Some of venture capital’s biggest wins were companies that few people had ever heard of.
That’s just the nature of enterprise investing, which looks for the high-performing startups that keep other businesses humming along without interruption. These businesses are something of a stage crew for their flashier, consumer-oriented peers, but they are also the backbone of Silicon Valley’s resilient venture capital ecosystem. And with an economic downturn under way, many investors think enterprise startups are best positioned to come out the other end stronger than ever because they are building essential tools and services to keep companies running efficiently.
“In a gold rush, picks-and-shovels are often overlooked, yet one can make an argument they have the biggest influence on mining productivity,” Sapphire Ventures senior associate Casber Wang told Business Insider.
Part of enterprise investing’s draw is the sheer diversity of startups that fall within the broader category. Enterprise startups are simply those that build software or services for other companies, and typically rely on recurring revenue via subscription models to generate profit. A cybersecurity startup like Auth0 falls into this bucket. So does a design-forward task management startup like Figma. There are cloud infrastructure management startups, logistics management tools, developer services, and companies that specialize in helping other companies implement cutting edge technologies like machine learning.
That diversity is reflected in enterprise investors, as well. Many come from research or operating backgrounds with the technical know-how needed to suss through buzzwords to find the diamonds in the rough. Some are career investors who have seen booms and busts, and use that historical knowledge to predict what’s next in the pipe. Still others have founded their own companies and recognize pain points other startups are seeking to solve with new technology.
“I had spent time even before being a software operator in various trade-related jobs — driving a truck, stocking shelves at a big-box, home-improvement store in my native Canada, even working at a cemetery — so I understood the market landscape and how technology can help transform these really important, but often overlooked, sectors of the economy,” Battery Ventures principal Sanjiv Kalevar told Business Insider.
The most successful enterprise investments tend to come initially from junior investors like Wang and Kalevar who shoulder a majority of deal sourcing and diligence work for major firms. They are the VCs meeting hundreds of founders, crunching the numbers, and making bold predictions about the future of enterprise tech. If enterprise investing is the backbone of Silicon Valley’s ecosystem, the principals and associates are the nervous system. They make everything work.
The below responses have been edited for length and clarity.