2022 VC SurveyWhat has history taught us about how to handle next year’s tech turbulence?
2022 VC Survey
What has history taught us about how to handle next year’s tech turbulence?
Gal Gitter, Partner and Managing Director at Ibex Investors, has joined CTech for its 2022 VC Survey series to predict trends in the year ahead.
Many predictions are currently being made about what companies and investors can do to try and make 2023 a little easier for everyone. As the tech crisis deepens and the layoffs continue, companies are forced to pivot their strategies and save the money they raised earlier in the year.
“What history has taught us is that it is likely that many large companies will be born out of this period,” said Gal Gitter, Partner and Managing Director at Ibex Investors. “If you are an entrepreneur in either an early/late stage company, this is when you can really differentiate your market positioning and performance from the pack, and set yourself up for a very strong outcome in the future.
Name of fund/funds: Ibex Investors
Total sum of fund: $660M+ (December 1st), across our early stage and growth stage Israel-focused funds
Partners: Justin Borus, Gal Gitter, Nicole Priel, Mike Donnely, Jeff Peters, Cooper Stainbrook, Ryan Mahon
Notable/select portfolio companies: Weka.io, Appwrite, Nexar, Lightspin, Gauzy, Digital Owl
Gitter has joined CTech for its 2022 VC Survey series to predict trends in the year ahead.
If 2020 was the year of the pandemic, and 2021 was the year of records, how would you define 2022 in the VC sector?
2022 will be defined and eventually remembered as the return to normalcy and to the basic laws of economics: Money isn’t free and businesses need to strive to become profitable. It is likely that we will not return to near-zero interest rates anytime soon, and thus companies will need to continuously evaluate the efficiency of their spending. We believe that this period will be closer to the “norm” and 2021 will be considered as a reversion from it, vs. the other way around.
Who are the big winners of 2022 and why?
The big winners of 2022 are companies that are both well-financed as well as well-prepared for a 12-24 month slowdown. What this entails is companies that have either raised in 2021 or are able to obtain capital from their investors, and, more importantly – have built their go-to-market to be focused on efficiency as well as growth from an early stage. These companies have the opportunity to shine in the next year – w/cost of growing organically (i.e., buying media) and inorganically (i.e., buying companies) both expected to decline.
Who are the big losers of 2022 and why?
The losers of 2022 are companies that avoided facing the new reality until it became too late. Companies that have retained a high level of burn through the last couple of quarters hoping the market will revert back to what it was in 2021, or ones that continue to operate inefficient business models that will not enable them to attain profitable growth.
What do you expect in the VC sector in 2023?
History has shown us that the best time to be investing is in market downturns vs. when multiples are high and deals are very competitive. That being said, it is likely that investment criteria will become a lot more stringent across most stages, especially for growth rounds that will more closely reflect public market metrics. We are expecting to see a decline in the amount of capital invested vs. 2022 and an increased supply of companies that will now need to raise external rounds in 2023, vs. relying on internal rounds and debt in 2022.
Additionally, what you often see in downturns is the power law – the strongest companies actually raise more capital than they do in an upmarket, and the mid-tier companies find it difficult to raise at almost any valuation.
What global processes will affect (positively and negatively) the Israeli market?
The tech market here is affected by nearly all of the main indicators that affect the global markets, so all of the above are likely to have a material impact on the market. We have yet to see what 2023 budgets look like for enterprises, as those decisions are happening right now – we will know a lot more about forecasted enterprise spending in Q1 of 2023 than we do right now.
How should different companies (large, medium, early-stage) prepare for the coming year?
After consolidating feedback from our companies and our advisers (including C-level executives from Fortune 500s), what we recommend on the go-to-market is:
- Focus on increasing current product usage and adoption across your customer base to pre-empt churn initiatives
- Strengthen the trackability and measurability of the impact your product creates – it is much easier to sell solutions that reduce cost / improve RoI in down markets than those that help increase the top line
- Be prepared for elongated sales cycles – stakeholder management is key now. Startups will need to engage with many more stakeholders in enterprises before receiving the go-ahead.
