2024 VC SurveyOurCrowd: "Great companies come from tough markets"
2024 VC Survey
OurCrowd: "Great companies come from tough markets"
When times get tough, that’s when innovation sparks new technologies and businesses for a brighter future.
“There is never a lost year, no such thing. In past downturns such as 2000 or 2008, great companies were built,” says OurCrowd CEO Jon Medved. “In the years before the dot-com crash in 2000, Google, Netflix, and Salesforce were established. During the global financial crisis of 2008, Airbnb and Uber were established. Therefore, I am certain that in 2033, there will be companies established that will be remembered as set up in the difficult year of 2023 with outstanding outcomes for their entrepreneurs and investors.”
OurCrowd has raised money for multiple funds in 2023, including funds for which it acts as the GP, as well as third-party funds where it raises money for external GPs. Since October 7, it also established and raised money for the Israel Resilience Fund, to support tech companies impacted by the security situation or bringing products aimed at helping Israel or the IDF during wartime.
“Get to break even quicker than you think. Listen to what VCs say and rethink everything about your business, taking advantage of the crises rather than being their victim. A crisis is a terrible thing to waste,” he added.
VC fund ID
Name of the fund: OurCrowd
Total assets: $2.3 billion
Leading partners: NTT in Japan, SoftBank in Japan, Orix in Japan, Sappe in Thailand, Oxx in the UK, Stifel in the U.S., etc.
Latest investments in Israel: Edity, Carrar, SeeTree, NT-Tao, AIR EV, Kando, Helios
Selected portfolio companies: BioCatch, Hailo, HoneyBook, ThetaRay, DailyPay, JumpCloud, Beyond Meat, Lemonade, Freightos, Alpha Tau, Momentis, Remilk
From your perspective, was 2023 a ‘lost year’, or can the events that happened during it be seen as a springboard for opportunities in 2024?
There is never a lost year, no such thing. In past downturns such as 2000 or 2008, great companies were built. In the years before the dot-com crash in 2000, Google, Netflix, and Salesforce were established. During the global financial crisis of 2008, Airbnb and Uber were established. Therefore, I am certain that in 2033, there will be companies established that will be remembered as set up in a difficult year of 2023 with outstanding outcomes for their entrepreneurs and investors. Markets go down and markets come back, and I am optimistic that those that went down in 2023 will be up in 2024 and beyond.
Therefore, we have established the Israel Resilience Fund to let people invest during the war to help Israeli companies extend their runaways. We succeeded in bringing this fund together, raising capital, and making investments, at an unprecedented speed. Since announcing the fund in late October, we have managed to approve 26 different investments, helping 26 Israeli companies weather the storm and get to the growth that will await us once we are through his war.
What do you believe is more crucial to the state of Israeli tech: the influence of global processes and the global economy, or the local events ranging from the political protest to the war state?
Clearly the most crucial influence on the Israeli tech economy is the global process and global economy, as Israel is connected with an umbilical cord to Silicon Valley, New York, and other financial centers. When they get sick and start coughing, we catch a cold for sure. However, we are also affected by our local conditions and the war is not an attraction for the overseas investors who are so essential for Israel’s high-tech ecosystem. With 80 percent plus of our funding originating from abroad, we do better with a calm peaceful situation and government policy and budgets that reassure investors and rating agencies alike.
Has the prestige of Israeli high-tech been damaged, or are the protests and the war merely a 'small bump in the road' from which the sector can recover within months?
The global venture market has dropped about 60 percent from the peak of 2021 to the end of 2023. This is a very steep drop and not only provides difficult conditions for startups that need to raise capital to continue their growth and reach their goals, but it also has had a destructive effect on investor portfolios and returns. Since the IPO window has largely been closed over the last several quarters, this is going to present real challenges for funds and their investors who are looking for liquidity. Israel has also dropped during the same period by about 70 percent, which is more than the global average, but still more or less in line with these larger trends. I am confident that Israel’s brand will emerge strongly from the current war and crises, and that foreign investors will continue to invest in the Startup Nation.
How much effort was required of you to maintain the fund's status with your investors in 2023? What were their primary concerns and how did you address them?
At OurCrowd, we manage a portfolio of 450 + individual investments and 56 different funds, with a total of about $2.3 billion under management. Our investors and board want to make sure that we have got the message, that we understand it, and that we are acting appropriately in the new environment. This means capital efficiency, getting control of your expenses, cutting your headcount, and driving hard bargains in a market that is capital-constrained. All of the above and more are getting our attention big time.
How are you preparing for the most pessimistic scenarios, such as the continuation of the war in Gaza deep into 2024, the opening of another front in the north, or further reduction of government support for high tech?
Generally, venture capital attracts people who are optimists rather than pessimists. If you’re truly a pessimist, you should probably find another profession than investing in startups. However, being ready for worst-case scenarios is important in any business, and the best way to do that in venture capital is to make sure that your companies are adequately funded and have long runways so that they can make it through tough periods. The one disease that is repeatedly fatal for venture-backed startups is running out of money. Therefore, we take strenuous efforts to try and avoid this syndrome.
Did you raise fund money in 2023 for an existing fund or a new one? What are your expectations regarding this matter for 2024?
