Another VC Fund?!

I’ve been spending a lot of time thinking about what differentiates us as an investor. This was triggered from two different directions. The first is the explosion of new venture funds. It seems everyone I talk to is raising a fund these days. The tech media headlines indicate lots of capital looking to be deployed, at all stages. Differentiating your product is necessary to stand out in a crowded market.

The second, and more important consideration is rather from the other side of the table – why would a founding team choose us as an investor in their company? To be clear, it is a founder’s market today. These large amounts of capital looking to be put to work has led to a rise in valuations and we are seeing deals closing faster than ever (at least for the 15 years I’ve been exposed to venture, I was focused elsewhere in the late ’90s – early ’00s).

[As an aside, the above concerns me because it seems that one of two things are behind it. Either investors are making bets (no other word for it) without doing the necessary diligence. Or, investors are backing “cookie-cutter” founders without considering the hidden-potential of diversifying across first-time founders, female founders or minority founders. Others have written at length about these meaningful topics so I will refrain from digging in here, though that should not diminish from the importance of the conversation.]

Coming back to thoughts on differentiating SapirVP as an investor, we always refer to our tagline of: “Mentorship Driven Investing”. Is this really differentiated? – Today it seems that every micro-VC team claims to be “founder friendly” and “value-add” investors. Are statements like these based on the assumption that every other fund is not adding value? Only emerging managers can add value?

Maybe. We have all met investors who were less engaged and less helpful. These are probably not good early-stage start-up investors, or not a good fit for the company. Some advance diligence regarding the investor may have helped the company avoid that experience. Maybe not. Either way, these investors are not the majority and the market forces should be working against bad players so that they don’t stick around for long (though performance cycles in venture are long, so this is all relative). Most investors, even those who have already had great success and have $B AUM, are in this business to add value. As it should be, because: Venture Capital is a service business.

We only have two types of customers: Founders and LPs.

For LPs the service is primarily financial – take their capital, invest it, report on your progress and do your best to return exciting multiples within a reasonable timeframe. Some LPs are looking to create impact, increase diversity or identify potential strategic value. However, for most LPs the transaction is a financial investment at its core. The service elements here seem clear. Good GPs will be transparent and can stand out by offering unique opportunities of value creation for the LP. While popular in all VC pitch decks, I am not sure that a “unique” investment thesis is enough of a differentiation in today’s market. It is probably more important to show “product-market fit” between the fund (team, size, geography, focus) and the strategy.

Founders should also be sure that they are getting a service. The service level should fit the needs of the company. Industry expertise as well as stage expertise. A biotech spin-out from MIT establishing a scientific innovation as a commercial offering needs a different type of “added-value” than a Series A consumer product company looking for hyper-growth. Some founding teams are seeking the “roll up our sleeves” hands-on involvement to navigate the early-stage foundation-forming period, while others are content with taking capital from an investor and then only engaging with them once a year for the annual update (I advise all founders against this, for various additional reasons detailed in a separate post).

Founders should choose carefully which investors they choose to engage. Not all capital is equal.

The most common term thrown around by VCs is that they are “founder friendly”. Like many informal terms, this seems to mean different things to different people. I’ve found that the gap between speaker and audience can be pretty big when it comes to understanding what this term means.

For us this means that we recognize that the founders are the company. The investor is just along for the ride. Our mission is to find the best way to add value during the different stages of the journey. This can vary from team to team and from company to company. This is what we mean by “Mentorship Driven Investing”. It is a tailored experience, based on the core foundations of our mentorship-model, establishing this relationship even before we invest.

I just threw out another vague term…. Let’s unpack this further.

I’ve come to define Mentorship as the combination of Experience and Empathy. Experience is valuable, but it needs to be shared in a way that it can be received and make a difference. Sitting around telling stories of your glory days will provide few practical tools/lessons for a founder. Using a story to illustrate a situation or share a new perspective will create new neural connections and inspire innovative thinking.

Mentorship is showing, not telling. The mentor serves as a personal example and as a guide. But you can’t just do it for someone else, as they will never learn to do it themselves. And you don’t need to have all the answers. Just ask thoughtful and thought-provoking questions.

The mentor should always be there to help pick up the pieces and help make course corrections. Mistakes will be made and **** happens. It is not about you (or your ego), it is about the founders building an amazing company.

