VSM Ventures is a new, independent $200 million initiative run by CSI. The fund will invest in early-stage vertical market software initiatives that are sponsored by an existing BU. These initiatives will be set-up as separate companies and the founders, the fund and the sponsoring BU will all receive an equity stake. The size of the investments will vary, but we envisage an initial investment of $500K-$1 million, with the potential for follow-up funding if the company reaches its milestones. The fund is aiming to invest in 20- 40 companies over the next 3-4 years.
Over the years, CSI has become a market leader acquiring vertical market software companies. However, while we are world-class in profitably deploying capital via M&A, our organic growth performance has deteriorated. The primary mission of the VMS fund is to learn how to profitably generate organic growth through large initiatives. We hope that we will learn how to produce attractive returns from these investments, and then pass on these learnings to the operating groups. Eventually, we hope this will help CSI reach high single digit organic growth rates.
To receive startup funding, VMS Ventures will need to observe the following:
A passionate team willing and able to build a great software product.
A niche vertical market where Constellation Software operates.
Opportunity for $10MM in annual revenues within 5-10 years.
A sponsoring Constellation Software business unit.
An earned secret- deep industry knowledge.
Teams can make or break a company. If you do not have a passionate team, your chances of receiving startup funding are greatly diminished. Previous management experience is not required, but if your company requires technical or sales experience, somebody on your team needs to be able to fill those gaps.
To receive startup funding, your company will need to operate in a niche vertical market where Constellation Software already operates. Startup funding comes with a lot of risks, and we want to have a thorough understanding of your market. No Constellation businesses will compete against your startup.
Although starting small after receiving startup funding, we want your startup to grow into a large business. Some markets are too small for your company to receive startup funding from VMS Ventures, but the ability to sustainably earn $10MM in annual revenue demonstrates that the market size is big enough for VMS Ventures.
A sponsoring Constellation Business unit is important for VMS Ventures. We want a third party to validate your team and business model. If you are not able to find a sponsor, we can search within our organization for somebody who may be interested.
Finally, an earned secret is the final ingredient. We want to know why your team should receive startup funding for your idea. Why not another team? What do you know about your industry that gives an unfair competitive advantage?
To receive startup funding, make sure you meet the above criteria. You can also download the document 'Building an Effective Pitch Deck'.
If you have any questions or would like to clarify anything, please email Karl at firstname.lastname@example.org. We look forward to hearing from you! (All information stays between you and Karl).
Generally, a backable team will consist of at least one experienced person who knows the vertical, plus a strong technical lead, and a handful of talented developers. Beyond these skill sets there are other characteristics that we are looking for in the team. We want a frugal, analytical, urgent and ambitious team. We are trying to run many cheap and fast experiments to find product / market fit. People who wish to lead balanced lives, with a multitude of social and family obligations, are unlikely to flourish doing startup work with the venture fund. The backable team doesn’t need to be complete from the outset. The fund can help recruit some team members. Keep in mind, however, that if high quality team members aren’t enthusiastic about joining you, either you or your business idea may need more work before you are backable.
You should start by emailing email@example.com. Include a brief description of your idea and why you believe it meets the criteria of the fund. We will then arrange a follow-up call to discuss further. Keep in mind that all fund investments will require a BU sponsor from within CSI. If you already have a BU leader that supports your application, be sure to include this in your email.
Constellation Software has completed hundreds of acquisitions and has thousands of employees. Our Managing Directors Daan Dijkhuizen and Karl Schabas have extensive experience working with software startups and Constellation Software. We will work to make sure to connect you with the right people, increasing your chances of success. Many of our business units started as software startups. We will be able to provide advice and perspective on problems your software startup may run into. When appropriate, we will also seek to find opportunities for collaboration between your software startup and Constellation Software business units.
VMS Ventures takes a similar approach as Constellation Software by targeting niche vertical markets. Focusing on niches allows your company to be insulated from competitive forces. However, there must be other characteristics from your business that allows you to protect the business from another software startup. Additionally, our permanent holding philosophy allows companies to focus on building enduring businesses. Returns for founders and other investors will be achieved through dividends from the software startup and selling shares to adjacent Constellation business units.