We raised money for multiple funds in 2023, including funds for which we act as the GP, as well as third-party funds where we raise money for external GPs, providing our investors with an indirect LP position. Some of our funds are very exciting and we are optimistic about their prospects going forward. Here are details about some of them:
In September 2023, we announced the OurCrowd AI Fund. This $50M fund will provide OurCrowd investors allocation into the next 20-25 AI technology opportunities approved by OurCrowd’s investment committee. The OurCrowd AI Fund will invest in startups developing proprietary, mission-centric AI as their core IP and a major driver of revenue, as well as startups developing AI infrastructure, which will be critical for the growth of AI companies and applications. The fund will also focus on companies developing generative AI across multiple sectors, including verticals such as MedTech, Mobility, AgTech, Cybersecurity, FoodTech, ClimaTech, LegalTech, and FinTech, among others. The fund will also invest in companies that provide AI solutions to support key business categories across technology sectors, including customer operations, marketing and sales, software engineering, and R&D.
On December 20, 2023, we announced the first close of our Israel Resilience Fund to support tech companies impacted by the security situation or bringing products aimed at helping Israel or the IDF during these times. We just completed our 2nd close of an additional $2.2 million which brings our total closed capital for this fund to $10.5 million, with several million dollars in additional commitments. We continue to see strong interest from individual investors. Over 35 of the investors in this fund are new to the OurCrowd platform. The Resilience Fund Investment Committee has approved funding for 26 companies, of which about half are existing OurCrowd portfolio companies. Checks written by the fund are typically for $350K, though for some companies, the investment amount may be higher or lower. OurCrowd is waiving all management fees and carried interest as a contribution to Israel’s current state of war.
The fund, which was announced just 6 weeks before its first close, becomes one of the fastest-closing venture funds ever to go from conception to closure.
Throughout 2023, we raised funds for several GPs external to OurCrowd. Our feeder funds became LPs on behalf of our investors in promising VC funds such as Rebel Fund II, Harpoon, and Balerion Space ventures.
Finally, in 2023 we announced a new initiative around alternative assets where we are for the first time providing rare access for investors to venture debt, credit funds, private equity, and other hard-to-enter asset classes. We think this will grow and become a big part of the OurCrowd business.
How many investments did you make in 2023, and how does it compare to 2022?
In 2023, we invested in over 100 different individual companies, and over a dozen funds. Together this represents approximately $300 million in combined new investment commitments, which is roughly flat to the numbers presented in 2022. In our company, we speak about this as “flat is the new up.” In 2024, we hope that we will really be up.
Which high-tech sectors will you focus on in the upcoming year? Which areas will maintain their prominence, and which ones appear less attractive?
We will continue to lead the market in artificial intelligence, having already made 81 investments in the sector. We are particularly proud of our portfolio company Hailo, which has emerged as a leader in the red-hot AI chip market.
Which type of companies stand a better chance of garnering increased attention from VC funds this year - early-stage or advanced rounds?
I think that both the early stage and later stages will get attention this year. Early stage because people realize that the company development will take several years and get us out and away from the difficulty of 2023-24. Late stage will attract money because of low valuations that are affecting even good companies that continue to grow and who will be able to take advantage of exits when the market recovers.
What changes will you implement in your approach to evaluating investments in startups in the coming year, compared to the previous two years? What practices will you abandon, and what criteria will you now demand from founders?
We are going to maintain our basic investment philosophy and methodology with a renewed emphasis on working with partners for the distribution of our investments, as well as sourcing interesting deals on a global basis with a strong fortress of deal flow here in our home Israeli market.
Do you think it is likely we will witness encouraging IPOs, the emergence of unicorns, or remarkable exits in 2024?
Yes, I think many interesting companies are waiting in the wings to make their impact on the broader market in a more public way in 2024.
Provide an example of an intriguing investment you made in 2023. What sets this company apart, or what is distinctive about its sector?
Helios is at the cutting edge of not one but two of the most exciting emerging sectors. First, in ClimateTech, Helios is producing green iron for the steel industry with 50% lower energy requirements, 20% reduction in operating costs, and zero carbon emissions. The steel industry is well known to be one of the most carbon-intensive industries in the world and one of the hardest to abate. Helios is already engaged with many global steel makers, mining companies, and end users of steel including auto manufacturers.
Second, Helios’ technology also has SpaceTech applications. It is developing the technology to produce oxygen and mine metals on the lunar surface. It has won funding from DARPA to develop technological frameworks for a lunar future, alongside industry leaders such as SpaceX, Blue Origin, and ICON, another OurCrowd portfolio company.
Offer 2-3 practical and current tips for founders planning upcoming money-raising efforts - focus on the current market environment and sentiments.
Get to break even quicker than you think. Listen to what VCs say and rethink everything about your business, taking advantage of the crises rather than being their victim. A crisis is a terrible thing to waste.
Name two portfolio companies that you think will thrive in 2024:
Hailo
Sector + description of the product/service: Developing a proprietary data-processing chip and software for AI and ML in edge devices rather than in data centers/the cloud.
Investment amount + total: $224 million
Founders + year of establishment: Orr Danon, CEO; Avi Baum, CTO | 2017
Reasoning why this is their year: AI Chips are everything!
ThetaRay
Sector + description of the product/service: Deep AI-based company with detection and protection against money laundering, including terrorist funding, human trafficking, and crypto fraud.
Investment amount + total: $150 million
Founders + year of establishment: Prof. Amir Averbuch, Co-Founder + CTO; Mark Gazit, Former CEO & Strategic Advisor | 2013
Reasoning why this is their year: FinTech meets security meets AI is great!
