Leading US VC’s perspective on investing climate, Israeli start-ups, and the next frontiers

This week, a delegation of 200 leaders across a variety of business sectors in Israel boarded the new direct United flight from TLV to SFO. Organized by the leading financial newspaper in Israel, Calcalist, together with one of the largest Israeli banks, Bank HaPoalim, what started with a “mile-high” conference during the flight – culminated with 72 hours of events, meetings and introductions to some of the Silicon Valley’s most influential business decision makers.

As part of the conference, UpWest had the pleasure of hosting a panel of top US Venture Capitalists to share their perspectives on the current investing climate, Israeli startups and the next frontiers. Venky Ganesan (Menlo Ventures), Ravi Viswanathan (NEA), Bobby Lent (Hillsven Capital) and Sundeep Peechu (Felicis Ventures) brought decades on insights to the delegation made up of leaders from all sectors – enterprise, startups, government, investors.

Do you see hesitation on investments in 2016?

Across the board, the VC partners shared that they are more bullish than ever investing in early stage companies. In fact, some shared that their strongest investments were made in tough years – 2001, 2008, 2009. There will be some adjustments to be made in valuation and multiples; however, good teams will keep their heads down, continue driving forward with execution. They did agree that there will be somewhat of a “blood-bath” in later stage companies. “Every tree needs some pruning to grow better and stronger.”

What is your word of advice to Israeli startups in the room?

The words of advice focused in two areas – location and investors. In terms of location, the panel couldn’t emphasize enough the importance of setting up headquarters (that includes the CEO) in the US, and Silicon Valley specifically. Finding the right investor was the second major theme. Take time to think through what you need for your business when choosing investors. Look for non-traditional sources of capital. Don’t limit yourself to Sand Hill Road or what has worked for others.  Find the right partner since you will be working with them for the next 5-10 years.

What do you see as the next frontier in terms of investing?

Based on the insights of the panel – there is lots of fertile ground for startups. There was discussion around both reinventing existing businesses such as insurance, healthcare, education with the ability for better distribution and more data. As well as, new green pastures including drones, anti-aging, AI/VR/AR, autonomous cars. Innovation will continue around Network Marketplaces (such as HoneyBook) and the trend to Consumerize Enterprise (such as Mobilize). FinTech and SaaS (including Vertical SaaS and Industry Cloud) are also hot areas.

They did warn to stay smart about trying to “Uber-ize” everything. Unit economics don’t work for all on-demand marketplaces and in most cases the cost of switching is low which makes it harder to become a big player.

What are the top challenges in investing in markets outside of the US?

The discussion was mostly around investing in Israeli startup – given the makeup of the attendees. The panelist agreed that Israeli entrepreneurs have so much going for them – great education, military experience and rarely get frazzled. However, all four VC Partners mentioned that setting up the company in the US (having a Delaware port) is critical to their investment decision. Startups that want to grow need to be in the US for two major reasons – company building and mindset. In terms of company building – there is much more chance of finding the superior talent – specifically executive talent: CFO, CMO in the US.

In terms of mindset – it’s all about “Thinking Bigger.” The Silicon Valley functions at a different pace. The aggressive intensity of the incumbent players – Facebook, Google, etc. drives startups to work harder and faster. “They have someone to look up to.” Geographic distance also presents its obstacles with key investors – especially those who have the value-add of being hands on. The partners stated that having to travel to Israel for board meetings could be a deal-breaker in some cases.

What will be the startup buzzwords 5 years from now?

The initial slip of the tongue was “profitability.” However, the following terms followed closely after: changing the messaging paradigms, marketplaces, deep learning and capital efficiencies.