Venture capital funds love to talk about their big successes, whether they are exits or portfolio companies that have issued an IPO. But every now and then, they come across an investment they missed; the one that got away, if you will. Some investors who have experienced these losses opened up to us about those situations.
Missing out on Eynat Guez
Eynat Guez's Papaya Global is worth, as of September 2021, almost $4 billion and managed to complete several large fundraising rounds. It even purchased a company for $200 million. But even though the company has a respectable list of investors who signed a check and brought it to where it is today, there are those who had the opportunity to do so but did not. Liron Azrielant, a managing partner at Meron Capital, told us that "One of the more serious mistakes she made was not investing between $2-3 million in Papaya Global at the beginning of 2018. Eynat was excellent and I saw that she 'had it', but I thought the business was a little too service biased. What's more, as a fund that usually invests in early stages, we didn't quite know how to be involved in a company that already had dozens of customers and experts, and a valuation that was higher than what we're used to dealing with.”
Azrielant said that it is difficult to define how much the fund missed out on in terms of the multiples it could have received on an original investment that didn’t actually happen four years ago, but she claims that today, Papaya is worth more than 100 times the valuation of what was discussed with Eynat Guez way back when they considered investing in the company. "How does it feel to have missed out on this? It's part of the job... I'd rather see and miss the good companies than not have seen them at all," Azrielant added.
How much is 18% of $8.5 billion?
The Israeli cyber company Snyk is a private company – that is, it has yet to issue an IPO – with one of the highest values in the Israeli ecosystem. Last year alone it raised half a billion dollars (yes, a billion, not a million) based on a value of $8.5 billion. So, imagine how bad it is to have signed a check for them when they weren't a unicorn. "We met with Guy Podjarny, founding partner, and Geva Solomonovitch, the COO at the time, in August 2018 at a cafe in San Francisco, when the company was raising a Series B," says Oren Yunger – a partner at GGV, which invested, among other things, in Slack, Airbnb and more. According to him, Snyk wanted to raise $25 million based on a pre-money valuation of $100 million; had they invested, they would have received between 15-18 percent of the company.
"Although it was clear that Guy was an entrepreneur with great ambitions, the field development security was in its early stages; there were not many examples of security companies that relied on developers as the entry point to organizations. Also, Snyk had large competitors in the market with valuation multiples lower than the valuation Guy wanted to raise. Therefore, our firm decided not to invest at that stage," Yunger said. He emphasizes that although when they met with Snyk the market seemed relatively weak, today it is clear that information security tools need to gain the trust of developers in the organization and not just the cyber people – and so they missed out.
Catch the unicorn a decade before it happens
Nimrod Cohen, a managing partner at TAU Ventures, could have had an Israeli unicorn under his belt. He says that a decade ago, he could have been one of the first investors in Appsflyer, which at the time was very far from where it is today. "We already issued a term sheet with them, but there were small gaps between the parties. There was talk of an investment of about half a million dollars for something like 20% of the company. In the end, Oren and Reshef decided not to move forward with us," Cohen said, adding that it is possible that the fact that the fund wasn't confident in Apsplayer's chances of success was what deterred the entrepreneurs from signing.
"I don't think we should have behaved any differently since we behaved according to what we thought and believed at that point in time; analyzing it in retrospect is simply irrelevant. An investor has to deal with a lot of decisions that turn out to be unsuccessful in retrospect (investments he made that didn't work out or those he gave up on that ended up becoming big companies); it's part of our life and we can't avoid it," says Cohen. He added that he recently met with Appsflyer's CEO and founder, Oren Kaniel, and reminded him of the story about the investment that didn't happen: "Let's just say that I've been thinking about this miss more than him ever since..."
The exit that wasn't there
This case is not of a classic venture capital fund, but of the Friendly Angels Club, which is a group of angels from Israel and abroad that has been investing in Israeli startups for the past 16 years. The fund was supposed to take part in the Series B round of a medical equipment company (whose name was not given) at a value of $20 million; four years later the company was sold for $450 dollars. The investment group chose to give up on the investment after the CEO announced that he would not allow the investors to invest the amount of money they wanted.
Eitan Kyiet, a leading partner in the Friendly Angels Club, told us, "The reason we gave up on this came from the understanding that a CEO who says 'no' to money is one that we would not want to continue to work with. In retrospect, it's hard not to be disappointed since the company had such a great success story at a very high value, but during that moment, we understood that when you invest in a company, it is much more than just transferring money; this CEO was not one we wanted to work with and therefore invest in.”
"We didn’t get on the train in time."
And just as such a miss can happen to a group of angels or investors, who usually put money in more classic fundraising rounds, missing out on investment opportunities can also happen to funds that want to get their piece of the pie through employee or investor holdings– what is known as secondary funds. Moran Chamsi, a managing partner at Amplefields Alternative Investments, told us how they missed out on Melio – one of the biggest unicorns in the Israeli fintech world. "Looking back, and moving forward, I look for entrepreneurs that I would like to be by their side on the journey and I must say that Matan Bar, co-founder of Melio is one of those entrepreneurs,” said Chamsi.
"We didn't manage to get on the train in time, and we missed it (for now)" added Chamsi who said that last year they considered a significant investment in the company, which didn't go through mainly because of the fund’s internal processes. He added that since then, the fund has taken stock and hit the ground running in terms of investments, partly thanks to the lessons learned from the missed deal with Melio. "As for missing out, I don't see it that way. In my opinion, the opportunity created a good relationship with the company and opened a window for future collaborations, which is certainly a blessing in itself.”