Dan is an investment associate at TPY Capital, an Israeli venture capital investing in early-stage B2B enterprise software companies. Before joining TPY, Dan spent 5 years in Panama where he founded Venmetro; an online payroll lending platform. He was also responsible for scaling an online liquor delivery startup called Paneco across Latin America (Panama, Colombia and Mexico). Dan holds a B.A. with distinction from Bentley University and grew up in Belgium.
1. How did you get into Venture Capital?
After spending a few years as a founder and operator of technology companies in Latin America, I thought the time was right to learn how the other side of the table works (from an investor’s perspective). I was eager to understand the mechanism of a fund operation as well as how to evaluate individual investment opportunities. There is no better place to do so than Israel, where the ecosystem is concentrated and comprised of talented founders, a large pool of investors and startups with deep technology at distinguishing maturity stages. I joined TPY Capital upon the closing of its second fund of $100m and am focused mostly on due-diligence of potential investments and portfolio support.
2. What is the startup scene like in Israel?
What makes Israel’s startup scene so unique in my opinion is the combination of its people (mix of military requirement/culture of empowerment/upbringing) as well as the alignment of vision between the public and private sector (R&D centres/governmental grants/accelerator programs).
- As the “startup nation”, Israel is the #1 country globally in terms of both venture capital investment per capita as well as a % of its GDP.
- There are about 6,500 startups and 150 venture capital funds active and present in Israel.
- As of the end of 2019, there were 362 active multinationals with an R&D arm and/or investment vehicle present in Israel.
Over the course of the past 2 decades, there were many successful startups stories across the country which had led to a new wave of the younger Israeli generation to pursue careers in technology-related domain.
3. How has the coronavirus affected the venture capital sector?
I do believe the startup ecosystem was to some extend overheated before the coronavirus outbreak in terms of valuations, applied multiples, round sizes, etc. There was a lot of money hunting for investments in startups and money wasn’t seen as a commodity but rather a facilitator. Although most people were expecting a “correction”, no one expected it to be a total disruption in terms of health, operations and financial.
In times of economic and financial uncertainties and when sh*t hits the fan, companies (both companies and funds) tend to take a step back and think more strategically on how to pursue the next coming months.
As an immediate reaction, we saw on one hand startups revisiting their budgets and projections to ensure they can sail the storm safely. In terms of the exact plan of action, I think it really depends on the stage of the company, for some mature companies it was revising headcount’s efficiency, for pre-revenues companies it was perhaps putting the hiring process on hold. On the other hand, we saw funds investing an increasing amount of time and effort with their portfolio companies, as well as redefining where investment opportunities may lie as they weren’t active before (in terms of stages or sectors). I guess it heavily depends on where the fund is in terms of lifecycle. If a fund is at the beginning of the deployment cycle, it may be actively looking to explore opportunities as there will be fewer funds “competing” for the same deals. If the fund is at the end of its deployment period, it may have probably reserved a portion of its remaining capital for existing portfolio companies looking for an extended runway period. Others regardless of their deployment cycle decided to wait and see.
I do not expect the venture capital industry to face drastic changes post-COVID-19. I am optimistic things will get to back to pre-corona levels. Startups and venture capital are here to stay as technology and innovation have proven to be net-positives in our day-to-day lives. The question is not IF but rather WHEN
4. What is your investment strategy when investing in startups?
Our investment strategy is divided into two buckets. The first and smaller pool is pre-revenues companies, which typically consist of the founding team, with at most a prototype. For this specific type of investments, our strongest conviction weighs on founders themselves since there’s very little to show in terms of product/customers/market. Here’s a sample of questions we ask ourselves;
- Does the founding team have the relevant technical background?
- Are they solving a real-pain point they perhaps have experienced in the past?
- Are they able to hire talent?
- Is/will the market they are entering large enough?
Our second and most significant investment focus is in companies that are revenue-generating with a working holistic product, a dozen of customers and ready for hyper-scale. In addition to the set of questions mentioned above, we ask ourselves the following:
- How does the revenue composition look like? Do they have recurring revenues? Is the sale cycle standardized?
- How mature is the product, what’s on the roadmap?
- What’s the company’s distribution of outcome?
- How does the competitive landscape look like?
There’s no one formula fits all but in order to identify the good from the bad, we broadly speaking evaluate following aspects of the companies: team, product/technology, market, secular trends, competitive landscape.
5. What advice would you give to young budding entrepreneurs?
- Build a product that’s solving a real pain point rather than a product that’s searching for a problem.
- It will not be a clear-cut journey; there will be both good and hard times, try to learn from each experience to avoid unnecessary repetitive mistakes.
- Reputation is something the ecosystem values a lot, so avoid arrogancy, embrace advice and offer help if possible.
- Building a company is like running a marathon, it doesn’t happen overnight. Be patient, plan accordingly and most importantly; enjoy the ride. 😊
We would like to thank Dan for speaking with us.