A week of reflection
Gil Dibner

The past week was one of introspection for many early-stage VCs. First on the seed market, and next on the meaning of it all.

Seed arms race. Much attention was focused on Greylock’s $500M seed fund (coming not long after A16Z’s $400M seed fund, Index’s $200M seed fund, and Sequoia’s $195M seed fund). Phil Barnes tweeted some thoughts on the market and what it means for early-stage funds: “In this new world for GPs,” he wrote, “you have to pick the competitive lever you want to pull, and then pull it as hard and far as you can — the only thing rising faster than the competition’s fund size is the pressure to offer a truly differentiated service.” As Samir Kaji pointed out, the semantics here are confounding. “Announcements like Greylock’s $500MM seed fund provide shock value in headlines, but it’s just another sign of how amorphous the capital market has become today within tech. Putting anything in neat little boxes like Seed/A/B is pointless.”

Another great take on this was by Biz Carson in Protocol, who called what is happening in “seed investing” by its name: an arms race. “There’s a question whether these funds are playing offense or defense,” writes Carson. “Offense: Snap up larger stakes in the best startups earlier. Defense: Don’t let the Tigers of the world eat their lunch in later stages. The answer: Both, as VCs get sandwiched.”

He goes on to write (along with Gale Wilkinson) that the seed market will bifurcate into two categories: “The first: multistage firms raising the giant seed funds. The result for founders will be more money at higher valuations with more resources, said Wilkinson. The flipside: The potential for signaling risk if one of the firms doesn’t double down on the company. Plus there’s a fear companies can take on too much funding, she said. The second camp will be specialized seed firms with strong brands that founders want to work with. They admittedly have fewer resources and can’t go lead a Series F down the line, but founders are choosing to work with specialists in the early days to get companies off the ground, Wilkinson said, before turning to multistage funds to pour fuel on the fire.”

I think this is pretty much accurate — and I would add that (semantics aside), this may just be part of a natural and cyclical evolution. Large multistage firms doing first checks of $5–25M is pretty much exactly what venture capital looked like in previous eras. As markets mature and evolve, the list of participants naturally changes. A number of large, later-stage, primarily financial investors are showing up and competing in the Series B+ phases. Fortunately, the climate has enabled a number of new “first check” firms like Angular Ventures to emerge and compete for the first check. Perhaps Angular faces more competition in 2021 than if we had emerged in 1995, but we also face more opportunity — so I suspect it all nets out. And I agree with Biz and Gale that the real threat here is to undifferentiated “traditional Series A investors” who don’t really have a strong brand, don’t have any particular sector expertise or passion, don’t have the dollars to compete at the Series A/B+ anymore, and don’t really have the DNA to work hand-in-hand at day zero.

The meaning of it all. I was personally moved this week to learn that Roger Ehrenberg of IA Ventures announced his departure from IA in a beautiful and moving blog post. The week also saw similar announcements from Bijan Sabet at Spark and Jeremy Liew at Lightspeed. Three announcements does not necessarily make a trend, but perhaps something is going on here. Venture is changing, the pandemic has changed all of us, and some of the more successful VCs of a previous generation have profited so much from the bull market that they might be facing shifting incentives. The announcement from Roger, however, hit me personally. First, Roger has been a guiding light and an inspiration to me. As Craig Thomas wrote, Roger was — to many — the “best investor” they had ever met. “I’ve never met someone who had such a nuanced view of risk while also swinging for the fences. Not to mention the EQ to build a world-class, enduring partnership.” Second, Roger was generous with his wisdom and guidance. I experienced this personally. Thank you, Roger.

Semil Shah reflected on all of this in a deeply personal post: “[Successful VCs] have all been blessed in their own way. I always remind myself, I have the best job in the world. It is amazing and I can never take it for granted. I know many friends I work with feel this deeply. At the same time, these folks face human challenges that are independent of luck or fortune, all amplified during the darkness of shutdowns. And they take their commitments seriously. Committing to a new fund is like saying “sign me up for another 10 years.” That’s a daunting amount of time when cast against the past 18 months of being cooped up, examining every bit of our lives under the most intense microscope. There are countless blessings, but no one can escape the curses that come their way.”

Semil continues: “Stepping back from venture, we all have likely discovered cracks during the introspection of Covid. Now that we are on a path to re-opening and getting a lay of the new land ahead of us, we will have to face these new realities and assess “How do I want to deal with this?” Some of these are tactical; many of these are deeply personal. Where do I want to live? Who do I want to spend more time with? What have I sacrificed on this path that I need to repair? What is important to me that I have to protect? What is ephemeral or everlasting? No one has experience with “How do you reemerge after a pandemic?””

Yes, Greylock’s new seed fund is big. But as we emerge from the pandemic, we all face personal questions that are, perhaps, even bigger and not about money at all.

EVENTS

Sept 29 / Scaling Sales: Crafting the Right Approach
Ben Braverman, Chief Customer Officer, Flexport

Oct 13 / Fireside Chat with Leigh Moore, VP of Marketing at Snyk
Leigh Moore, VP of Marketing, Snyk

Oct 20 / Building Developer Products and Communities
Amir Shevat, Head of Product — Developer Platform, Twitter

Oct 27 / Open Source and Category Creation
Emil Eifrem, Founder & CEO of Neo4j

FROM THE BLOG

Why we Invested in CruxOCM:
Robotic Industrial Process Automation

The Great Acceleration of Seed Investing:
Can seed funds and accelerators work together?