Beyond that, it is critical to continuously assess the efficiency of your lead generation and sales activities, and make sure to cut inefficiencies as early as possible.
What will be of the dozens of unicorns born last year?
Hopefully, many of them will think about their long-term goal, which is to create a valuable company vs. a short-term goal of optimizing valuation. It is more prudent to raise an extension or even a small down round and be well-capitalized than to attempt to aggressively grow without a strong balance sheet.
What sectors in high-tech should we look out for in the coming year - and why?
There is a lot more attention (and rightfully so) on Climatetech right now. We will also continue to see AI, specifically across less penetrated verticals or industries; other than that, we believe enterprise software will continue to serve as the major growth driver for our ecosystem.
HR: Do the layoffs, those that have already happened and those that are coming, help to fix in any way the distress experienced by companies over the past 2-3 years?
We are not seeing reductions in employee conditions (salary, benefit, or others) in the eco-system currently. That being said, it becomes more difficult to get a job and retain a job in the industry, as larger companies are modifying their budgets for increased profitability, thus reducing operating expenses and talent amongst those expenses.
Additional comments:
What history has taught us is that it is likely that many large companies will be born out of this period. If you are an entrepreneur in either an early/late stage company, this is when you can really differentiate your market positioning and performance from the pack, and set yourself up for a very strong outcome in the future.
Received AI, 1M Robotics, Peech - Ibex Investors’ notable recent investments:
Received ai
FinTech: Received.ai is automating B2B invoicing and ultimately seeks to modernize the entire Accounts Receivables (AR) space.
Founders: Roi Ben Daniel and Shai Betito
Founding year: 2022
Number of employees: 7
Explanation behind investment: For many organizations, invoice creation is largely a manual process today - leading to wasted time, billing errors, and missed revenue opportunities. This becomes even more challenging with the growth in new pricing schemes in recent years (usage pricing, installation costs, platform fees, etc.), ultimately requiring developer and IT involvement just to build/maintain/grow invoicing solutions. Received aims to automate the invoice creation process, adapting it to a variety of pricing schemes and contracts and eventually automating the entire process between contract creation/CRM and reconciliation/ERP.
1M Robotics
Logistics: 1M Robotics has created the world’s first nano-robotics infrastructure, enabling companies in all spaces to automatically fulfill orders with minimal human intervention. 1M enables the creation of automated “dark stores” that can be placed very close to consumers and allow for cost-efficient last-mile delivery.
Founding year: 2021
Number of employees: 50
Explanation behind investment: Consumer expectations have changed dramatically in the last several years – convenience is now an imperative, not a nice to have. Many consumers are expecting their orders to be delivered within a couple of hours or less – whether it’s a grocery delivery, a new pair of shoes, or their pharmacy order. Meeting this expectation has become a significant challenge for enterprises, that are struggling to enable this level of service in modes that are both profitable and ESG compliant. 1M Robotics has been built from the ground up to address this challenge – creating a network of automated dark stores that house the company’s nano-robotics infrastructure. The dark stores can reside in units as small as crates, and cost-efficiently fulfill orders across multiple SKUs/categories, which can then be delivered or collected by consumers.
Peech
Content Creation: Peech has developed an enterprise tool for the creation of edited and branded videos in one click (“Canva for video”). Beyond creating videos, Peech edits them easily, allows users to collaborate on those videos in real-time, and enables teams to manage all of their video content.
Founders: Danielle Dafni and Johnathan Kanarek
Founding year: 2020
Number of employees: 17
Explanation behind investment: While video has emerged as a major awareness tool for companies of all shapes and sizes in recent years, its production process has remained incredibly time and resource intensive, and oftentimes includes a pricy design studio, constant back-and-forth on content, editing, and style across different teams, and related delays in the production process. This is exactly what Peech is trying to solve via an enterprise grade tool that enables companies to create and edit videos in one click, also including a full-suite collaboration platform to enable multiple users to work together and easily create and release new content.
