Signaling

Another quarter has passed and it seems that we have little “news” to report from the venture ecosystem. New records were set for venture funding since Q1, when the previous record was set. We are seeing the impact of the continued return to offices and normal life in the US. Hopefully, this new variant will not create setbacks, as we are witnessing in Israel.

As we consider these trends, one thing becomes clear: the pace for venture funding has sped up significantly for “hot” deals while it may have even slowed for every other company looking to raise capital. This dichotomy is enhanced between those companies that truly standout and those that still have much to prove.

To be sure, in both camps there are winners to be found and losers to be avoided. But identifying them becomes more complicated since previously valuable signals are now blurred. For example, time to closing a lead investor and agreeing on terms is not necessarily a good indicator anymore as to the strength of the team or opportunity.

It may be taking longer than expected because demonstrable performance metrics have expanded and a renewed expectancy of potential returns in other sectors (real estate? NFTs?) might make venture funding slow down considerably in the next 12 months. On the other end, a top-tier-fund term sheet presented within a week of a first meeting shouldn’t carry the full weight of the brand name investor who clearly could not have completed the necessary diligence to invest with conviction.

Problems with signaling have always existed. The most common being “why aren’t previous investors joining the current round?”. This is a valid question in some instances and less so in others.

For example: In the past, if a company was accepted to an accelerator program and didn’t get funding from the accelerator, or its affiliates, after “graduating” then this was a problematic signal. The solution? The accelerator programs give everyone equal funding. This was like a participation award.

However, the accelerator leadership knew which were the truly exciting companies and wanted to invest more in those. They are in this to make money too. So maybe they added an additional funding tranche which were given only to companies which hit certain milestones. This could be a requirement to raise a follow-on round within X months of graduating the program, for example.

This would then allow the accelerator team to “push” the company in front of friendly investors who are connected to the program. These investors would lead a round and the accelerator would join in. Not entirely kosher, but actually seems fair to me. Clearly the companies not being recommended are getting dinged and not enjoying the full prestige of the accelerator brand. And I am sure it is not always entirely based on performance or potential. But I am not a huge fan of participation awards. So unless the original funding was designated for use during the program to cover expenses and allow the company to take advantage of the opportunities the program creates, then this model seems to be required due to market forces. There are some programs that state this clearly and structure the support accordingly.

[As an aside, I fully recognize that what I am describing contributes to the lack of diversity in tech. It could also be used as a way to “level” the playing field unfairly if the dial were turned to the other end of the spectrum. Extremes are not good place to play.]

Accelerators are either investors themselves or backed by investors. Alignment needs to be created to accept the best companies, work with them all, but then continue to invest only in your best bets. A good selection process will help minimize the drop-outs, but I’d be surprised if anyone could have a perfect record.

This is what good investors learn quickly, and what I am learning the hard way. Every investor invests in people. They believe in them and their ability to execute on their grand vision to make the world a better place. So when things go sideways we try to help them get back on track. But when do you know that it is time to let go and focus your energy on your winners?

The famous scene in Glengarry Glen Ross (1992), where Alec Baldwin’s character Blake is giving the Always Be Closing speech*, was given new meaning for me during a great Sales class in business school. Another layer was added to the A-B-C of sales. The key is to invest in your A players as they will generate the greatest return on investment. Support your B players to see if they can become an A level player. But cut your C players as quickly as possible since they aren’t carrying their weight and can sink the entire ship if resources are wasted trying to help them get to B level. They are just too far away from the A level players you need in your organization to be successful. First place gets the Cadillac, second place gets the steak knives. Third place prize? You’re fired.

This is true for investments as it is for team members. Though sometimes the team member is just not a good fit for the specific company or the specific role. “Firing” a portfolio company is something that I am not prepared to do, unless they have crossed a line. We won’t bail when times get tough, but we might be less involved if our efforts are not well received or misplaced. After all, Like all investors – we invested in the people, right?

As I shared this story with a couple of founders this week, I made it clear that both of these situations – firing a team member or watching a company fail – are really hard to navigate. Assuming you are a decent person with a smudge of empathy.

* I read on IMDb that this speech was not part of the original play on Broadway but written by David mamet specifically for Alec Baldwin who performed it magnificently such that in later stage productions it is often incorporated.

Branding Thoughts

I have recently been thinking a lot about brands. This has come about from multiple directions. Some external, and some internal as we navigate our path for growth at SapirVP. My friend Jonathan Friedman over at Lionbird recently shared his thoughts on the topic in his newsletter.

In a follow up call shortly after, Jonathan shared further insights from his journey in building Israel’s leading e-Health venture fund. This conversation spurred me to put some of my thoughts down on paper. Jonathan – thanks for the inspiration.