Mentorship is not about being a friend. Friendships may (and should) develop. But the mentor need not try to be a friend, especially if it will make it impossible to have the necessary open conversations about what is best for the company. A mentor is also not a teacher, at least not in the sense of making rules, handing out tasks or giving exams. Inspiring creative thinking and continued learning are great.

I think that we embrace the service mentality in a unique way, but we don’t say “founder friendly”. How then should we convey this to the world?

Earlier this week, my friend Shimon – a successful serial founder/CEO – told me that he thinks that we are “Founder Respectful”. He said some very nice things about our approach vs some of the investors he has dealt with. My takeaway from that conversation is that the empathy element we incorporate into these relationships – as mentors, not friends or investors – is where we truly stand out. It makes all the difference to the founder. This in turn gives the company a better chance of success. Said success should result in those multiples of returns we look to provide to our other customers, the LPs.

Creating alignment across the LP-GP-Founder ecosystem. Multitiered value-add. Practicing what everyone preaches: “It is all about the people.

Study: Covid19 Impact on the Israeli Early-Stage Ecosystem

The world has changed. While we yearn to return to “normal”, the impact of COVID-19 on our lives will create long-lasting change. As far as technology adoption, it will hopefully be for the better. Digital health, vaccine discovery and manufacturing, work-from-home, digital educational tools and e-commerce have all made significant leaps towards mainstream adoption in 2020.

The stock market continues to rise and the headlines in the tech industry are filled with IPOs, SPACs and massive investment rounds. Away from the headlines, we felt that the start-up ecosystem seemed ok, maybe even good, but not crazy good or depressingly bad, like the media has made it sound. We decided to take a closer look at the data which might otherwise be obscured by these dazzling headlines.

We started by collecting data from PitchBook and CrunchBase on over 600 companies that had announced fundraising events in 2020. We analyzed the data and scraped it to 150 companies which fit the criteria matching the stage, industries and geographies where we are active investors. This enabled a comparison to what we were seeing out in the field. To compliment this, we conducted a survey to take a deeper dive with a representative subset of over 30 companies which matched these criteria.

At the highest level, PitchBook reported that in 2020, “investors deployed $156.2B into start-ups, liquidated $290.1B of value via exits, and closed on $73.6B [of new capital] in traditional VC funds.“[1] Clearly a frothy market. But where are all those investment dollars being deployed?

Pitchbook continues: “…the investment cycle, seed-stage and first-time financing activity fell sharply, proving a more challenging fundraising environment for newer entrepreneurs.”1 CrunchBase supported this conclusion reporting that, globally, seed funding in the 4th quarter of 2020 was down 27% year over year, and early stage funding was down 11% year over year”[2] – despite the sense that the market was coming back with the end of the pandemic in sight due to the vaccinations.

Our survey data showed differently. From the responses we collected, the majority of the companies in our survey who successfully raised capital in 2020[3] were early-stage start-ups (pre-seed, seed, seed+). Our survey further showed that 61% of the companies had planned to raise capital in 2020, of which 68% succeeded in doing so. Of those who raised capital successfully during 2020, about 53% raised up to 3 million USD, another 20% raised up to 10 million USD, with the remaining raising either above 10 million USD or preferred not to say.

Furthermore, there does not seem to be a high correlation between companies who were able to raise capital in 2020 and the existence of a prior relationship with the investors, or whether an in-person meeting with the investors occurred.

One possible explanation for this difference between the data sets is that seed rounds are not reported when they occur but rather at a later date, whereas the survey data was collected directly from start-up executives and founders, reporting anonymously.

 While pre-pandemic the Series A Crunch was a real concern for seed stage companies looking for their next round, from our analysis it seems that there was a clear reduction in early stage companies receiving seed, and even pre-seed, investments. The “crunch” seems to have expanded to the earlier stages, raising the bar for receiving funding. Investors were being even more risk averse with their venture capital. We also derived that later-stage companies (series B and beyond) were impacted in a very limited way by COVID-19, far less than was expected at the beginning of the pandemic[4], with late-stage and growth funding up year over year by 4% in 20204.

To address this new/expanded “crunch”, professional pre-seed and seed investors need to be able to move quickly, yet responsibly, to pursue promising opportunities.

The impact of the pandemic goes far beyond capital raising. Over 83% of the companies responding to our survey stated their business operations were affected by COVID-19. The areas that were affected most included sales, marketing, operations and R&D (in that order). Over 76% stated they adopted a work-from-home (WFH) policy with positive results. This corresponds with PitchBook’s findings[5] showing that more than 80% of US employers said enforcing WFH has been successful for their company, according to a late 2020 survey by PwC which included 133 executives and 1,200 office workers.

