It’s no secret that startups are going to take a beating in the coming months, and VCs are scrambling to help their portfolio companies weather the storm. When he asked Hetz Ventures how different companies should prepare for the coming year, his managing partner Judah Taub offered some suggestions.
“Here is some of what we said to our own founders,” he said. “Accept reality – don’t expect the market to come back anytime soon. Accept that changes need to be made and start making them quickly.
The second piece of advice was to determine their valuation in the current market. “It’s not a fun drill, but it’s important to get a realistic picture of where you’re actually going and what to expect when you’re ready to increase your next lap,” he said. he continued.
Name of fund(s): Hetz companies
Total fund amount: Nearly $300 in assets under management spread across four funds (Hetz I, II, III and Hetz Ventures Opportunity Fund)
The partners: Judah Taub, Managing Partner; Pavel Livshiz, General Partner
Notable/Selected Portfolio Companies: Aggregate, Trigo, Retrain.ai, 8fig
Judah Taub, Managing Partner of Hetz Ventures, joined CTech for its 2022 VC Survey Series to discuss trends for the year ahead and how best companies can prepare.
If 2020 was the year of the pandemic and 2021 was the year of records, how would you define 2022 in the venture capital industry?
“This year we have seen the reversal of two trends occur. Previously, during the prolonged bull market that we have been experiencing for some time, there were two trends that VCs and founders had become accustomed to: a decrease in KPIs required for their next cycle and an increase in investment amounts. In short: startups were getting more money to accomplish less.
“In 2022, the two factors have reversed – the bar has been prepared and the amount of money available to achieve this new objective has also been reduced.
“What does this mean for startups and their VCs?
The roadmaps have been/are being revised. For some, reaching their initial goals probably won’t be enough to secure their next round.
It’s certainly a difficult psychological environment for entrepreneurs, especially those who weren’t around during the previous major market downturn.
The nominal multiples are always favorable, especially in certain vertical markets. »
Who are the big winners of 2022 and why?
“To see the winners (and losers) of 2022, let’s visit the beach: as Warren Buffett says, “It’s only when the tide goes out that you find out who swam naked.”
“In a bull market, it’s not only hard to differentiate, but it’s also hard to explain why you’re a robust asset rather than a ‘high beta’ asset. Very often it is the companies/businesses/businesses that have built a strong brand that have left their mark during downturns.
“So the VCs that come out ahead in 2022 are the ones that can show that they are an asset class that does well in bad times, as well as in good times.
“The same goes for businesses; when the going gets tough, it’s the startups that create something new – as opposed to “features” or “add-ons” – that can hold their own as the tide recedes. »
Who are the big losers of 2022 and why?
“So who was left without a bathing suit?
“Now that the tide has subsided, it will be clearer which VCs held on to reserves and raised too much money a few years ago and are now struggling to keep up with that pace for their next fund.
“Furthermore, companies valued far too high will suffer on their next raise, having to settle for a lower valuation to earn enough cash to weather this storm. If it’s just flat or round, that’s fine; it’s when they’ve raised too much capital and don’t have enough to prove it that the able can get ugly.
What do you expect from the venture capital industry in 2023?
“The pendulum tends to swing too far, so many VCs might get too scared and overly cautious. At the same time, entrepreneurs learn to adjust their valuation and burn rate, but it’s the VCs who are likely to go overboard.
For us, we are proud to say (at Hetz Ventures) that we have been and will continue to be consistent in our approach. We will continue to seek out and invest in great entrepreneurs with innovative ideas. The truth is, the timing of your exits is far more important than your entries… We rolled out at a similar rate in 2018, 2019, etc., including this year.
What global processes will affect (positively and negatively) the Israeli market?
“Many tech companies here saw the impact of the Russian invasion immediately, seeing their teams of Ukrainian developers take a break, literally overnight, to deal with the fallout of the war shattering their personal (and professional) lives.
