Interplay, a venture capital firm headquartered in New York, has successfully completed its third funding round, amassing $45 million. This latest fund follows two earlier rounds focusing on early-stage investments, particularly in software sectors like B2B marketplaces and specialized vertical software. We previously reported on Interplay in 2022 during its separate funding initiative.

Mark Peter Davis, the founder and managing partner at Interplay, highlighted in a conversation with TechCrunch the firm’s interest in companies revolutionizing previously un-digitized markets due to unfavorable economics. According to Davis, the recent trend is a move towards specialized services. Newer companies are challenging established broad-spectrum platforms by offering services more finely tuned to specific industries. This strategy has proven successful for Interplay, shaping the investment philosophy of their current fund.

Interplay’s initial fund operated on a small scale, akin to angel investing. However, the second fund marked a shift with external limited partners’ involvement. The third fund, distinct in its approach, attracts institutional investors, including funds of funds, family offices, and founders from Interplay’s own portfolio.

Davis outlines Interplay’s distinct qualities. Firstly, the consistency in their team of general partners, including Davis himself, Kevin Tung, and Mike Rogers, who have a collaborative investment history of over eight years. Secondly, their ability to offer significant value relative to their investment size. Lastly, their unique studio model, which fosters company incubation and creation, enhancing their deal flow.

With the latest fund, Interplay’s total assets under management reach $150 million. The plan is to invest in around 20 companies, allocating $1 to $2 million per investment, reserving funds for subsequent investments. Already, 40% of the fund has been invested, including recent investments in two construction tech firms, OnSiteIQ and Roofr.

2023 presented challenges in fundraising for both companies and venture capital firms. Davis acknowledges the difficult climate, yet praises his team’s achievement against market odds, attributing it to their decade-long dedication.

In recent times, advancing to a Series A funding round has been particularly challenging. Davis agrees that market fluctuations have impacted this stage, but notes that many promising companies are raising capital at what he deems “reasonable valuations.” Despite the lure of higher valuations during the investment surge, Interplay has remained disciplined in its capital allocation, often passing on opportunities reflective of market over-enthusiasm.

Davis finds the current market appealing for investments, as company valuations have realigned with what Interplay considers reasonable. He acknowledges the potential issues for entrepreneurs in cases of overcorrection in valuation but believes that fair valuations set the stage for sustained company success.