It’s no secret that startups are in for a rough ride over the next few months, and venture capitalists are scrambling to try and help their portfolio companies weather the storm. Asking Hetz Ventures how different companies should prepare for the coming year, his managing partner, Judah Taub, had a few suggestions.
“This is some of what we told our own founders,” he said. “Accept reality, don’t expect the market to pull back anytime soon. Accept that changes are necessary and start making them quickly.”
The second piece of advice was to find out its valuation in today’s market. “It’s not a fun exercise, but it’s important to get a realistic picture of where you’re headed and what to expect when you’re ready to ramp up your next round,” he continued.
Name of the fund/funds: Hetz Enterprises
Total Fund Sum: Almost $300 AUM in four funds (Hetz I, II, III and Hetz Ventures Opportunity Fund)
Partners: Judah Taub, Managing Partner; Pavel Livshiz, General Partner
Featured/Selected Portfolio Companies: Granulated, Wheat, Retrain.ai, 8fig
Judah Taub, Managing Partner at Hetz Ventures, joined CTech for its 2022 series of venture capital surveys to discuss the trends for the coming year and how companies can best prepare.
If 2020 were the year of the pandemic and 2021 the year of records, how would you define 2022 in the VC sector?
“This year we saw the reversal of two trends. Previously, during the prolonged bull market that we’ve known about for a while, there were two trends that both VCs and founders had grown accustomed to: a decrease in the KPIs needed for their next round, and an increase in investment amounts. . In short: startups were being given more money to accomplish less.
“In 2022, both factors were reversed: the bar was set and the amount of money available to reach this new goal was also reduced.
“What does it mean for startups and their VCs?
The roadmaps have been/are being reviewed. For some, hitting their initial goals probably won’t be enough to secure their next round.
It is certainly a challenging psychological environment for entrepreneurs, especially those who were not around during the previous great market downturn.
Nominal multiples remain favourable, especially in certain verticals.”
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’s been skinny dipping’.
“In a bull market, it’s not only hard to differentiate, but it’s also hard to explain why you’re a solid asset as opposed to a ‘high beta’ asset. Very often, it is the companies/firms/businesses that have built a strong brand that have made their mark during recessions.
“So the VCs that come out winners in 2022 are the ones that can show that they are an asset class that performs well in bad times as well as good times.
“The same thing happens with companies; When the going gets tough, it’s the startups building 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’s left without a swimsuit?
“Now that the tide has turned, it will be clearer which venture capitalists held onto the shelves and which raised too much money a couple of years ago and are now struggling to keep up for their next fund.
“In addition, companies valued too high are going to suffer on their next raise, having to settle for a lower valuation to earn enough cash to weather this storm. If it’s just one floor or down, that’s fine; It’s when they raised too much capital and don’t have enough to show that the capable can turn ugly.”
What do you expect in the VC sector in 2023?
“The pendulum tends to swing too far, so many venture capitalists can get too scared and overly cautious. At the same time, entrepreneurs are learning to adjust their rate of valuation and consumption, but venture capitalists are likely to stray too far.
For us, we are proud to say (at Hetz Ventures) that we have been and will continue to be consistent with our approach. We will continue to search for and invest in great entrepreneurs with disruptive ideas. The truth is, timing your departures is much more important than your entrances… We’ve deployed at a similar pace in 2018, 2019 and so on, 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 go on hiatus, literally overnight, to deal with the aftermath of the war that upended 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 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?
“This is some of what we told our own founders:
Accept reality: Don’t expect the market to pull back anytime soon. Accept that changes are necessary and start making them quickly.
Calculate your valuation in today’s market. It’s not a fun exercise, but it’s important to get a realistic picture of where you’re really going and what to expect when you’re ready to climb your next round.
Prioritize efficiency. You may think you did it before, but now is the crucial time, and it is no longer ‘growth at all costs’, but to become a large, successful company in the most capital efficient way.
At this point, agility is actually more important than skill. The startups that did best at the start of this downturn are the ones that moved quickly to make changes, not necessarily the ones that were better positioned overall.”
What will become of the dozens of unicorns born last year?
“What matters are the fundamentals of a company. And that also goes for VCs who are similarly being asked to prove DPI instead of TPVI. It’s about actual performance rather than telling stories. We are value-driven investors, with more weight given to fundamentals, rather than momentum-driven, focusing on valuations.”
Which sectors will experience an acceleration in VC investment and which will slow down, and why?
“One space we focus on is developer productivity or reducing technical costs. In addition to believing in the investment space, we also believe that it is a good indicator to take the pulse of the technology industry in general. If development can become cheaper or more efficient, it helps alleviate capex today and naturally makes innovation dollars worth more (innovation dollars stand out as a large part of early-stage investment dollars). that go towards development costs).
“Some examples of companies in this category include Wilco, a skills enhancement platform for software engineers, Twang, which is developing a universal platform for integrating voice capabilities, and Flox, a cross-platform, reproducible environment manager that breaks down the barrier. from entry to developing with Nix”.
HR: The layoffs, those that have already taken place and those that are coming, do they help to fix in any way the disaster experienced by the companies in the last 2-3 years?
“Given the market, yes, we are seeing companies cutting departments or simply slowing down the hiring pace. These unfortunate developments will have the effect of lowering the cost of startups, of course, but they will also set in motion the rebalancing of wage inflation that we have seen in recent years.
“We will likely have a delay in going into these as there is a rigidity issue (CEOs can’t collectively turn to employees and say ‘guys, the market has changed, we’re all worth 10-15 now’). % less”). ”). It will take time before wages catch up, however new companies hiring now can already see the cost of employees decrease, while login bonuses are slowly disappearing.”
“It’s important to remember that this market isn’t just affecting companies that have sprung up, thrown crazy parties, and given away intense recruiting packages.
“This is not easy to say, but there are second derivatives of everything. When there is less investment, it impacts the ecosystem that surrounds it. The ripple effect reaches accountants, bankers, marketing agencies, public relations people, and many others. Just as our startups are being tested, having to demonstrate real return on investment, we are going to witness the same stress tests among other players in the ecosystem.”
Tymely, Wilco and Lama AI: Featured Hetz Ventures Portfolio Companies
business software; AI for customer service with human-level precision. Tymely is building NLP-powered 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)
Foundation year: 2020
Development tools; Skills enhancement platform for software engineers, Wilco offers the employee a continuous, deep and immersive game-like experience, comprising challenges using different technologies and tools, providing the employee with continuous adaptive and hands-on training that continuously improves the level of employee experience.
Founders: On Freund (CEO), Alon Carmel (CPO), Shem Magnezi (CTO)
Foundation year: 2021
financial technology; API powered loan exchange for SMEs. Lama AI is building an API-first lending exchange for SMEs and providing financial organizations, SaaS vertical providers, and other partners with the ability to originate, service, and deploy capital through the Lama API. Lama leverages the data collected and vetted to locate the right mix of its network of lenders.
Founders: Omri Yacubovich (CEO), Ran Magen (CTO)
Foundation year: 2022