Editor's note: Our Splash Health, Wellness and Wearables event is coming up on March 23 in San Francisco. We'll have Mario Schlosser, Founder & CEO of Oscar Health, Brian Singerman (Partner, Founders Fund), Steve Jurvetson (Draper Fisher Jurvetson), J. Craig Venter (Human Longevity), Lynne Chou (Partner, Kleiner Perkins), Michael Dixon (Sequoia Capital), Patrick Chung (Xfund), Check out the full lineup and register for tickets before they jump! If you’re a healthcare startup and you’re interested in being part of our competition, learn more and register here.
Also, vote for your favorite healthcare startup before February 16! Vote here!
There has been a big debate over the last few years over whether the Series A crunch is real or not. What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Schreiber currently serves as a board observer of Karamba Security, Twistlock and Hexadite. He served as a board observer of FireLayers until it was acquired by Proofpoint.
Schreiber joined the YL Ventures as Analyst in 2009 from IVC Research Center where he spent nearly three years researching and analyzing the technology and venture capital industry. While at IVC, he specialized in the telecommunications, Internet and mobile sectors and also conducted research relating to investment firms.
Schreiber holds a Bachelor of Laws degree from Tel Aviv University. He served in an elite technological unit of the Intelligence Corps in the Israel Defense Forces.
VatorNews: What is your investment philosophy or methodology?
Ofer Schreiber: We invest in seed-stage B2B software companies, in the fields of Cybersecurity, Enterprise Software (Cloud infrastructure, SaaS, Big data, Analytics, etc.), Drone technologies, Autonomous Vehicles and AR/VR.
We have a particular focus on the Israeli market, which is known for its brilliant engineering talents. Our investment strategy is unique for an early-stage VC: we are very focused and selective, and make few investments a year, because we believe that companies in these stages need our fullest attention and assistance in order to grow successfully. When we meet outstanding entrepreneurs, we become fully dedicated to supporting them in every aspect they need and we leverage our vast Silicon Valley network of strategic partners, potential customers and follow-on investors to help them penetrate the US market and scale globally.
VN: What do you like to invest in? What are your categories of interest?
OS: Our approach is to invest only in industries and technologies that we have extensive experience and added-value in. Our main focus and expertise are in the cybersecurity and enterprise software worlds. In the recent year, we developed additional expertise in emerging sectors such as drones and autonomous vehicles. We are biased towards companies that develop deep proprietary technology. Core IP and strong engineering capabilities are very important to us.
To be more specific, in cybersecurity we are looking for greenfield opportunities. This category became quite crowded in the last couple of years, and so we are looking for innovative security solutions for emerging platforms and technologies. Our view on drones, autonomous vehicles and AR/VR is that we are looking for enabling technologies for these emerging sectors, ones that will support the tremendous growth of these sectors and create more use-cases business models.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
OS: The two top investments I was a part of are FireLayers and BlazeMeter. Both were acquired recently by Proofpoint and CA, respectively. In both cases, the founding team was exceptional, and had the full package of deep technological skills, profound business understanding and relentless entrepreneurship. YL Ventures was fortunate to take part of the founders’ journey from their first step, through great achievements and challenges, all the way to a successful acquisition, which was very positive for the companies’ founders, investors and employees.
VN: What do you look for in companies that you put money in? What are the most important qualities?
OS: As seed investors, we invest in people. So, the thing that gets us excited the most is a very strong team of entrepreneurs. Of course, we always perform extensive due diligences about the market, competitive landscape, get feedback from prospective customers, etc. But, at the end of the day, the most important thing in this stage is a well-rounded team with combined skill-set of deep technological experience, and solid business understanding.
On the personal level, we look for passion, creativity, intelligence, and integrity. Great entrepreneurs are open-minded as well and know how to get feedback and process it.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
OS: We don’t look for any market traction at all. We invest in seed stage, when the product is still in initial stages of development. Obviously, there are no customers, and no revenues. Two crucial elements of our due-diligence are:
First, market validation with US-based prospective customers; we always introduce several prospective customers from our close network, for example, CISOs from large corporates if we look at a cybersecurity company, in order to gain profound feedback from the market.
Second, due-diligence about the entrepreneurs themselves. We perform multiple reference calls about the founders, with people who worked with them in the past and known them for a long time. We accept nothing but excellent feedback as a way to ensure this team can deliver the promise they shared with us.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence
OS: We usually move very fast when we see something we like. We can conduct a very thorough due-diligence process and reach a decision that we are confident about within days and up to two weeks.