Many companies also had to reduce their employee headcount, prioritize new products or customize existing products while implementing cuts across administration costs, operations and even salary cutbacks. These responses support Ethosia’s year 2020 conclusion, presenting a 7% salary drop in the Israeli high-tech industry for the first time in the last decade[6]. On the bright side, PitchBook stated that almost 90% of private companies in the U.S. said they are hiring in the new year (2021)4.

A deeper analysis is required to understand who were the early-stage companies that secured funding and growth in 2020. The data lends itself to several hypotheses, including for example the power of top-tier (rockstar) teams and specific industries enjoying hyper-growth pursuant to the changes demanded on our lives due to the pandemic.

In conclusion we asked each founder how they felt about their company going into 2021. Despite COVID19 having a negative impact on most industries, it seems like the tech industry was harmed less: just over 80% of our respondents believe their company is positioned for hyper-growth in 2021, and most respondents declared their company’s valuation has increased over 2020, painting a picture of an optimistic future. We would expect nothing less from a start-up founder pursuing their dreams.

We hope that you – founders and investors – find this study useful as you look to navigate the early-stage Israeli start-up ecosystem in 2021. Please feel free to reach out with any questions or to share your own experiences and insights.

**This study was conducted with Dana Rosenfarb from MIT. Thank you Dana!


[1] “Venture Monitor, Q4 2020”, Pitchbook, NVCA

[2] “Global VC Report 2020: Funding and Exits Blow Past 2019 Despite Pandemic Headwinds”, Gené Teare, CrunchBase

[3] 77% of the respondents were early-stage startups: pre-seed, seed, seed+ and Series A.

[4] https://medium.com/sequoia-capital/coronavirus-the-black-swan-of-2020-7c72bdeb9753

[5] “Job market outlook for 2021: More hiring and more remote workers”, Priyamvada Mathur

[6]“2020 Year Summary”, Ethosia, https://www.ethosia.co.il/content/לראשונה-מזה-עשור-ירידה-של-7-בשכר-הממוצע-בהייטק-בשנת-2020-0

“That’s a great question!”

Now that demo-days and conferences have gone virtual, I find this statement outworn and, in most cases even fake.

Every speaker wants to create a sense of engagement with the audience. One way to do so is to show genuine interest and reflect it back towards them. When a question arrives from the moderator or from the crowd, it excites us to see the speaker excited to share their answer. The audience mimics the speaker. A genuine willingness to engage with a tough question and use it as an opportunity to both learn something and dispense additional information can be contagious. More good questions will follow. We all thirst for knowledge.

In the past when the speaker opened their answer with “That’s a great question!”, you could expect one of two things. Either they were genuinely excited and were about to engage in an interesting response. Or, they thought it was a terrible question asked by an imbecile who they were about to fry publicly with a strong response. As for the audience, in both cases they were excited to enjoy the show.

Today it feels like a speaker opening their response with this type of statement is doing one of two things that are entirely different from the above. At best this indicates a planted question to allow them to make a point they couldn’t fit into their originally allotted time/remarks. But sadly, it often reflects indifference. Probably due to Zoom fatigue. Hopefully not due to lack of depth in understanding their product/market/opportunity.

As we continue to adapt to this new work environment, the fundamentals of presenting remain true. If you haven’t read it yet, I suggest the great book: Own the Room: Business Presentations that Persuade, Engage, and Get Results – by David Booth, Deborah Shames and Peter Desberg. I keep seeing this book in offices, some of them owned by great speakers who I wouldn’t have thought would ever need it. Maybe they did and now they don’t.

If you don’t have a copy on your shelf then pick one up on Amazon. And read it. Before you set it on the shelf.

Have they come out with an updated version adapted to video conferencing? Has anyone else?

They should.

Balancing Conventional Wisdom

There is a lot of conventional wisdom out there. Most people are happy to share even when not asked to do so..

And often it sounds really smart. I am referring to the kind of things that just make sense when you hear them. For example:

Founder A is looking to raise money for their startup. They will ask fellow founders, friends, family, investors, read blog posts and listen to podcasts. She will hear statements like the following:

Take whatever you can raise. Raising $1M is the same work as raising $2M or $10M so raise more if you are already raising.

