Forestay’s 0 million fund targets ‘inflection point’ in AI startups
Forestay’s 0 million fund targets ‘inflection point’ in AI startups

High interest rates usually mean trouble for venture capital (VC) firms. But with a hot topic like AI and cybersecurity and a smart evaluation strategy for potential investments, VC firms can still find plenty of opportunities.

This is the formula that Geneva-based Forestay Capital has been using successfully recently. On Monday (July 8), the company announced the closing of its second fund, valued at $220 million. Forestay II will focus on investments in the enterprise AI and software-as-a-service (SaaS) sectors, targeting early-stage growth companies that typically make principal investments in the $10-15 million range.

The success of its first fund, Forestay I, gives the firm a good track record: it invested in 13 companies, three of which reached unicorn status (valuation over $1 billion), and there were two acquisitions.

The Forestay II fund has already started raising capital and has partnered with startups such as Veriti (cybersecurity) and Neural Concept (engineering intelligence) in the field of enterprise AI.

“We are a technology fund focused on enterprise AI, which is a broad term and a broad sector,” Frederic Wohlwend, managing partner at Forestay Capital, told PYMNTS. “But what we mean by that AI component for us is everything around process automation, everything around data, everything around cyber and everything around intelligence.”

“And the enterprise component is important because we’re not after consumers, we’re not after marketplaces,” Wohlwend added. “We like to invest in AI companies for the benefit of large companies.”

Wohlwend is a Chief Digital Officer by profession and a data analytics expert at heart. Through his work at the pharmaceutical companies Serono and Merck, he knows how companies work, how they grow and how they handle data.

All of these lessons have served him well in his current role, where he takes a surprisingly people-focused approach while evaluating, by his own estimates, more than 3,000 companies annually. During the conversation, he stressed the importance of the team within a company the fund works with before discussing the amounts his firm has invested.

“With what’s happening with new AI or generative AI, the new version of AI, we’re opening a new cycle and we’re at the beginning of that cycle,” he said. Wohlwend expects both advances and failures as AI technology matures, a dynamic that will require investors to be extraordinarily cautious and strategic in their approaches.

Confidence in the process of investing in the future

Forestay Capital’s investment process is characterized by high selectivity and thorough due diligence. Forestay focuses on companies at turning points and wants to help them grow significantly.

“We take companies at their turning point, that is, as soon as they have a turnover of four or five million. And our goal is to get them to 50 or 100 million in four to five years. Timing is very important because the cycles in the technology sector are very short,” said Wohlwend.

He pointed out that Forestay offers more than just financial investments.

“We like to say that we go beyond capital and provide entrepreneurial capital, which means the contribution level is extremely important,” he said, emphasizing the firm’s active role in supporting and advising the companies it invests in. This approach involves working closely with management and board teams to ensure successful scaling.

A typical example of this is portfolio company Neural Concept. Forestay identified the company well in advance of the fundraising, giving it plenty of time to build a relationship and ensure a good fit.

“We had all the right components with Neural Concept. That doesn’t mean it’s easy to scale. But you know, the founders were willing to work with us and take our advice. We at Forestay Capital are not investors who just jump in. We don’t play with statistics in the form of numbers,” said Wohlwend.

Wohlwend sees great opportunities for AI in enterprise applications, but warns against hasty introduction without appropriate direction.

“The winners in the corporate sector will be those that use the new AI technologies wisely. There will be companies that will simply exploit this opportunity and lose out to their competitors,” he said.

He also emphasized the importance of data quality in AI applications.

“AI, we’re talking about LLMs and all these models and GenAI and ChatGPT,” he said. “That’s all great, but if you feed ChatGPT garbage, you end up with garbage.”

Drawing on his experience as Chief Digital Officer, he highlighted the challenges large companies face when their data is scattered across multiple applications, making AI integration difficult.

Looking ahead, Forestay Capital plans to continue to focus on the enterprise SaaS, B2B and AI spaces, while also exploring potential vertical funds in cybersecurity and digital health. “Enterprise SaaS, B2B, AI… all of these spaces are here to stay and we want to be the best at what we do,” he said.

Geographical expansion is also planned: the presence in the USA is to be strengthened, while the roots in Europe and Israel are maintained.

“We believe in systematic growth. Europe is our base, but we also see great opportunities in the USA. Establishing a branch there would make a lot of sense for our portfolio companies,” said Wohlwend.

By Aurora