Here’s What Vertex Ventures Will Invest in With New $200 Million Fund

• Vertex Ventures, an early-stage cloudtech-focused VC firm, raised $200 million for its third fund.
• It will back startups building cloud-infrastructure tools and industry-specific software.
• Insider spoke to two partners about what they look for in a founder and why they raised a fund now.

Vertex Ventures, an early-stage venture-capital firm focused on cloud and enterprise technology, has raised its third fund. The $200 million fund will enable the firm to invest in cloud software and infrastructure startups at the seed, or Series A stage, Jonathan Heiliger and Sandeep Bhadra, two partners at the firm, told Insider. 

The fund will focus on funding startups in the cloud-infrastructure and industry-specific software spaces, particularly companies building for the manufacturing, financial, and insurance sectors. Vertex will focus on a few companies per year, and initial investments will range from $500,000 to $10 million. 

Vertex Ventures launched seven years ago and has raised two prior funds. The firm has a total of 50 companies in its investment portfolio across both funds, and prior investments include Hasura, Docker, and LauchDarkly. The fund’s strategy is to invest early in a few select companies, then advise those companies until they either go public or another company acquires them, Bhadra said. 

“We believe in sort of this concentrated high-conviction approach to venture capital,” he said. “We seek to partner with a few number of new investments in each fund cycle and devote as a team all our time, resources, network, and capital to improving the odds for those founders.”

Bhadra and Heiliger acknowledged that now is a strange time to raise a new fund, as the venture market has slowed considerably both for early-stage and later-stage companies. Many of their existing investors and prospective investors told them this year was a time to slow on investments. 

“A lot of people were very eager and over invested in 2020 and 2021,” Heiliger said. “Obviously we all saw how rapidly investment dollars were being spent.” 

However, the current environment didn’t deter them, and Heiliger said it actually provides an opportunity for smaller firms like Vertex to partner with up-and-coming startups while the rest of the industry pulls back.

In looking across their current portfolio, Bhadra said there is a certain type of founder the team looks to invest in. Particularly, they look for founders who are both practitioners and visionaries — people who understand the problems they’re looking to solve and can empathize with their products’ users. At the same time, they want the founder to have sharp leadership skills. 

“Great founders have this ability to rally their community of customers and users, but also, quite frankly, interesting executives to come and join their team and build a fantastic business and company,” Bhadra said.

In terms of areas of investment, Bhadra said company decision-makers are particularly excited about the move to microservices around cloud infrastructure. He said this “creates multiple opportunities for changing how applications are developed and deployed, and sort of debugged and operated.”

The partners are also interested in new data-infrastructure companies because despite an explosion of startups in the space, they think there are many more problems to be solved. Data security is another adjacent area they’re interested in, as well a vertical software, or software focused on serving specific industries. Of course, they’ll continue to research and evolve their focus areas as they learn more, Heiliger said. 

“Our process is really to build communities of people that allow us to identify investment themes and then find and pursue interesting companies within those themes,” Heiliger said. 

Along with this new fund, Vertex has promoted Bhadra to the rank of general partner alongside the three existing general partners, including Heiliger. The team has also welcomed a new partner, Megan Reynolds, who was previously at Crane Venture Partners. 

The firm additionally brought on a director of talent, Raluca Mackey, who will work with portfolio companies to help hire their first go-to-market teams.

She “is there to help them not just set up the right processes, but to source candidates, build some momentum around their first go-to-market team so that they can get that first million and first $10 million in revenue,” Heiliger said.

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