Our due-diligence process includes a thorough background check about the founders and a comprehensive market validation. We use our Silicon Valley network to help us assess those opportunities. As part of it, we introduce the founders to potential international customers and industry experts in order to receive their feedback about the company and idea. This process not only helps us in reaching our decision, but it also provides the entrepreneurs with a valuable exposure to global industry leaders even before we’re in.
VN: Given that these days a Seed round is yesterday's Series A, meaning today a company raises a $3M Seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes to get that Seed round? Since it's a "Seed" does it imply that a company doesn't have to be that far along?
OS: Indeed, in some industries you see these relatively large seed rounds, and this is the case in most of our investment fields. The reason is that developing a deep-technology product, mature enough to be deployed in enterprise environment, takes time and very high-quality engineers. Also, when it comes to targeting enterprise customers, sales cycles are quite long. Therefore, we found that $2 million to $3 million is the right amount for this type of startups to raise in seed stage, in order to hit the right milestones that will enable them to continue their growth via Series A funding, with good terms.
VN: What are the attributes of a company getting a Series A?
OS: The answer to this question differs depending on the industry you’re looking at. For example, for a consumer-facing mobile application, probably a few millions of active users, and for a semiconductors company reaching some technological milestones without any market traction.
From our experience, in our investment fields, a good series A usually requires an early version of a working product deployed in several reference customers, and good initial momentum in the market. Of course, being in a “hot” market, having initial revenues, positive PR around the company and several interested investors, these all help to increase valuation and other terms of the round.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
OS: I’m based in Tel-Aviv, Israel. I served for three years in the IDF’s elite intelligence unit (8200), which many Israeli entrepreneurs, mainly in cybersecurity, served in as well. This was my first experience working in a startup-like environment.
After graduating the law faculty of Tel-Aviv University, I was an Analyst in a research company that gathered information and conducted analysis on the Israeli VC and high-tech industry. In those years, I learned about this exciting field, and truly understood that I wanted to become a venture capitalist.
VN: What do you like best about being a VC? What makes you excited?
OS: The two main things I like best about being a VC are, first, supporting innovation. As a VC, you are always looking for cutting-edge technologies, and must stay up to date regarding future trends. In a way, we take a small role in fueling this innovation. Having a broad perspective about the tech industry and becoming knowledgeable in various technological fields, learn something new every day, this is very exciting.
Second, working with smart entrepreneurs. Tech entrepreneurs are inspirational by nature. Working with them on a daily basis, and contributing to their business and personal success gets me very excited, and I feel very fortunate for the opportunity to do so.
VN: What is the size of your current fund?
OS: We are currently investing out of our second fund, sized $27.5 million. We already invested in four companies (FireLayers, Hexadite, Twistlock, Karamba Security), and one of them already got acquired (FireLayers, which was was acquired by Proofpoint for $55 million)
VN: What is the investment range?
OS: We typically invest $2 million to $3 million in seed stages. We can be the sole investor, or in most cases lead the round, while other added-value investors (private or strategic investors) join.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
OS: The range is quite wide, and based on various criteria. Broadly, we aim to reach a holding of 25 percent to 35 percent in our portfolio companies post seed round.
VN: Where is the firm currently in the investing cycle of its current fund?
OS: So far, out of our second fund, we invested in four companies. All of them are in the cybersecurity field. We are looking for another one or two investments in our current fund, as we plan to raise our third fund during 2017.
VN: What percentage of your fund is set aside for follow-on capital?
OS: We reserve more than half of our fund for follow-on financing of our existing portfolio companies. We make few investments, but once we do, we’re “all-in." We kept investing in every single portfolio company that raised follow-on financing after our seed round. This is an important part of our model: few investments with high conviction.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
OS: We typically invest in seed rounds. If we see the combination we like, of big market, strong team and deep technology, there is no such thing as “too early” for us. We also continue our financial support in our portfolio companies in the follow-on rounds. In these cases, they are usually led by other VCs, and we participate.
VN: In a typical year how many startups do you invest in?
OS: We invest in about two companies a year.
VN: Is there anything else you think I should know about you or the firm?
OS: We love meeting brilliant entrepreneurs as early as possible, even when they are not fully sure themselves how their next venture will look like. We believe that forming a relationship and an open discussion in these embryonic stages can be a beneficial process to all sides, and we always try to brainstorm and assist entrepreneurs in these stages in order to focus on the right problems to solve the best way possible.
As we work mostly with Israel-based entrepreneurs, our ability to connect them to the US market is these stages are very beneficial for us to validate their concepts, and also for them, to gain important feedback from prospective customers. Feel free to contact me – email@example.com!