Amid artificial intelligence (AI) boom, US venture capital (VC) firm Forum Ventures has decided to take a more active role in building the next wave of North American artificial intelligence software startups by opening a venture studio in Toronto in 2023.
The forum chose Toronto given the city's growing tech ecosystem, high talent density and lack of “true early-stage risk capital.”
The early-stage investor has since raised US$21.5 million ($30.2 million CAD) through two funds to support the strategy and launched 17 of a planned 30 startups. Fresh off the close of its second fund, BetaKit sat down for an exclusive interview with Forum CEO and Managing Partner Michael Cardamone and partner John Midanick about why the US venture capital firm decided to build an artificial intelligence-focused venture studio north of the border.
Cardamone and Midanik said the Forum chose Toronto for the initiative because of the city's growing tech ecosystem, high talent density and lack of “true early-stage risk capital.”
Midanik said Forum, which is headquartered in New York and also has a presence in San Francisco, saw an opportunity in Toronto to attract more “pre-revenue, pre-product” investment and access U.S. venture capital networks.
Forum began building this artificial intelligence venture studio with an initial “test fund” of US$10 million ($14 million CAD) in 2023. The fund's early results prompted Forum to close a new US$11.5 million (C$16.1 million) successor this year to continue the same strategy.
The limited partners of the venture firm's artificial intelligence studio's second fund consist primarily of existing Forum investors, including lead Right Side Capital Management, as well as undisclosed family offices, high-net-worth individuals, and technology entrepreneurs and operators.
Forum, which originally started out in San Francisco as Acceleprise, has been investing in early-stage SaaS (software-as-a-service) (B2B) startups since 2014. The venture capital firm has backed more than 500 B2B SaaS businesses, which have raised more than US$1 billion (C$1.4 billion) in follow-on funding during that time. Today, Forum has more than $125 million (nearly $175 million Canadian) in assets under management.
The venture studio is applying Forum's existing model to early-stage startups and complementing its existing Accelerator program, which is currently in a sixth fund worth US$22 million ($31 million CAD), as well as a third pre-seed fund for which it is still fundraising but expects to be of comparable size.
Cardamone said artificial intelligence venture studio Forum let the project go even earlier, while multi-stage investors are increasingly moving up the stack due to increased competition at later stages.
The forum believes the technology market is in the midst of a “platform shift” as AI changes the way B2B SaaS solutions are built, sold and deployed. The venture capital firm is betting that by providing early capital and the right backing in exchange for a larger stake, it can tip the scales, reduce risk and accelerate the growth of new B2B SaaS startups with artificial intelligence at its core.
Through this artificial intelligence studio, Forum invests US$250,000 ($350,000 CAD) in startups at their formative stage, allowing founders to retain majority ownership and board control as the company strives to act as a “hands-on co-developer rather than a controller.”
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“Not every studio follows this model, and we see the biggest thing that founders, especially long-term founders, want is to want to control their own business,” Midanic said.
The forum partners with subject matter experts—often full-time founders—to launch AI, B2B SaaS companies in sectors such as vertical and agent-based AI, fintech, advanced manufacturing, healthcare, and AI infrastructure. Portfolio companies receive go-to-market, engineering, product development, design, finance, fundraising, human resources and recruiting assistance from the Forum platform team, as well as access to the network of venture capitalists that the company has developed over the past decade.
The approach is still working, according to Midanic: 63 percent of Forum's AI studio portfolio startups have raised additional capital within 12 months of inception, above the company's historical average of less than 50 percent in 18 months.
Midanik, who previously founded and led marketing technology startup Limelight Platform in Toronto and was introduced to Forum through an investment in his company, led the placement of AI Studio Forum's funds in Toronto, where 12 of the venture studio's 15 employees work. Nearly half of a venture firm's entire workforce is now based in Canada. Its Canadian portfolio companies include those based in Toronto Private AI And SupplierPM.
Midanic said Forum has backed more than 15 Canadian startups annually through its funds over the past five years — and he expects the venture capital firm to continue to forge ahead with its latest fund, AI Studio. AI studio Forum has co-launched three Canadian companies so far, including Toronto-based enterprise AI deployment platform Identity Machines. Midanic expects to help build at least three more, and possibly more, through his latest fund.
Image courtesy of Forum Ventures.
