Israeli startup Axonius recently raised $100 million at an over billion dollar valuation, joining the prestigious, but getting crowded, Israeli Unicorn club. Despite the tantalizing valuation, YL Ventures, the company’s initial investor, decided to sell its stake in the company for $270 million. So, we jumped on the phone with Founder and Managing Partner Yoav Leitersdorf to find out the reason behind this curious move.

“The decision kept a few investors on the outside”

Back in 2017, YL Ventures led Axonius’s Seed round, investing $3 million in the young startup, which was founded by 3 former officers in the elite 8200 military unit. Back then, the company was comprised of a small tactile team of ten. Fast forward to 2021, the company employs a team of more than 150 employees, reports 1000% rise in earnings, and witnessed its ARR grow from a million dollars to $10 million in little over a year.

“We started out with 30% equity in the company,” tells Leitersdorf. Over the years, the VC fund’s equity dropped a bit, in accordance to the allocation of employee and founders options. “The company was doing really well. Sales were going through the roof. The success was phenomenal,” he recalls. And still, we couldn’t help wondering why sell one of the hottest stocks in town. Turns out that Axonius’s mega-round is what brought YL Ventures to pivot.

Leitersdorf explains that a couple months ago, Axonius CEO Dean Sysman decided to raise $100 million, only to find demand for investment reaching over a half of a billion dollars. “He just had to choose from whom he wanted the $100 million.” Eventually Sysman closed with Stripes, but Leitersdorf says that the decision kept a few investors on the outside looking in. “The company said that they would sell our stake in the company, based on the round’s valuation.”

“We asked Dean who he wants to benefit from the sale, because he will have to live with the new guys after the round. He wanted us to sell to investors that could help the company go public and make introductions to other investors, who would invest in the IPO. We followed his request, and sold the shares to his desired investors. Everyone was happy,” Leitersdorf tells. The firms acquiring YL’s holdings in the Israeli startup were Harmony Partners, Alkeon, ICONIQ, and DTCP. The 4 firms purchased the shares for a total of $270 million, in comparison to YL Ventures’ total investment of $25 million in the company earlier on. “We are very happy with our ROI… That’s a lot of money for 3 years of work.”

Still, why sell?

Leitersdorf: “We are Seed investors. Our backers want us to invest in Seed rounds, scale the companies, and the invest more in Seed companies. Our whole operation is designed to help Seed level startups scale towards the U.S. market… The valuation skyrocketed, we had the opportunity to realize our options, and that’s exactly what we do. This move helps free up time and capital to invest in new companies and run it back again.”

“The investors want to see the money”

Leitersdorf explains that the VC fund is not interested in exposing its investors to late stage: “When there’s opportunity to realize our shares on an early-stage investment, it’s expected we do that. The investors want to see money… There’s no reason to hold the shares forever, and never see the money… If you don’t realize your options, then you’re not effective as a VC fund.” According to him, the fund’s ARR is currently kissing 50%.

The Axonius investment came from YL Venture’s 3rd fund. Leitersdorf defines the sale as a “win,” and it’s not hard to see why, as the ROI is worth way more than the 3rd fund’s $75 million pledged for investment. YL’s 4th fund has already hit the $135 million mark, and has participated in 4 Seed rounds to date. However, Leitersdorf explains that with all the fresh money coming in, the fund could make 6 or 7 more investments before closing the ticket.