A strong brand is a powerful tool. Like other powerful tools it takes significant time and effort to create one. And despite being powerful, brands are actually very delicate. One bad move, or even a mistake, can damage the value you worked hard to create.

While the above seems true as a generalization, the nuances and details are specific for each case.

Let’s take a consumer brand as a first example. Simon Sinek, in his book Start with Why? explains the Apple fandom as being way beyond great tech and an amazing user experience. Rather, he claims that it is a company on a mission which others want to be a part of. It took decades for this type of loyalty to develop and it was not necessarily part of Apple’s strategy from its early days.

Others may have argued this before me (please share references.) but I would suggest that in his second term as CEO at Apple, Steve Jobs brought with him a very important skill learned from Pixar: Storytelling.

Sure, Steve must have been good at pitching his company and selling his vision earlier in his career to have gotten that far. But what Simon describes goes beyond all that. It is a religious support of Apple products by a mass following that endorse it through their buying power. They not only choose to spend their hard earned dollars on the generally more expensive Apple products but also vehemently defend these products even when they perform below par.

This type of devotion is naturally associated with religion, but also with books and movies that rise to cult status to create mass followings (and sequels!). They are based on powerful storytelling infused with a mission – a why – that people want to be a part of.

Shifting to a second example, I want to share a recent email discussion I’ve been having with my good friend Gil Eyal, the founder and CEO of HYPR (now merged with Julius). Gil is my go-to-guy for all things influencer marketing related. He has worked with some of the biggest names across movies, music, sports, etc. in designing and running successful marketing campaigns.

Observing some recent headlines regarding influencers backing some questionable choices (in my opinion), I asked Gil whether these influencers care what they were associated with or was any headline coverage considered good PR? Or as the old saying goes – “there is no such thing such as bad publicity” – attributed to PT Barnum.

I was actually surprised at how definitive Gil’s answer was. He unequivocally stated that these influencers do indeed care. However, he continued to explain to me that it is not just about being affiliated with products/services that they genuinely care about (or at least are not strongly against). Rather, it is that they have worked very hard to achieve their success and recognition so they must protect it. And monetize it. But that is for a separate post as we are working on an idea to help them do this better.

Which brings me to my third and last example, our personal journey in building a new micro VC. In recent conversations with potential LPs we keep hearing them ask about our “super power”. While I think it comes through pretty well in our deck, I find myself needing to explain what isn’t necessarily obvious in the deck. Namely, that we are developing a brand, not just a single investment vehicle.

We have a unique approach to investing in seed stage deep-tech companies through the blend of what we do. It is not just one specific thing that gives us an edge. Sure, there are others that do elements of what we offer. There are some really great investors out there today and we are lucky to work with many of them. (Too many to name here, but you know who you are. Thank you for your collaboration across the ecosystem!)

But our core values could (and should) be applied to any new venture. Our current seed-stage deep-tech fund or our future funds, whatever they may look like. (Again, we have ideas and are already working on them…)

Creating a brand is about recognition. Flash an image, mention a name or quote a tagline – immediately everyone knows who you are and what you are all about. I’ve never needed the spotlight, though I don’t necessarily shy away from it. At times, I even enjoy it. Usually when I feel that I can add value. Not as a pulpit from which to preach or as a soap box to chase publicity. I am comfortable being backstage and just making things happen. Truthfully, as an investor – that is the role. We should remember that.

When I was a teen, my mom used to say to me that if you don’t publicize what you have done, then nobody can give you credit. That is true. But still something I struggle with. So, in 2021 I am launching a few initiatives to help spread the word about what we do and how we do it. If you don’t feel like you are hearing from me (or at least more than in the past…) then please hold me to this. Thanks.

“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.

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.

Mission: Impossible?

When engaging with entrepreneurs trying to change the world, we look for people who are on a mission. We are not unique in using these buzzwords as many other investors also claim to back “mission driven founders”. So, for the sake of clarity (and transparency in the industry), we wanted to break down what “mission-driven” means to us at Sapir.

Let’s start with the formal definition offered by a Google search:

a formal summary of the aims and values of a company, organization, or individual.
“a mission statement to which all employees can subscribe”

Google

Even with such a simple definition there is already a lot here for us to unpack.

formal summary – indicates it should be crafted with a formal tone and language but in brief form rather than War and Peace.

aims and values – this is the core of the statement as it is the message you are conveying in the to grab the attention of your audience and connect with them around what truly matters.

statement – I recommend one sentence. It can be a long sentence, but the message needs to stay brief.

all… can subscribe – the end product needs to inspire and drive to action.

