Batch brew #9

High Valuation Troubles, VC Valentine's Day & Israel Startup Nation

Welcome back to the Caffeine Capitalist! ☕

Checking in from Israel with you this time, visiting OurCrowd Summit. This time we packed the issue with a lot of data and actionable insights. Mind blowing acquisition returns on investment, notes from our Israel trips, predictions on the current VC environment & best practices on startup reporting.

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Dept. of Tiny Thoughts

Many startups fail with high-quality code.

- Ethan Lu @ethanlurk

Think about this again, take another sip of your fresh filtered coffee. Typical and well known startups failure reasons: "technology for the sake of technology", "spent too long on tech", "customers didn't show up" & "did not solve any problem".

Let's remind our selves of what Lean Startup & Zero to One teaches us:

  1. Customer Desirability

  2. Technical Feasibility

  3. Business Viability

How does it relate? Well: 1 > 2 + 3

Psst, it doesn't need to be perfect, it just needs to solve a problem.

Dept. of Insights

1/ Best Acquisitions of all times

A lot was written about the best VC investments and VC fund returns. You can check out the list and order from CBInsights here. Whatsapp, Facebook, Groupon or Snap.

What about the best acquisitions of all times?

The list and returns on those investments are mindlowing.

Android Acquired for 50m USD by Google generated them 112bil. USD return (and still counting). That's a whopping 2240x return on investment! Out of this list, it seems that Google is the best acquisitor ever. DoubleClick (todays Google Ads), Youtube, Android or Google Maps.

2/ Chatting with the first investor in Waze. Words of wisdom from a visit to Magma VC in Tel Aviv.

During Slavo's tech trip to Israel, he got the chance to visit Magma VC and sit in a room with Modi Rosen, the following is a collection of his notes from the whole trip.

Modi is the managing partner at Magma VC, one of the most successful Israel based VC funds. The 60 minutes we got to spend with him as group made us all open our notepads & jot down some notes as this man was the man of VC wisdom.

Modi was the first investor in Waze, after the company has been turned down by 6 other VCs they spoke to. He later went on to exit Waze to Google for $1.3b and mark this as his most well known investment, given it's consumer focused and everyone heard about it. You can see one of their first public slides below, back from 2009.

Waze - Mobile Monday Tel Aviv 2009

The success of Israeli startup ecosystem started in the early 90s when the local government decided to give $12m per each of the 8 new fund managers, given that they would secure another $8m from private investors, making 8 funds with $20m of dry powder. 5 years later most of these funds had fabulous returns between 5-10x. By the end of the 90s, Israel's VC market was as big as Europe's, wow. Capital goes where there is indication of profit and that is exactly what happened in the following years.

Once capital rushed into Israel, it was important to choose well when investing into young tech companies at seed stage. Outstanding people don't become outstanding when they enter the room to pitch, they must have done something before that makes them stand out. Just add to this a huge market with strong growth and your unicorn mix is starting to to take form.

We also stumbled upon the topic of megatrends & their importance. Yet, it has been argued that you don't have to predict them, you just have to realise soon enough that "it works" and then you have many years to ride the wave of investment into that particular trend.

And remember, the VC world goes in cycles, seems like right now we are in the "hard to raise, easier to invest" part of the cycle.

Want to understand the Israeli VC market in numbers and perspective? Here are some numbers presented during Andrej's visit to Startup Nation Central in Tel Aviv two weeks ago.

  • 85 unicorns 🚀

  • 7300+ startups

  • at the peak,1500 new startups created every year

  • 15.5 bil. USD of VC investments in 2022 (27.6b in 2021)

  • 10%+ of the workforce already working in the tech-sector

  • 435 VC funds

  • 135 accelerators

  • Israelis are learning to code during their compulsory military service, which supports tech talent and new innovations

The Slovak/Czech/CEE ecosystem is incomparable to Israel but within Europe, CEE:

  • CEE VC market is the most growing one (7.6x more VC funding in 2022 than in 2017)

  • with over 40 unicorns,

  • around 6bil. Eur of VC funding in 2022,

  • high quality of tech talent

  • lower OPEX, therefore lower valuations in early stages

  • growing and maturing startup ecosystem

Dept. of Twitter Thread Research:

1/ Big Valuations, big trouble? We all had these coffee conversations about valuation drops, about down rounds & impact on startups with raised with high valuations in the last 2-3 years. Well, Tom Loverro here paints a way darker picture, burnt espresso vibes.

2/ Since it was Valentine's day <3 . Anyway, what's up with our obsession to always ask who else is in the round? Signalling?

Dept. of Visual Research:

An interesting screenshot landed on our virtual desks recently. I haven't seen lately any clear guidance on the hierarchy of information, that startups should report. We often see fluffy quarterly and monthly presentations, struggling to show the founder's clearness of thinking (or lack of?). Q1 reporting coming up soon, feel free to take this as a guidance:

LeadEdge Capital

News from our portfolios & where to shake hands:

  • Continuing Tech and Start-up layoffs. Late stage companies still have a huge problem in attracting investments and are pushed to cut costs to prolong their runway. The hiring market is frozen. Year 2023 might be therefore a very good year in terms of number of new start-ups created. A lot of talent will be free on the market and pushed to get out of comfort zone and work on new ideas and projects. Read more about this in latest Andrej's interview in E15 news.

  • Slavo & team will be visiting Zagreb, Croatia next week to meet our friends from Fil Rouge Capital, anyone else there?

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Enjoy your coffee fresh, allocate capital, repeat! See you in 2 weeks 👋

The Caffeine Capitalist is a bimonthly newsletter written by Slavo Tuleya, Andrej Petrus & Martin Nemecek. It is written in partnership & in support from ZAKA.VC and Chop Chop Ventures.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.