Diligence your potential investors. Be sure they add value beyond capital and that they will be there for you during the hard times and not just the good times.

Raise only what you feel is completely necessary. Grow through hustle and hard work to create value that will be recognized in the next round’s valuation terms.

These three statements all make sense but could actually be contradicting each other. The best board member may not have the deepest pockets. The more capital you raise, the faster you can grow, right? Or are hustle and grit more important?

Let’s take this one step further.

Investor B is considering an investment. In “VC school” they were taught the following:

Never miss investing in a great company because of valuation.”

Be sure to make the numbers work because it is all about returns to your LPs through your ownership percentage.

Both are really important points. Which often contradict each other. This exacerbates the challenge faced by our Founder A above as she tries to develop her fund raising strategy and navigate the process, balancing the feedback she receives from each pitch.

Creating a balance and clear path from all of this good advice, is not simple. It is the “art” part of venture capital. Different funds have offered alternative approaches to solving this.

The large firms – A16Z or First Round Capital – have done a great job of creating value beyond their capital and an ability to support companies long-term. They are truly great investors and not just a brand name. But these types of offerings are limited to large funds who generously invest portions of their management fees (the larger the fund the more fess there are to go around) towards creating these support systems for their portfolio companies.

Smaller funds need to be more creative. A lot of the value is added through the active involvement of the investing partners themselves, with limited support staff if any. This makes the balance a lot trickier. I really like the approach created by Founder Collective (and now copied by many other small funds including SapirVP) by which they focus on getting all their capital in early and then position themselves to be diluted alongside the founders. This creates an alignment that I have found valued by most founders. In return the founders are willing to give up a little more equity in the early round so as to have such an investor onboard and in their corner for the subsequent rounds. 

Both approaches focus on value-add investing. These were the best type if investor I’ve worked with and from whom I learned much. Now it is our turn to provide this for the next generation of great founders.

I think it is important for Founder A to remember that when an investor says that they are “founder friendly” that does not necessarily mean that they are exactly on the same page. There are different interests at play. Maintaining this balance is not simple and can often derail an investment process. As I am constantly reminded. But when the balance is established great achievements can be realized together.

For further reading on this topic I suggest Jeff Bussgang’s Mastering the VC Game.

Musings from a second lockdown…

We have now been in our second lockdown for 2 weeks and we have at least another two weeks to go. While our work is being done differently, it has not slowed down. On the contrary, we are finding ourselves busier than ever with even more to juggle. Despite no need to commute.

Since we are at the mid-way point of this lockdown period (we hope!), I thought it might be a good time to stop and reflect. Here are some observations and musings from my mind wandering. I welcome your feedback and perspective.

  • Deals are getting done in the VC world. Valuations are down but some may say this is just a “correction”. That is ok as long as we aren’t slashing valuations just because we can. Rather it should reflect companies adjusting to COVID and understanding the long-term impact on their market. In some industries that might actually raise a company’s valuation (Amazon? Zoom?).
  • As long as the players continue to act in good faith then good deals should get done. Founders need to be a little more modest and investors need to be a little less greedy. Don’t forget, this is a repeated game and long-term brand matters.
  • Real estate is going to change. Across the board and across geographies. I should have bought into many of the deals I have seen the past couple of years but passed on because “I wasn’t doing real estate…” – invest early and often. The secret of compounding.
  • Remote work will remain significant, but I don’t think we will eliminate offices entirely. The adoption of tools and new practices was accelerated but so are the downsides to it. We will not all just work from home going forward. But more of us will, even if just part of the time.
  • EdTech is more complicated. Thank God I am married to a licensed teacher who wasn’t actually practicing that craft when COVID hit. She is home shepherding our kids through classes and assignments while not actually needing to teach a class remotely herself. Teachers and students need to be back in a classroom. That is, until we can actually bring a virtual classroom experience to the home (pick your futuristic pop-culture reference). Not all learning needs to be done in a classroom – I am glad to see more assignments and work done virtually – but this Zoom thing isn’t working for us.
  • Digital Health is also a different story. Here I think we will see the longest and greatest impact as technologies enabling telemedicine, health operations efficiency, discovery and diagnostics are all being rapidly adopted by an industry which has been reluctant to change. There are many more elements here that I think will stick around once we get past this pandemic. If only for the fear of the next one.
  • As I have written before, for me personally and for my “job”, the lack of in-person meetings has made things more complicated. Sure, I hate sitting in traffic like everyone else. And air-travel gets old quick too. But I miss being able to spend time with people and get to know them. To pick up on the non-verbal cues and body language. See them in their element and in other settings beyond their Zoom-background-of-the-day. I look forward to walking through the labs and “feeling” the team/science/product/culture of each company. I’m even ready to got back to coffee-shop meetings which I had become bored with. Please make my latte soy. Thanks!