With this in mind we would like to propose some practical steps to create this monumental sentence so it is deserving of being called a Statement.

1. Define your purpose. What are you setting out to do? How will you be changing the world and making it a better place? Why does the world need your company? Why now? – If you have read our previous posts about your company’s Vision and how to create one then you have already developed this core material.

2. Drill down to first principles. Get specific around what is important to you as far was what you want to achieve and the values that guide you in your pursuit of these aspirations. First principles make it easier to quickly comprehend your message.

3. Create inspiration and drive action. A call to arms, so to speak. This statement will be the rallying call that introduces or reminds the audience of the grander (and longer) vision each time they hear or see it.

4. Iterate until you have a single comprehensible sentence.

Your Missions Statement is not your vision. It is not a grand description of the utopian future you are creating or a list of your core values. It is not even your Why. These are all different components of your corporate culture and each piece plays a different part. I’ll illustrate how you can use your mission statement with a personal story.

After 4 months of basic training and 3 months of advanced training our infantry platoon was stationed at an outpost along the Israel-Lebanon border. Our training had included seminars on ethics and conduct, not to mention the code-of-honor drilled into our minds throughout, balanced with the need for a military force to defend the Jewish people (the IDF is the most moral and ethical military force in the world!). But despite all of this advanced preparation, in every mess hall and briefing room there was a sign that said: “Protect the Northern Towns!”

A brief history can be found here, but ultimately we knew we were there so as to guarantee that civilians living in a town or in a kibbutz a couple of kilometers away could do so peacefully. And yet, every time we walked into the room, we had that super simple three-word statement front and center reminding us of all the other details – values, purpose, training, etc. – without needing anyone to repeat them all again.

The Mission Statement is concise because it can be if there is a strong vision shared in advance which incorporates the grand purpose and core values so it does not need to iterate them again. Rather it is a sentence that reminds those who know already and captures the attention of those who do not yet so they will want to learn more.

It is also important to emphasize that your Mission Statement is not your Elevator Pitch. We plan to discuss the Elevator Pitch in a separate post. The Mission Statement can be part of your Elevator Pitch, but it is still just one sentence so at most it would be 10 seconds worth of your 1 minute elevator ride.

As a final note, you can have multiple mission statements geared towards different audiences. Though the core should remain the same and thus the different versions are similar, the emphasis can be adjusted to best address an employee or a customer or an investor.

Sapir Venture Partners empowers Israeli founders solving grand problems by leveraging deep-technology and cutting-edge science, while holding themselves to core inspirational values with which we align allowing us to provide mentorship at the early stages of their journey to create a positive global impact.

Sapir Venture Partners

This is our mission statement.

Super Vision

In a previous post we discussed the need for a strong Vision as a way to inspire people to join you in your pursuit of making the world a better place. It is an important part of your story which can be used to attract talent, customers and investors.

How do you create your Vision? – We share here a 3-step process to get you started.

First you need to understand what your Vision is. Read this post.

Next, I recommend answering the following 4 questions which I have used with dozens of founders in my sessions at MassChallenge. The best results will come if you can be honest and detailed in your answers.

1. Purpose: What is my company’s reason for existing? Why do what I’m are doing? Why now?

2. Values: Why do it this way? What are the values by which we operate and which will guide us as we pursue our goals? How do we do it better/different than everyone else?

3. Impact: What is the ultimate impact we want to have on the world? What is the utopian future we are creating?

4. Customer: Who is my customer? Why does my customer need me? What do I need to be able to provide so as to allow my customer to benefit from what I offer?

If you are a team of founders then using brainstorming techniques to develop your answers will be very helpful once you have each answered these questions individually.

Some tips for getting good results when answering these questions:

  • Keep it simple and clear
  • Think long-term (5-10 years out)
  • Dream big yet stay rooted to reality
  • Focus on factors that will drive success
  • Make sure you can convey your answers with conviction

The last step is to test and refine till you are happy with your end result. One way to test yourself is to try and define specific goals and metrics by which you can evaluate the realization of your vision. If you can’t identify these yourself then, most probably, others will not be able to do so either. Another test to share your vision with others – family, friends, mentors, etc. – and get their feedback. Did they react with a resounding “can I join you?” or were they more like “ok, good luck!”?

Developing a strong vision for your company will take numerous revisions. It is a process that ultimately tells a story across time – where you have been, where you are today and where you want to be in the future – which requires iteration to both hone the message and learn to convey it passionately.

