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.

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.

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.

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.

Another blog?!

Why do we need another blog?

This is a good question and one I have been asking myself for a while. We already suffer from information overload. Entire industries have been turned upside down through the democratization of knowledge. And now we have crowdsourcing and AI and machine learning, etc. So do we really need another blog?

On the other hand, research has shown what we intuitively assumed regarding the positive impact of a good teacher. If you had one, you know what I am talking about. Mine was my eleventh-grade math teacher. Along those lines I truly believe in the power of a good mentor. Many will agree, but it is not always easy to practice. I have been lucky to have several special individuals to learn from in my life. I always tried to learn from each role-model, boss, commander and from my peers with whom I’ve had the privilege of working with or for.

A good mentor can truly make a difference. I have been practicing mentorship myself, in one form or another, since I was in high school when I became a counselor in the Bnei Akiva youth organization. But I was probably doing it even before.

I can clearly state that I enjoy it. I like to listen and learn. I love to analyze and brainstorm. This is what good mentoring is all about. A great teacher creates curiosity and a drive to explore by asking questions and challenging assumptions. A mentor can funnel this towards personal success, corporate success and exceptional achievement.

My personal enjoyment would not be a good enough reason to mentor (or blog about it) but over the past few years I have come to realize that I am actually pretty good at it. More and more people whom I have had the privilege to work with and mentor have shared feedback that is overwhelmingly positive. This led to the realization that maybe I should be doing this professionally.

That is why we launched Sapir Venture Partners. We focus on the types of companies – founders, stage, science, technology – where we can truly be of value as mentors. We are a mentorship driven firm and invest accordingly.

However a fund is limited in scale by design. There are only so many companies we can work with and provide the value we intend to before our team is overextended. And so on a recommendation from a few friends over at MassChallenge I have decided to share what I can through this medium. Everyone is always suggesting we grab coffee so they can get my thoughts on their company/product/career/etc. So hopefully I can share some of that here for even less than a cup of coffee.

We will write about our view of the world and share what we are seeing in the tech industry. Naturally our focus will be on early stage tech investing in science and technology companies with ties to Israel. But not just. We plan to share more on topics that apply generally but which we believe are important to founders at the early stages such as product-market fit, founding teams, HR, IP, innovation and fund raising (of course).

We would also like to hear from you. We welcome your questions and will hopefully be able to address them in future posts. Write to us at: [email protected]

Thanks for reading.

Aaron