“There is no doubt that we are all connected, and each of these issues has an impact on us here in Israel. One thing that all of these global issues have in common is that they highlight the ongoing effects of geopolitics on our markets.
How should different companies prepare for the coming year?
“Here is part of what we said to our own founders:
Accept reality – don’t expect the market to come back anytime soon. Accept that changes need to be made and start making them quickly.
Determine your valuation in the current market. It’s not a fun drill, but it’s important to have a realistic picture of where you’re actually headed and what to expect when you’re ready to increase your next lap.
Priority to efficiency. You may think you’ve done it before, but now is the critical moment – no longer “growth at all costs” but becoming a successful big business in the most capital-efficient way.
At this point, agility is actually more important than skill. The startups that did better at the start of this downturn were the ones that moved quickly to make change – not necessarily the ones that were better positioned overall. »
What will the dozens of unicorns born last year be?
“What matters are the fundamentals of a business. And this also applies to VCs who, similarly, are asked to demonstrate IPRs rather than TPVIs. It’s about actual performances rather than storytelling. We are value investors – with more weight given to fundamentals – rather than momentum, focusing on valuations.
Which sectors will experience an acceleration in venture capital investments and which will experience a slowdown – and why?
“One area we focus on is developer productivity or reducing technical costs. In addition to believing in the investment space, we also believe this is a good indicator for taking the pulse of the broader tech industry. If development can become cheaper or more efficient, it helps lower capital expenditures today and naturally increases the value of dollars spent on innovation (the dollars spent on innovation are highlighted because a much of the start-up investment is spent on development costs).
“Examples of companies in this category include Wilco, a development platform for software engineers, Twang, which develops a universal platform for integrating voice capabilities, and Flox, a cross-platform, repeatable environment manager. which breaks down the entry barrier to develop with Nix.
RH: Do the layoffs, those that have already taken place and those to come, contribute in any way to repairing the distress experienced by companies over the past 2-3 years?
“Given the market, yes, we’re seeing companies cut departments or just slow their pace of hiring. These unfortunate developments will of course have the effect of reducing the cost of startups, but they will also trigger the rebalancing of wage inflation that we have seen in recent years.
“We’ll probably have a delay in taking effect because there’s a rigidity issue (CEOs can’t collectively turn around to employees and say ‘guys, the market has changed, now we’re all worth 10 to 15 % less “). It will take time for wages to even out, however, new companies hiring now may already see the cost of employees drop as signing bonuses slowly fade away.
“It’s important to remember that this market isn’t just affecting companies that have popped up, thrown wild parties, and offered intense job offers.
“It’s not easy to say, but there are second derivatives of everything. When there is less investment, it impacts the ecosystem around it. The ripple effect reaches accountants, bankers, marketing agencies, public relations managers and many others. Just as our startups are tested – having to demonstrate a real return on investment – we will witness the same stress tests among other players in the ecosystem.
Tymely, Wilco and Lama AI – notable portfolio companies of Hetz Ventures
Business Software; AI for customer support with human precision. Tymely is developing NLP-based customer service technology with the goal of resolving customer support tickets faster than human-only solutions and more accurately than current AI solutions.
Founders: Ohad Rozen (CEO), Roy Penn (CTO)
Year of creation : 2020
Development tools; A development platform for software engineers, Wilco provides the employee with a continuous, in-depth and immersive gaming experience, including challenges using different technologies and tools, providing the employee with adaptive and hands-on continuing education that continuously improves the employee’s level of expertise.
Founders: On Freund (CEO), Alon Carmel (CPO), Shem Magnezi (CTO)
Year of creation : 2021
fintech; API-powered loan exchange for SMBs. Lama AI is building a first API lending exchange for SMEs and providing financial organizations, vertical SaaS providers and other partners the ability to generate, manage and deploy capital through the Lama API. Lama leverages collected and verified data to locate the right match from its network of lenders.
Founders: Omri Yakubovich (CEO), Ran Magen (CTO)
Year of creation : 2022
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