New Year Restrictions

In Israel we are on our way into lock-down. Again. Just as the Jewish High Holidays are upon us. A time of coming together to bring in the new year with prayer – giving our thanks for the previous year and sharing hopes for the new one – with family and friends, in synagogues and around our tables… Well, that is not going to happen this year.

While some may argue that this is most fitting considering the past 6 months, it is still frustrating. Frankly, I think we could have done better.

It is easy to blame the government (now that we finally have one!), and some might even say that they prefer this approach as the easy way out. It seems to me that the timing of the lock-down actually makes sense. Besides it limiting the masses customarily coming together, it also takes advantage of the numerous vacation days already built into the Israeli calendar during this time of the year. In their defense, I do realize that this is the first pandemic they have been called on to lead us through. But the numbers are rising quickly and every delay creates a sense of “too little, too late”.

The period leading up to Rosh Hashana – the Jewish New Year – is a period of introspection. Taking stock of where we are and who we are. Compare these with what and who we want to be. Make commitments to do better in the new year… Take personal responsibility for making the world a better place by each doing our part.

“An early lesson I learned in my career was that whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project.”

Ben Horowitz
The Hard Thing About Hard Things:
Building a Business When There Are No Easy Answers

I look around and I know that we can do better. We must take personal responsibility to adhere to the social-distancing guidelines, while creating personal accountability for the health of others in our communities.

That is the only way we can contain the pandemic, as we continue the search for a vaccine… May it arrive swiftly in the new year so we can start to rebuild – emotionally, economically and, most importantly, together.

Shana Tova! May it truly be a good year of health and prosperity for us all.

Q&A: Fundraising and COVID-19

When the pandemic first started making an impact on our lives back in March, I was scheduled to meet with a team of MBA students out of Tel Aviv University. These students were working on a project with a real company, helping them map the milestones and strategy required to be an attractive investment opportunity for venture capital. At the time, things were already in flux and there was no clear path forward. Elana Benedikt created a good summary of our interview and I had intended to post it here…

Last week I participated in an open Q&A session for the MassChallenge Israel 2020 cohort to discuss seed stage investing. While some of the questions were the standard fare – what is the difference between Seed and Series A? What is a pre-Seed? when should we approach angels vs micro-funds vs venture funds? etc. – there were definitely several questions directed at the world post-COVID19 and the impact on venture capital at the Seed stage.

I went back to the summary Elana had created and found that it was mostly still very relevant and reflected the conversation from the MC panel last week. So I am (finally) sharing it here. Thank you to Elana for the summary. Thank you to MC and my fellow panelists for the great session.

At the time this blog post is being written the world economy is struggling with the current repercussions and difficulty of future predictions during the COVID-19 pandemic. Large corporations, small businesses, and investors are dealing with new dilemmas. In light of that, we wanted to lay out the key aspects of the Israeli venture capital (VC) environment, with its collaborative nature and emphasize important markers for early success, as a service to early stage ventures. We had the opportunity to learn more about Sapir Venture Partners value set and its approach to finding startups and entrepreneurs that show the most potential to impact the world. We set out to hear about how the COVID-19 pandemic is affecting the investment sector and to gain insight into securing future investment. – Elana Benedikt, April 28, 2020

What Can You Tell Us that Makes the Israeli Early-Stage VC Environment Unique?

In the Israeli ecosystem, early stage VCs are very collaborative. Prior to COVID-19, VCs and entrepreneurs would attend many conferences a year in person, exchanging contact information with each other, and establishing relationships. These events are how most early stage VCs hear about new startups in the market and how entrepreneurs meet investors.

Having a warm introduction from a trusted source or connecting at an industry event, is much more impactful and valuable than sending a cold email. Establishing a relationship with a VC prior to sending a proposal is important for an investor to gain insight into the entrepreneurial team and company.