Constellation Software has seen thousands of companies in varying sizes, industries, and stages of growth. From software startups to mature businesses, we have seen it all before. VMS Ventures is prepared to work with your team to build your business in a sustainable way. We will assist your team in figuring out key metrics, important customers, and the keys to scaling from a software startup to a mature business that consistently generates significant cash flow. We have built successful businesses before and will continue to do so through VMS Ventures.
Karl Schabas and Daan Dijkhuizen are the Managing Directors of the fund. The best way to contact us is to email Karl Schabas via firstname.lastname@example.org. We are happy to set up a time to meet. Feel free to ask questions about a software startup, the fund, or anything else we can help you with. (All information stays between you and Karl).
VMS Ventures was announced on November 25, 2021. Constellation Software allocated the entire $200 million to start the fund. The objective is to develop and improve on Constellation Software’s organic growth processes by funding 20-40 rapidly growing software businesses. The time frame for investment is 3-4 years after the announcement.
Although most of Constellation Software’s businesses are not rapidly growing, VMS Ventures will take the same investment approach to these startups. VMS Ventures finances software startups who operate in a vertical market or specific industry niche. We invest in all startup funding stages. Most of these businesses will have been identified or incubated by a sponsoring business unit from Constellation Software. Like the parent company, VMS Ventures takes a different approach to startup funding- one that prioritizes building long-term and sustainable businesses.
It is important to VMS Ventures that our founders and investment are aligned. Therefore, we insist that the founders become (or stay) significant shareholders in their business. Independence from Constellation Software is also important. These businesses need to have the potential to be large enough to be a standalone business unit within Constellation Software ($10 million revenue). Additionally, the fund will not rely on Constellation Software’s existing business units for ongoing sales, marketing, customer support, or similar services. The fund will never sell its shares. Returns will primarily come from the investee’s dividends. There will be liquidity available for other shareholders, as Constellation Software’s other business units or sponsors may acquire additional shares in the investee as time progresses.Constellation Software veteran Daan Dijkhuizen is the managing partner of the fund and works alongside Karl Schabas to ensure the fund meets Constellation Software’s investment and growth objectives.
The best way to contact us is to email Karl Schabas at email@example.com. We are happy to set up a time to meet. Feel free to ask questions about a venture, the fund, or anything else we can help you with. (All information stays between you and Karl).
To Apply to VMS Ventures, you need a startup idea and a passionate team. We are willing to hear from you if the idea is in its early stage, later stage, or anything in between. You should be familiar with our philosophy and criteria, as VMS Ventures is not right for every startup idea.
Our philosophy revolves around being permanent capital, adopted from our parent company Constellation Software. We apply this philosophy to startup ideas. Investors and founders will be able to sell their shares to Constellation Software, but we would prefer that most returns for VMS Ventures comes from the dividends and free cash your company generates.
Our investment criteria consists of:
- A passionate team willing and able to build a great software product
- A niche vertical market where Constellation Software operates
- Opportunity for $10MM in annual revenues within 5-10 years
- A sponsoring Constellation Software business unit
- An earned secret
- deep industry knowledge
We are willing to work with you to find answers to each of the above questions and if your startup idea is appropriate for the fund. If your startup idea is in its later stages, we recommend creating a pitch deck for our team to review. Keep in mind that to receive funding, your idea will have to be described to the entire VMS team.
We recommend creating a 30-minute pitch deck that goes over the your startup idea and key points. You can read the entire article on how to create an effective pitch deck, but here are the key elements that we will look for concerning your startup idea:
- Problem being solved
- The solution (your startup idea)
- Why now
- Defensibility/ability to create an economic “moat”
- Market size
- Use of funds
If you have questions, contact our Managing Partner Karl Schabas: firstname.lastname@example.org. We look forward to hearing your startup ideas! (All information stays between you and Karl).