TLV Partners: “Startups, it’s time to go on the offensive!”

“As potentially ruthless as it may sound, every organization beyond a certain size has inefficient layers – removing them not only increases the lead, it makes the company more efficient, and often the remaining employees recognize the waste that previously surrounded them. ”, explained the manager of TLV Partners. Partner, Shahar Tzafrir, when asked how companies should prepare for the coming year.

It’s no secret that companies have had tough times in recent months, and sometimes management must make tough decisions to stay afloat.

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Shahar Zafir TLV PartnersShahar Zafir TLV Partners

The city of Tzafrir.

(Photo: Eyal Tuag)

“On the other hand, for some startups, it’s time to go on the offensive! It aims to buy competitors or complementary companies that are trading below true value,” he added. “Land grab territories where shocked competitors have stopped fighting. Each company has its unique strategy that goes from defense to offense, but in all scenarios under responsible management of the premeditated cash track.

Name of the fund/funds: TLV partners
Total Fund Sum: $820 million
Managing partners: Rona Segev, Adi Yarel, Eitan Bek, Shahar Tzafrir
Featured/Selected Portfolio Companies: Next Insurance, Aqua Security, Unit, Mesh Payments, SilverFort, Aidoc, Firebolt, Immunai, Granulate (acquired by Intel). Overall, we have invested in more than 50 startups in the Seed and Round A stages.

Tzafrir participated in CTech’s “VC Survey 2022” series to share some thoughts on what companies can expect to see in 2023 and beyond.

If 2020 were the year of the pandemic and 2021 the year of records, how would you define 2022 in the VC sector?

The first half of the year continued with what, in hindsight (and to some in anticipation) were super-fast, high-valuation, and mostly unrealistic investment rounds of funding, with large sums of money invested. The public market crash, fueled by inflation, zero interest rates and other macroeconomic elements, very quickly demonstrated that valuations of later-stage start-ups had, in most cases, no connection to reality. That created a chain reaction in investments at different stages of VC investing, from growth rounds and below. It mostly leads to a complete halt in investing. In turn, it worries both founders and investors about the viability of future funding rounds, their valuations, and the likelihood of them happening.

Who are the big winners of 2022 and why?

The VCs who waited were disciplined and didn’t invest at unbelievably high valuations. Startups that raised enough capital before the bubble burst, however, at reasonable valuations that won’t hurt them when it comes time for their next round of funding. Startups that understood what a valid business model is and what good sales growth means. That is, not losing money on each sale transaction (after offsetting the rest of the organization expenses). And that this is what matters, not a swaggering newspaper interview, a flattering headline, or an ever-increasing number of hired employees.

Who are the big losers of 2022 and why?

The opposite of the previous answer. Companies that are still looking at who they are, how they sell their products, and how each transaction can be profitable on its own, but raised a lot of money at a very high valuation, are in trouble. But at least they have time, eg cash runway, to try to fix it (that will be very difficult). Overinvested Funds at Inflated Valuations: Unfortunately, your crop returns over the last two years are likely to be negative on average overall.

What do you expect in the VC sector in 2023?

2023 should be a bumper year for venture capitalists who have always focused and specialized in early-stage investments. More early-stage startups will continue to emerge, and they will likely be with even stronger founders. When times are tough, only the strongest founders with a drive they can’t control jump in the water and launch new companies. It will be very difficult for companies that raised too much capital earlier, did not use it effectively, and will need to raise money during 2023 and possibly 2024. Some will fail to raise funds and will go out of business. Some will meet the unfortunate reality of down-rounds, or worse, to survive. Few, if any, new ’emerging’ funds will enter the scene. Many microfunds will find it difficult, if not impossible, to raise their next microfund. Many existing funds will delay raising their next VC fund for as long as possible, with their LPs not-so-subtly asking them not to invest or at least to slow down their investment pace. ‘On paper’ performance may suffer due to round-downs, further reducing your chances of raising your next VC fund. On the other hand, top quartile funds, if necessary, will be able to raise their next vintage VC fund as they did previously.

What global processes will affect (positively and negatively) the Israeli market?