Successful entrepreneurs develop relationships with many different investors and maintain understanding of the specific type of investment that each VC specializes in. Entrepreneurs need to conduct extensive due diligence to truly understand the business model of each VC and the optimal way of approaching them. Each startup business development team member should be networking, actively seeking these investors, and developing meaningful relationships. Once these relationships are established, entrepreneurs need to be selective in maintaining deeper relations with the key investors in their specific industry and who invest at the relevant stage for their company. Additionally, entrepreneurs should understand the general rule which states that they will be “giving up” approximately 20-35% ownership per round in the early stages.

What is Your Viewpoint of the Early Stage VC Market?

An important fact to keep in mind is the number of opportunities VCs receive per year. For larger VCs it is approximately 1,000/year. Most funds invest in only 5-10 startups a year, and most will assume a 3-year deployment period. Each partner of the firm will personally be active in 5-6 startups at any given time.

Additionally, early stage investing involves significant collaboration between VC firms. This interaction multiplies the size of the network, amplifies ideas, and includes more people adding value. Most early stage rounds will have a single lead investor and other VC firms join as followers but can still contribute to the success of the company through a collaborative approach.

How has the Venture Capital Sector Been Impacted by the COVID 19 Pandemic?

Many investors would say that they are actively looking to invest, even though they may temporarily lack capital, or they prefer to preserve capital for their existing portfolio companies which may require more support. At the early stages we are seeing deals getting a 20% evaluation cut since March 1 2020, and that can be even higher for Series A or Series B companies. Most investors are focused on companies which they had already been engaged with prior to March 1st. Once these deals close, it is difficult to predict how future deals will be initiated and diligence will move forward with limited real-world contact.

What Should Entrepreneurs Do During the COVID 19 Pandemic?

Prior to the COVID-19 pandemic, investors and entrepreneurs could attend meetings and conferences in person. Today they should be attending as many online networking events as possible, so as to stay relevant and establish relationships with potential investors.

The first step to address during the crisis is to make sure you have enough capital to survive in the short term. Once this is accomplished, secondly focusing on R&D and further developing innovative technologies and solutions. Lastly, you should be prepared to take advantage of the upswing expected when the markets return.

Founders need to be strategic during this time and continue moving their companies forward wherever possible. Despite the challenges. If they can’t be out closing sales then they should focus on R&D and learn from their customers by doing market research to better design their solution. By pivoting away from focusing only on sales, these entrepreneurs can showcase their progress and path to profitability to investors once investing increases again.

A Few Final Quick Tips

If the team has received an offer for investment, there are a few important factors to consider, especially in a time of crisis. There are investors willing to take advantage of entrepreneurs during this difficult time, for example by requesting a larger proportion of equity than they would in a more stable market. Thus, it is imperative to have experienced professionals fully review the term sheet before accepting one from an investor. Another recommendation is to request to be put in contact with other founders in the investor’s portfolio. And reach out to them independently. By doing your due diligence, you’ll be able to identify the best potential fit with an investor and turn down offers that may be challenging partners in your efforts to realize your vision.

Remote Investing

As we begin to create a “new normal” for life with Covid-19 (coronavirus), there is a lot of discussion about how “work” is going to change.

During the peak of the outbreak, to comply with stay-at-home orders, many who could would work from home- did. This was especially relevant for tech companies who already used various collaboration tools to enable long-distance team work. In some cases this transition seemed almost natural. Some even argue that the pandemic has sped up market adoption rates by as much as 10 years for these tools, essentially changing the nature of work as we know it.

It would seem to me, that this can work well for pure software companies. However, for hardware being developed in the shop or biotech being developed in a lab, things are a little more complicated. Indeed, many parts of the innovation can be outsourced these days, but the core science needs to be done within the company. And, at the end of the day, someone, somewhere, needs to get in the lab to run the experiment and record the results. Most of us cannot do this at home.

Across our portfolio we have seen different approaches to the work-from-home situation. Anyone who could accommodate did, and most have shared only limited dips in productivity or even improvement. This seems to support the research about time wasted in traffic and the stress it creates, taking a toll on the productivity of our teams.

As someone who has been working out of the home office for almost 10 years, this was a non-issue for me. I knew how to hold video conference calls and had a comfortable working environment where I could be productive. I was more than happy to spend less time in traffic or at coffee shops for the two-days-a-week of meetings-in-person schedule which I was keeping. But I do miss visiting the portfolio companies. The insights from being on the ground are vital to providing good counsel to a CEO.

