For venture capital (VC) firms, high interest rates usually mean trouble. But with promising sectors like AI and cybersecurity, and a smart valuation strategy for potential investments, VC firms can still find plenty of opportunities.
It’s a formula Geneva-based Forestay Capital has been using to good effect recently, as the firm announced on Monday (July 8) that it had closed its second fund on $220 million. Forestay II will focus on investments in the enterprise AI and software-as-a-service (SaaS) sectors, targeting early-stage growth companies with lead investments typically in the $10 million to $15 million range.
With the success of its first fund, Forestay I, the firm has had a strong track record, investing in 13 companies, of which three have become unicorns (valuations over $1 billion) and two have been acquired.
The Forestay II fund has already started deploying capital and partnering with startups in the enterprise AI space, including Veriti (cybersecurity) and Neural Concept (engineering intelligence).
“We are a technology fund focused on enterprise AI, which is a broad term and a broad field,” Frederic Wohlwend, managing partner at Forestay Capital, told PYMNTS, “But for us, the AI component means everything about process automation, everything about data, everything about cyber, and everything about intelligence.”
“And the enterprise component is important because we’re not consumer-facing or market-facing,” Wohlwend added. “We want to invest in AI companies for the benefit of large enterprises.”
A former Chief Digital Officer and data analytics professional at heart, Wohlwend has worked at pharmaceutical companies Serono and Merck and knows how companies function, grow and handle data.
All of these lessons serve him well in his current role, where he takes a surprisingly people-first approach to evaluating what he estimates to be more than 3,000 companies a year. During our conversation, before discussing how much his firm has invested, he emphasized the importance of the teams at the companies the fund works with.
“What’s happening with new AI, or generative AI, new versions of AI, is opening up a new cycle, and we’re at the beginning of it,” he said. Wohlwend expects both progress and failure as AI technology matures, a dynamic that investors need to approach very carefully and strategically.
Trust the process in investing in your future
Forestay Capital’s investment process is characterized by high selectivity and thorough due diligence. Forestay aims to focus on companies at inflection points and help them significantly scale up.
“We buy companies at a tipping point, meaning as soon as they’re doing 4-5 million in revenue, and our aim is to get them to $50-100 million in four to five years. Timing is very important because technology cycles are very short,” Wohlwend said.
He pointed out that Forestay offers more than just financial investment.
“We often say we go beyond equity to provide entrepreneurial capital, so the contribution part is really important,” he said, highlighting the firm’s active role in supporting and advising its portfolio companies, an approach that includes working closely with management and board teams to ensure successful expansion.
Portfolio company Neural Concept is a great example: Forestay identified the company well before it began raising capital, allowing time to build a relationship and ensure fit.
“Neural Concept had all the right elements in place. That doesn’t mean it’s going to be easy to scale, but, you know, the founders worked with us and were open to our advice. Forestay Capital is not a shoot-and-pray type of investor. We don’t run statistics by numbers,” Wohlwend said.
Wohlwend sees great opportunities for AI in enterprise applications, but warns against hasty adoption without proper coordination.
“In the enterprise space, the winners will be those who smartly adopt new AI technologies. Some will simply sleep through the opportunity and lose out to the competition,” he said.
He also highlighted the importance of data quality in AI applications.
“On AI, we talk about LLM and all these models, GenAI, ChatGPT,” he said. “They’re all great, but if you put garbage into ChatGPT, it will eventually produce garbage.”
Drawing from his experience as a chief digital officer, he highlighted the challenges large enterprises face with data scattered across multiple applications and complex AI integration.
Going forward, Forestay Capital plans to continue focusing on the enterprise SaaS, B2B and AI spaces while exploring potential vertical funds in cybersecurity and digital health. “Enterprise SaaS, B2B, AI spaces — these are all things that are going to be there and what we want to do is be the best at what we do,” he said.
The company is also looking to expand geographically, with plans to establish a stronger presence in the United States while maintaining bases in Europe and Israel.
“We believe in growing organically. Europe is our base, but we see great opportunities in the US. Setting up a branch in the US makes a lot of sense for our portfolio companies,” Wohlwend said.