Rising interest rates will make VC as an asset class potentially a little less attractive to existing LPs allocating funds for VCs. On the other hand, top quartile VC funds whose results are benchmarked against public market indices will demonstrate even more than before how strong their returns are compared to less risky, traditional alternatives.

How should different companies prepare for the coming year?

Spend only what is necessary. Hire, which has always been true, employees only when you must, not when you can, keeps you agile and efficient, able to react quickly and quickly to change. Carefully assess how ‘lean’ the organization is and should be. As potentially ruthless as it may sound, every organization beyond a certain size has inefficient layers – removing them not only increases the lead, it makes the company more efficient, and often the remaining employees recognize the waste that previously surrounded them. Sales must be focused on a model that makes them profitable per transaction, that is, not losing net cash for every dollar earned. In some cases and beyond certain growth, it forces the organization to seek profitability. If before many strategies were invested in entering new markets, now even more is required.

On the other hand, for some startups, it’s time to go on the offensive! Try to buy competitors or complementary companies that are trading below true value. Land grabbing territories where shocked competitors have given up fighting. Each company has its unique strategy that goes from defense to offense, but in all scenarios under premeditated cash track responsible management.

What will become of the dozens of unicorns born last year?

Enough cash raised increases the time available to make changes, but fixing it with even more capital is very difficult if the DNA is messed up. However, as in any crisis, some will emerge even more successful, acquiring competitors and increasing their market share. offense vs. Defense, a lot depends not only on the amount of cash raised, but on sales growth with a viable business model that the company already had, or didn’t have yet. And as always, a cliché but true, it’s all about the execution.

HR: The layoffs, those that have already taken place and those that are coming, do they help to fix in any way the disaster experienced by the companies in the last 2-3 years?

If the company had rotten DNA—that is, supergrowth in headcount and sales and marketing efforts while losing money on any new customers it gained—the layoffs would only extend the runway, but fixing this bad DNA would still be difficult. very difficult to fix in time. I think salaries in high tech, even before ‘we’ll pay you what you want to join’, were high and will continue to be high due to the shortage of great talent. Unfortunately, some of the adjacent positions will be severely affected.

The Hitchhiker’s Guide to the Galaxy summed it up best: “don’t panic.” But she strategically assesses where she is and where she needs to go as objectively as possible.

Neosec, Noble, Port: Featured TLV Partners Portfolio Companies

Neosec

Cybersecurity: Neosec provides a SaaS platform that unifies security and development teams to protect modern applications from threats.

Founders: co-founder and CEO, Giora Engel; Co-Founder and CTO, Ziv Sivan
Foundation year: 2021
Number of employees: 50+ employees

Explanation behind the investment:

There is a tidal wave of products served through APIs. These APIs are becoming more complex and critical to business operations. Therefore, it is essential to have a security product that protects APIs from abuse and misuse.

Noble

Fintech: Noble empowers any business to quickly build, launch and scale credit products by providing a complete infrastructure to assess the creditworthiness of its business customers.

Founders: co-founder and CEO, Tomer Biger; Co-Founder and CTO, Moran Mishan
Foundation year: 2021
Number of employees: 20+ employees

Explanation behind the investment:

More and more companies are looking to incorporate financial services into their offering, and specifically when it comes to offering credit-based products, the infrastructure to allow non-financial-savvy companies to do this seamlessly simply isn’t there. Noble fills this void.

Port

SaaS: Port combined hundreds of years of DevOps knowledge with thousands of hours of research to transform the developer experience as the world sees it today. Starting with building the Developer Portal that brings everyone together, and moving forward as the cutting edge of the developer experience.

Founders: co-founder and CEO, Zohar Eini; Co-Founder and CTO, Jonathan Boguslavski
Foundation year: 2022
Number of employees: 20+ employees

Explanation behind the investment:

DevOps promised agility, but most DevOps implementations caused more complexity. Port centralizes DevOps practices and automation on a platform that brings order and efficiency back to the DevOps team.

We have also made five new Seed investments in the second half of 2022. As all of them are in a stealth stage, we cannot disclose any information about them yet.

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