Angular’s Brand Strategy:
Revisiting our brand as we launch our new website

Why we Invested in Levity.ai:
A no-code ML-powered workflow on every desktop

EUROPE & ISRAEL FUNDING NEWS

France/Marketplace Builder. Mirakl raised $555M for its marketplace SaaS platform that enable organizations across B2B and B2C industries to launch marketplaces faster.
Israel/Automotive Security. Cybellum has been acquired for $240M by LG for its automotive cybersecurity software that detects and assesses vulnerabilities in connected vehicle services and hardware by way of a “digital twin” approach.
France/QR Codes. Sunday raised $100M for its QR checkout system for physical restaurants.
Israel/Video Streaming. Qwilt raised $70M for its software that accelerates the pace and streaming of live video and VOD broadcasts and reduces latency.
Israel/Security Tooling. Panorays raised $42M for its cyber risk management platform.
Israel/Agtech Bots. Blue White Robotics raised $37M for its autonomous farming technology that utilizes existing infrastructure and manages year-round farm operations.
Israel/IoT Security. Sternum raised $27M for its endpoint security builder for IoT devices.
Turkey/Warehouse Safety. Intenseye raised $25M for its AI-powered employee health and safety (EHS) software platform to mitigate workplace accidents and fatalities.
UK/Payments. Vyne raised $15.5M for its new approach to payments and other financial services that disrupts traditional card-based infrastructure by linking directly into banks.
UK/DevOps. Cloudsmith raised $15M for its artefact repository and caching platform that provides digital storage for software assets under development.
Israel/Education. GrowthSpace raised $15M for its personalized learning and development platform aimed at employees.

WORTH READING

ENTERPRISE/TECH NEWS

Unicorn map. A map of Israeli tech unicorns, updated for 2021, by our friend Eze Vidra at Remagine Ventures.

Data map. Our friends at Sapphire Ventures released a very comprehensive look at modern data stack startups coming out of Europe and Israel. We were happy to see our portfolio companies Sisense, Firebolt, Snyk, and Valohai listed there already.

HOW TO STARTUP

Scaling to $100M in sales. It’s pretty easy to argue that $100M in revenue is a far more meaningful (and objective…) measure than “unicorn” status. It’s a bit harder, however, to actually navigate to $100M from $0. To help with this, Bessemer just released a study of lessons from tech companies that scaled to $100M, and it’s a great read. Among other things, the report highlights the “growth endurance” concept that Bessemer started talking about earlier this year. “While we know the average growth rate for a cloud company tends to decrease over time, as investors we are often tasked with modeling out the future growth of a company based on imperfect information. A helpful heuristic that we like to use is the idea of Growth Endurance, which we explored in this year’s State of the Cloud 2021. Growth Endurance is the rate at which growth is retained from one year to the next, which tends to be very consistent in cloud companies. As the analysis below shows, when we plot the percentage of ARR Growth lost between each year, we find that it decays at a fairly predictable 30%. As a private cloud company, you should expect next year’s growth rate for your business to be ~70% of the current year.”

The report touches on many other concepts as well, including retention: “Retention is one of the most important measures of your cloud business’ health, as it preserves the unit economics of historical customer acquisition. Furthermore, when you retain existing customers, you do not need to use valuable sales and marketing dollars to refill a leaky bucket but can use that capital to generate net new revenue (and therefore net growth). Every cloud company quickly learns that every percentage taken out of your retention is taken out of your growth rate….The average net retention is 140% between $1–10MM of ARR, decreasing to 120% for $10–100MM+.”

The right way to get intros. Asking for the right introductions from the right people in the right way, is a critical part of being a successful founder. This guide to asking for introductions to VCs is priceless. Here’s one tip I love: “Every forwardable email or investor reachout email should include a blurb. A blurb is a short description that’s used to promote things like a creative work (like on the back of a book), a person, or business. In this case, it makes it super easy for the investor to understand what the business is about and why they should be interested to take the call.”

HOW TO VENTURE

$500M for seed. One of the world’s greatest VCs announced a $500M seed fund. The Information, as always, provided thoughtful coverage. “Greylock has the capital to invest in far more young companies. But such a large effort, which also aims to help founders build and scale their businesses through one-on-one marketing, recruiting and other support, could strain the firm’s resources, especially considering its investors’ plan to continue writing later-stage checks. While Greylock’s 50-person workforce is much greater than that of most seed firms, it is far smaller than some of its competitors, such as Andreessen Horowitz, which has over 240 employees…Greylock’s biggest competition for its supersize seed deals, aside from fellow firms along Sand Hill Road in Menlo Park, Calif., are firms like Tiger Global and Coatue Management that invest in both public stocks and private startups and that appear to be gaining interest in seed-stage deals. The Greylock partners hope the $500 million will send a clear message to founders that it has the money and the time to devote to these young startups.”

PORTFOLIO NEWS

Vault Platform’s CEO, Neta Meidav, talked about how being able to ‘Speak Up’ and report misconduct go hand in hand with creating trust within organizations on the Future Of Work Hub Podcast.

Datos Health’s CEO, Uri Bettesh, shared some of the many ways an advanced, automated remote patient monitoring system can reduce rehospitalization.

Sisense’s Ashley Kramer shared her thoughts on AI, Data Ethics and the future of women in technology.