Tola Capitalinvesting in AI-enabled business software, is the latest venture capital firm to announce its new fund, securing $230 million in capital commitments for its third fund, raising its largest amount to date.
It’s been a long week for new VC funds. Tola joins the likes of NXTP, Saviu Ventures, Kinterra Capital, Riverwood Capital, Twelve Below, SEVA, Ballistic Ventures, Founders Fund and Avra in raising funds with significant capital behind them.
Despite the long list, most VCs say the fundraising environment of the past year has been difficult. However, with the huge interest in all things AI, it was still a good time to raise a new fund, Sheila Gulati, co-founder and CEO of Tola Capital, told TechCrunch.
Gulati started Tola Capital in 2010 with a team of experienced enterprise software operators at a time when cloud computing was gaining steam. Gulati herself previously led enterprise IT strategy for Microsoft. During this, he launched the Microsoft Azure cloud platform and ran the database and developer tools businesses.
“I thought nothing would excite me more than cloud computing, but I was wrong,” Gulati said. “AI is so big, so interesting, so game changing. The opportunities we have to completely change the way we work are truly mind-blowing. The people who are investing in this AI paradigm shift, especially in the early stages, are truly unparalleled.”
Eyes on AI
Nothing has shaken up the subject of artificial intelligence more in recent weeks than the chaos at OpenAI. Many of Tola Capital’s portfolio companies rely on GPT, and the firm proactively worked with them for contingency plans, Gulati said.
During this time, Gulati touched on OpenAI’s non-profit governance model. He noted that “how we do governance is sub-optimal” and the way decisions are made on boards can “kill innovation across the board”. However, now that the matter has been settled, Gulati believes that OpenAI is “in a better position, which is great for the entire industry.”
Meanwhile, including the new fund, Tola Capital has raised $688 million in total capital to date. It invests in seed and early-stage startups that are innovating the business software industry using AI. IDC predicts that the global artificial intelligence software market will generate nearly $792 billion in revenue by 2025.
The company isn’t investing in the foundational level of AI, but more in that next level, what Gulati called the “business scaffolding” of AI. For example, responsible AI, AI security and application-level AI.
What Tola Capital looks for in a startup
This thesis has proved successful. The company’s previous two funds yielded more than a dozen exits, including Clipchamp, a video software company acquired by Microsoft. OSIsoft, a data management company acquired by AVEVA. and Hybris, a tool for e-commerce customers acquired by SAP.
Tola Capital III will invest in 25 to 30 companies worldwide. Average check sizes will range from $1 million to $4 million for early-stage companies and $5 million to $15 million for Series A and B. The company has already raised capital in eight companies, including Arcus, ESG Flo, FeatureByte , Fetcher, Holistic AI , Langsafe, Lumeus and Zilla.
The firm likes to invest in companies with “real invention.” Gulati describes having the right team, the invention, the overall addressable market, and then the culture of how to bring it all together into a company that is a talent attractor.
“We write deep and lengthy cases that we believe should exist in the enterprise software market,” Gulati said. “Then we chase these things. We want people who want to build huge, game-changing businesses. They have that ambition and we want to be on a journey with someone who is not afraid to scale and run multi-billion dollar businesses.”