Dealmaking

DNX Ventures closes on $315M fund to back B2B startups

DNX's average check size per investment will be in the range of $1 million to $5 million

DNX Ventures, a VC firm focused on investing in early-stage B2B companies, has raised $315 million in its third fund.

The raise was oversubscribed, according to DNX Managing Director Q Motiwal. It was also significantly larger than its second fund – which closed in 2014 with a raise of $170 million (followed by a $40 million annex in 2019) – and its first fund, which closed in 2011 with a $40 million raise.

DNX plans to invest in a total of 40 to 50 companies out of its third fund with an average check size per investment falling in the range of $1 million to $5 million. The firm plans to invest about half into U.S. companies and half in Japanese startups (out of its offices in San Mateo, Calif., and Tokyo).

Founded in 2011, DNX is a member of the Draper Venture Network and is focused on backing companies in the cloud and enterprise software, cybersecurity, frontier tech, fintech, and retail tech sectors. 

Closing a fund of this size during a pandemic is impressive – and intentional, according to Motiwal, who believes that some of the world’s biggest & best companies were founded during economic downturns.

“Originally, we thought we’d end up at $275 million or  $300 million,” he told FinLedger. “We believe that entrepreneurs growing and building their business during a very tough time often have a lot more resilience, which ultimately leads to better returns.”

LPs in the new fund are a mix of financial institutions, banks and large corporates.

Over the years, DNX has invested in over 100 startups, 13 of which have gone on to exit via M&A or an IPO. One example is BlackBerry acquiring cybersecurity startup Cylance for $1.4 billion in 2019.

DNX has already invested in several startups out of its new fund, including B2B payments innovator Paystand and Diligent Robotics.

As FinLedger has previously reported, companies like Paystand are seeing increased demand due to the COVID-19 pandemic.

“It’s all about creating a Venmo-like service between two businesses and removing a lot of paper invoices coming in,” Motiwal noted. “And demand for that has accelerated by the way of this pandemic, where people are working remotely and there’s nobody in the office to receive checks and approve them.”

Also, DNX is interested in backing cybersecurity startups because with so many people working outside the office, “you’re no longer sitting at the enterprise..you’re now working from Starbucks or even from home.” This means greater opportunities for cyberattackers, as we outlined in this FinLedger piece here.

Looking ahead, Motiwal said DNX may be looking to invest in B2B lending companies.

“It would be crazy for us not to do more investment in the space as long as they don’t compete [with Paystand or other portfolio companies],” he said.

In general, DNX believes in sticking to its previous investment thesis, and not going overboard with trying to invest in too many companies.

“You want to make sure the quality of the deals remain the same,” Motiwal told FinLedger. “We do really well in the early stages. If you try to veer away from that, I think it affects the DNA and also your returns.”

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