Q&A for M&A teams

VMS 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 karl.schabas@vmsfund.com. We look forward to hearing from you! (All information stays between you and Karl).

Every investment will be looked at independently. However, in all cases:

• The fund will be the lead investor. While it may not take a majority stake, the fund will always set the key terms.
• The fund will require significant control of the board of the new company.
• The fund will never sell its stake. Hence, to monetize their shares, the founders must either sell to a CSI operating group, receive dividends from profits their company generates or in some extremely successful cases, exit through an IPO and sell their shares to the public markets. We will not permit an exit to a 3rd party

The short answer is both. We expect most investments will be internal initiatives, drawn from existing CSI business units with the core of the founding team comprised of CSI employees. We are open to investing in external start-ups as well. However, they must agree to our control and exit conditions, which will eliminate many classic start-ups from consideration

We are always grateful for high quality leads. If you have a lead that you think could meet the requirements of the fund, please email (karl.schabas@vmsfund.com). We will set-up a call with the founder and invite you to participate. Keep in mind that all fund investments will require a sponsoring CSI business unit, so leads from a vertical that you know well and where you know the relevant BUs within CSI are preferred. The potential investee will ultimately need to agree to our control and exit conditions. Companies that have not previously raised outside capital and have only the founders on the cap table are far more likely to agree to these terms

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 karl.schabas@vmsfund.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.

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 karl.schabas@vmsfund.com. 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).