The final product of these exercises is intended to be a paragraph or two, not necessarily a single sentence or statement. It should be future based – aspirational and motivating. It should be a clear message which drives your business forward. These will in turn be used to further develop your Mission Statement (one sentence) and Elevator pitch (1 minute). We will cover these in future posts.

Does my company need a Vision?

Simon Sinek, in what has become one of the most watched TED talks ever, explains his theory of “Start with Why”. The talk captures the key message of his book by the same name. At the core of Simon’s explanation for motivating people to take action, is the simple understanding that people want to do something that has meaning. They want to be a part of something that they feel is meaningful.

As a founder you are always selling. You are selling to your customers, obviously. But you are also selling to your corporate partners and to your investors. You are also selling when you search for top talent to join your team as you hire them and then motivate them to stay and perform. We will explore this further in a separate post.

But what are you selling? Especially in the early days when there is as of yet no product/service to be shared?

You are selling your vision. You are sharing your personal “why?” and motivating people to support you in pursuing it. It can be as grand as you like. Actually, it should be almost unbelievable. But only “almost”. There needs to be a sense that the vision is rooted in reality, no matter how high the aspirations, so that it can be believable. We follow visionaries because we want to be a part of the type of world they describe and which we believe is attainable.

The first step is for you to understand your “why?” – why do you do what you do? Why did you decide to dedicate yourself to doing this? And why do it in this way rather than alternative options to achieving your goals? – Simon says: People don’t buy what you do, they buy why you do it…

Asking these questions should help distill the core purpose you are trying to achieve along with the core values that drive you achieve it in the first place. They will also allow you to map out the general path by which you decide to travel on your journey to make it a reality.

In their important article – Building Your Company’s Vision (Harvard Business Review, 2000) – James C. Collins and Jerry I. Porras build a two-layer framework in which to insert these answers as you create your company’s vision.

Collins and Porras define the first layer as your Core Ideology. This layer is comprised of your Core Values and your Core Purpose. Your Core Values are the handful of guiding principles by which the company navigates. They are used to weigh decisions on a moral level. E.g. – first do no harm. Your Core Purpose is your organization’s most fundamental reason for being. For example, when we started Sapir Venture Partners we first needed to answer the question – why does the world need another early stage venture fund? – This forced us to map out the ecosystem and define where we add value. From this we crafted our investment thesis against which we evaluate every investment opportunity we consider.

The second layer is defined as your Envisioned Future. This layer is comprised of your Monumental Goals and a Vivid Description of life once these goals are achieved.

The first layer, your Core Ideology is a fundamental part of your “why”. By layering in the Envisioned Future you are beginning to craft your story to be shared with the world.

The key word here is story. An audience can relate to a story. They can connect to it and even try to see themselves as a part of it. This is what happens when you read a good book. You can see yourself as the protagonist and experience the adventure first-hand.

Great storytelling is an art. It is a skill we all learn at an early age. But there is a difference between good storytelling and great storytelling. The key to great storytelling is connecting to people on an emotional level. Use your own feelings, dreams, aspirations to generate reactions from others. This will attract people who feel the same way and aspire to the same outcome.

Using a personal experience is the most genuine way to do this. Sharing an experience that made you feel a certain way will immediately create a “hook” for someone who can relate, either because they have been through it themselves or because they can empathize. But this can be a hard thing to do as it requires opening up about things that may not always be easy to share. For example, if you are driven to cure cancer because someone you love suffered from the disease or if you were driven to create change because of a personal failure you experienced in the past. Retelling this story in an inspiring way will surely be challenging for you emotionally as you relive the pain each time. It could certainly not be fun to tell this story hundreds of times before complete strangers while asking them for something in return.

Another key to great storytelling is iteration. Practice makes perfect. Each time you tell the story you get better at it. You learn from how the audience reacts to certain parts whether you are sharing too much detail (this is always the hardest part for me to overcome) or you rush the outcome to get to the punchline. Timing, pace and passion will reel your audience in.

Another important tip I recommend to all founders is that you create multiple “hooks” in your story. You usually will not know in advance which hook will catch any given member of your audience. By creating multiple hooks you are essentially spreading a wider net (see what I did there? Mixing fishing metaphors!) to catch more of your audience but also allow an individual to hone in on the element that is most attractive to them within your story. An investor is usually looking for a path towards outstanding financial returns. But they could also be interested in supporting a potential global change in a field that is dear to their heart or back a breakthrough cure to a disease that afflicted someone they care about. You never know. So add hooks to your story and then watch how they respond and listen carefully to their feedback so you can emphasize the elements that most appeal to that audience when you continue the conversation.

A founder telling a great story can inspire others to act – build, invest, buy, sell – so this is a critical skill for a founder/CEO to master.