For us, the biggest challenge so far has been the inability to meet with founders of potentially new portfolio companies. It is much harder to assess the passion, conviction and nature of a founder when you only meet virtually. I remember this from my early days as an investor when I was reviewing companies with the team at TechU, where everything was done by video conference. I needed to “feel” the team to get comfortable. So when we set out to start our own fund, we made this a priority. At Sapir VP we are deeply engaged with the founders since we see ourselves as part of their team. We don’t dial-it-in, figuratively or literally.

As such, while we have been very active as investors during the pandemic closing a new investment each month, this may change in the near future. As we move forward with the opportunities we had engaged with before the pandemic locked us at home, and look to move forward with newer opportunities, even the ones we really like, we find harder to commit to. The concern is not about the tech, the market or the terms of a round. Rather it is truly about the people and whether we are a good fit to support them on their journey.

At the moment, we are trying to overcome this hurdle by spending more time with these founders, online. This has slowed down our process. It is frustrating to us just as it must be for the founders we are engaging with. I am sure we will miss out on working with some great teams because of this, but I prefer not to keep them hanging if we can’t get there at the moment.

Show me the “exit”?

Last month, I had what was technically our first “exit” as an investor.

One of our portfolio companies from our angel fund – A2Z Venture Partners – was acquired. This is definitely an exciting event. But the outcome as an investor is still unknown.

I am happy for the founder, who has become a good friend during this journey. And on paper our new holdings reflect a nice return. But it is all still on paper.

The above led me to question some of the data around “time to exit” of startup companies. We all know that companies are staying private longer. And that the tech titans of today created more value for their investors post-IPO rather than pre-IPO.

It used to be a rule of thumb that it was 6 years to success – either to get acquired (aka M&A) or long-term viability through profitability (aka IPO). Crunchbase shared data at the end of 2018 which indicated a very broad range of time-to-exit, depending on the industry, from 5 years and up to 16 years. In Israel, IVC shared data at the end of 2019 showing an average time-to-exit of 7.89 years for VC-backed Israeli companies.

When does this data stop the clock? Is it when the deal closes or when the investors see a capital return?

Based on what I’ve learned so far I would assume the former.

What should I do during a Pandemic?

A month ago we sent out a letter to all of our portfolio companies regarding the novel Coronavirus pandemic (COVID19). Our intent was to show our support, offer practical suggestions and make ourselves available to help them wherever needed.

It is hard to believe that it has only been a month, but the world truly feels like a different place. We recognize that the current situation, while improving, is not going anyway soon. Despite the optimistic voices around the table or on the news. So, as we look to develop long-term strategies and new ways of doing business, we went back to review what we wrote at the time.

Here are some excerpts which we thought are still relevant:

The world is a different place than it was when March 2020 began. We hope that you and your families are safe at home, with plans to stay there until we can overcome this pandemic. I wanted to take this opportunity to share our perspective on the start-up ecosystem and share updates from SapirVP.

I am sure you have all seen the famous “Sequoia letter of 2020”. In a step which mirrored their approach to the downturn of 2008, the experienced firm shared their perspective and recommendations to their portfolio companies. These are good insights and valuable recommendations which I suggest you consider for your companies. The full letter can be found here.

While we are hearing other voices that do not completely align with Sequoia’s, we believe the following:

1. You need to prepare for the worse-case scenario.

2. You need to take advantage of this situation to enhance every aspect of your company.

To break this down to practical considerations: Regarding #1 the assumption needs to be that there will be significant, and potentially long-term, market disruptions on all fronts – customer interest, supply chain and fund raising are the most critical to an early stage venture. Regarding #2 – this is the time to refocus internally on product development, learn the voice of your customer through interviews and position your offerings for better market-fit in a changing world.  We are forced to stop, take stock and adjust.

This is also an opportunity to make improvements to your team – trimming (only) where necessary, cutting those who were not pulling their weight and hiring great talent that was hard to come by just a month ago. Of course, maintaining a positive culture is critical. Our approach has been to frame these steps as a way to boost the company and rally the troops to your mission. Protecting your employees as much as possible (safety and financially) is a solid way to lead by example. Choose to maintain a positive attitude and seek out the opportunities this situation has created.

These times call for swift and decisive actions to preserve what you have built while positioning your company as one of the few still standing, prepared to take advantage of the world post-Covid19 impact.

We all need to adapt. SapirVP remains engaged in evaluating new opportunities and closing investments to which we had committed before the world went into lockdown. But we are also reevaluating investment strategies so as to provide these companies with the best starting position to weather the storm.


Stay safe. Stay healthy.