From left, John Loser and Eddie Segel, founders of venture firm Floating Point. Photo: Ben Hider

Floating Point sponsored its first roll-up—of a car-washing business—in 2021, years before the notion of buying analog caught on among venture investors.

“The idea that this could be somehow a venture play was quite foreign to people,” said John Loser, who co-founded Floating Point alongside Eddie Segel. But both envisioned Sun Day Carwash as an enhanced robotics startup operating in a low-tech industry with a subscription model—a business that might generate venture-type returns.

Galvanized by the possibilities of artificial intelligence, more venture firms are starting to do what Floating Point has been doing for the past five years: invest in “real world” businesses and give them a tech makeover.

Loser and Segel, both general partners, have raised a $125 million third fund to expand on their strategy. The firm operates out of New York and Boston.

Interest from other venture firms in Floating Point’s investment style has brought more co-investors into deals, Segel said. But it’s also starting to present problems, like rising valuations more typical of digital companies. “Venture investors are backing all kinds of new business models, but still paying for them like software companies,” he said.

Before Floating Point, Loser and Segel had been on the founding team at insurance company Oscar Health, where they contributed firsthand to building a tech-enabled services startup in a regulated industry, and did that using financial instruments besides just equity capital.

The fund

Floating Point III is larger than its $70 million predecessor, a 2023 vintage, and its 2021 debut pool of $56 million. The firm now has more than $300 million in assets under management. With the larger fund, Floating Point intends to lead more deals and write larger checks, Segel said.

The new fund’s initial bets range from exploratory investments of $500,000 to bigger wagers in the $5 million to $7 million range. The fund will back about 20 companies and focus on eight core positions.

Limited partners in the new fund include PagsGroup, the family office of Stephen Pagliuca, a former co-chair of Bain Capital; and the billionaire Pritzker family office.

The strategy

Floating Point invests not just in software vendors, but in real-world service businesses and physical assets in heavily regulated industries, as well as deploying private-equity-style strategies such as buying add-on businesses for growth. What start out as nuts-and-bolts companies can be updated with technology.

“The whole vision of what a tech company can be has expanded over the last several years. We’ve always been pushing that point of view,” Loser said.

One of the top companies in Floating Point’s second fund is Ledgebrook, a specialty insurance carrier. The firm’s initial $4 million investment in Ledgebrook today accounts for about $39.1 million in net asset value, per the firm.

Ledgebrook had been around a few years, yet had no revenue when Floating Point invested in its Series A. To many, that would be a red flag, Loser said. But as Oscar veterans, the Floating Point partners understood the years of regulatory approvals and trust-building with reinsurance partners it would take to get the business off the ground.

Today Ledgebrook is generating about $200 million in annualized revenue, Floating Point says. A June financing valued it at $2.7 billion, per research firm PitchBook.

Floating Point’s portfolio of about 45 companies also includes businesses such as global trade company Altana; Brazilian online pharmacy company Mevo; Ataraxis, an AI-inflected cancer-diagnostics company, and Commons Clinic, a provider of orthopaedic surgery.

Distinct from venture’s straight reliance on equity capital, Floating Point also employs nondilutive funding sources to help grow its businesses, from venture debt to equipment financing. The firm also recognizes that many of its startups won’t show the immediate hockey-stick growth an AI app might.

“That real-world infrastructure takes real-world energy and time to create. It’s very much a slow build,” Loser said.

Write to Yuliya Chernova at yuliya.chernova@wsj.com