It seems that the most interesting question in the past year was "what will be the next unicorn"; in 2022, the most popular question will probably be "when will the celebration end". This question, among many others, was at the center of the annual "Trends and Forecasts" conference held this week that brought together some of the most prominent investors in Israel.
Several representatives of Israeli venture capital funds spoke on stage, including Guy Katzovich from the Fusion Fund, Gigi Levy-Weiss from NFX, Kobi Samborsky from Glilot Capital, Sivan Shmary Dahan from Comra Capital, Tal Morgenstern from Lightspeed, Amit Karp from the Bessemer Fund and Aya Peterburg from S Capital; In addition, several local activity managers of American venture capital funds, such as Yifat Oron, who leads the Blackstone Fund's investment activities in the Israeli market, and Liad Agmon, a partner in Insight Partners, and until recently an entrepreneur himself, also participated.
"You will find the most prominent and urgent companies with $ 60 million down their throats"
One of the almost inconceivable trends until a year ago was that instead of entrepreneurs chasing after money, money chases after entrepreneurs. Kobi Samborsky, co-founder of the Glilot Capital Fund, says that investors today do not have too much time to perform due diligence for transactions: “What once took us a month, now must be done much faster, and the ambition is not to overlap. Funds have 3-4 days to submit a Term Sheet (Preliminary Pre-Investment Document) which is fine with companies in A and B rounds because we already come with information and insights and a challenge at earlier stages, but on the other hand, it causes everyone to specialize". Amit Karp from Bessmar also agrees, "Between us, we do not need all this time so I’m not sure it’s a bad thing, but we are now in an extreme situation, that if I do not know the field, I don’t have much time- and I do not like to be stressed." Sivan Shimri Dahan, from Qumra, added that one of the dimensions that can be harmed in an accelerated due diligence process is on the personal side - that is, tests and conversations with the founders themselves, customers and management: "We like to look at customers straight in the eye and understand the market and whether this is a company that will reach revenues of $ 100 million… There is nothing that compares to this, so it is important not to lose that aspect along the way."
In general, if there is one thing that the investors in the conference agreed on, it is that the world of investments - including all the players in it - is changing before our eyes and will not return to what it was. Tal Morgenstern, for example, claimed that two types of investors would be dominant: the "boutique" investors in the early stages - that the founders want right next to them, as if they were their founding partners, under their stretcher from the first investment day - like Gili Raanan from Cyberstarts; YL Ventures fund or Glilot Capital Partners; And on the other hand, the funds that act like hedge funds: "Sit on the Bloomberg Terminal, you will find the most prominent companies and they have $ 60 million down their throats." Morgenstern argued that those who should be concerned are the funds that are in the middle "Generic funds are those that are not big enough or crazy enough on the one hand, and on the other hand are not boutique enough."
“Today, the entrepreneurs are the ones doing due diligence on the funds”
According to Morgenstern, a large amount of money in the market leads to funds diversifying their investments: “I am completely in favour of 21-year-olds receiving a $10 million cheque and going on to build companies. In the end, it's a game of supply and demand, and I'd rather have it than work at a Cellcom service center.” However, he admits that the immaturity is sometimes noticeable during the due diligence process, and dives into the numbers presented to the funds with about 20 percent inaccuracies he found in the data he received. "But at any given moment I prefer the market as of now over that of a decade ago with the 'gatekeepers' shaking their heads… I was there, on the side that raised funds, and it was terrible" he concluded.
Aya Petersburg from S Capital also described how the situation has changed on the ground. “Today the entrepreneurs are doing the due diligence on the fund. Checking how we behaved on rainy days. In general, my recommendation to every entrepreneur is to do due diligence on the investor and see not only how the meeting was, but how they behave on rainy days. " Sivan Shimri-Dahan from Qumra added: “Once upon a time, investors lived in an ivory tower. The entrepreneurs flowed, there were endless meetings and when the money was eventually given to them [the entrepreneurs], the investors felt like they were doing them a favour. Today, the investor’s role to act more as partners has sharpened and this is the concept that will remain for years to come.”
"It does not make sense for people to make 10 times more on their money"
Of course, above all, the question that hovered was- are we in a bubble. The inconceivable numbers suggest so, but on the other hand, even the prices of apartments a decade ago were said to be unfounded, and we have seen well where they have grown since. Even investors, at least those who participated in the panel, are not indifferent to the unusual transactions. Amit Karp, for example, argued that it made no sense for a company with $ 5 million in ARR (recurring annual revenue) to raise at a value of half a billion dollars, while Wix, with over $ 1 billion ARR, is worth "only" $ 7 billion: "There is a dissonance between private and public companies, and someday the correction will come." Kobi Samborsky from Glilot also points to the gap, although he says he is an "irreparable optimist."
According to Samborsky, the industry is moving from relying on sales and is merging to IPOs and trades, because that is the only path that valuations allow today, but there will also be casualties along the way: “We also see unicorns getting slapped in the face and closing, but it’s not the end of the world. It's part of a market that works.” But not only will unicorns take a hit, Samborsky argues, but their funds and returns will also not stay the way they are forever: "It doesn't make sense for people to make 10 times as much on their money at a relatively low risk, there will be those that will get snatch, and that's fine, too." Sivan Shimri Dahan of QUMRA pointed out the difference between the public market and the private market and argued that despite a 40 percent lowered correction, there is still a disconnect: “We invest in start-ups- in dreams, and even though we have to pay for valuations we did not pay for before, in the end, we look at the Product-Market-Fit- whether the product is needed, whether customers do not abandon it the second they have less accessible money and whether the entrepreneurs are ready for more difficult times". Tal Morgenstern, on the other hand, claimed that we are not in a bubble: “There is a very clear direction of a flight to Mars, but it is because the world is moving fast for technology and innovation. Look at the composition of the S&P 500 companies 15 years ago and today. True, there is a sine graph and there will be a correction, but the direction is clear. " According to Morgenstern, the public thinks that technology stocks are safer than investing in gold, gas or wheat: "Parents want their children to be data scientists or engineers at CAND - this is already considered a secure job."
Yifat Oron, the Israeli operations manager of the American investment giant Blackstone, which is responsible for investments of $ 600 billion, also believes that we are facing a correction, "the statistics are meant to straighten out and put 'bumps', so it is very difficult to predict the market and companies that will be snatched". According to Oron, the funds are looking for companies that can survive the same bumps and even if they do not come out completely immune, at least they will not collapse.