And if you look at the pricing environment, it’s more realistic in terms of the private markets as well as in the public markets because the public market led the way. It’s set up to be a pretty solid vintage, if you know what you’re doing.
So how do you know if you know what you’re doing?
You have to know what you have, know why you have it and know how you can improve it. This is a big part of what sets us apart. We have a collective collection of five partners with over 100 years of industry experience. This is not only on the investment side, which has a proven track record, but also on the operational side. We think about what the customer needs and why. And to be a thought partner.
A colleague of mine wrote about micro funds being the future of venture capital. As an early stage investor, would you agree?
There seems to be a fair amount of crowding in the world of developing stocks. There’s also a dearth of companies in the stock growth path that are good targets, so leaving behind only the most important part of the market today. When you think about capacity — and adventure is really about productivity and losing energy — you want to be able to make sure that you’re very efficient in choosing the right kind of company.
As you spoke with your limited partners, did they have any concerns about the investment?
No, a lot of people have been very excited about it based on the track record that we have with 21 investments, which is the entire period of time and capital. When you put the investor’s lens on it, it wasn’t about dry powder, it was more of “I’d like to get some exposure on this.” Again, a new company, an old manager. I think that’s what drove a lot of their thinking.
When you look across the infrastructure software sector, what do you look 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 criteria that make us strong. If you fall in love with one part of the bargain and forget to look at the rest, the rest is what kills you. Our job is to make sure everything we do is done in a data-driven format, so you can be fairly honest and frame the risk.
We take the same framework as the selection process and use it throughout the life of the company, chronologically over time, which is a big part of why we’re able to deliver such strong returns over time. It’s also a reason to make such good co-investments, because if you go to many of these core investors, they’re not typically field-driven. They’re usually more geographic and just happy to say, “Come into our portfolio and help us get to the next level of growth.” We are not interested in 50 companies, but we are interested in these three companies. And this is where we know we can help.
How many investments have you made so far with this fund?
Two seeds and two more in the works.
In terms of your deal flow, are you taking a more inbound or outbound approach?
It’s much more featured. One of the nicest things is that most of these founders, or people we’ve known before, come to us. Co-investors also come to us and say, “Hey, we’d love to help you with this,” because they know we’re already doing the work we promised. Ten percent of every check we write is ours, and that differentiation is as strong as the approach and the results.
What sub-sectors do you see some nifty tech emerging from?
Complete set, how long do you have? First, what we call infrastructure software are the applications and how they’re engineered: DevOps, cloud-native architectures, things like that. This is a large part of the market. Then there is security and compliance. All of this is a $4 trillion market that is growing by two and a half times global GDP. It has been an exciting field over the past few decades. Every seven to ten years, there is a new platform that governs one or more of these components. I am interested in the many applications and practicalities of AI and how DevOps can make companies more productive. There’s a super exciting young company in Infrastructure-as-Code, but the trend is that we’re only in the second phase of the transition to the cloud. And without security, we wouldn’t be able to benefit from the web. Another company we’re investing in is looking at websites and improving their security so we can transact across the web. It really is a great opportunity in the market right now.