Seed stage VC firm YL Ventures raises $75M third fund

The firm invests in Israeli B2B software companies, in sectors like VR/AR, drones and cybersecurity

There wasa total of $7.9 billion raised by VC firms, across 58 funds, in the first quarter of this year, a drop of 24 percent from Q1 2016. That was due to fewer so called "mega-funds," or those over $250 million. Instead it was the smaller funds, those investing in the earlier stages, that made up the majority of the funding during the quarter. 

On Thursday, another seed stage venture capital firm YL Ventures announced that it raised its third fund, called YLV III. The firm raised $75 million, 25 percent more than its $60 million target. Nearly all of the investors in YLV II  participated in this new fund, and, with this latest fund, the firm now has approximately $135 million under management. 

Out of this new fund, the says that it aims to invest in two to three companies per year. Initial seed investments will be between $2 million and $3 million, with YL Ventures leading the rounds. A large portion of the fund, more than half, will be reserved to participate follow-on rounds of its portfolio companies.

Founded in 2007, YL Ventures, which is based in Silicon Valley, invests in seed stage Israeli technology companies, in what it calls "high-growth B2B software sectors." These include cybersecurity, enterprise software, autonomous vehicles, drone technologies and VR/AR.

"These are the software sectors that are fastest-growing in the U.S. that have an abundant supply of Israeli startups, and engineers, working on solutions," Yoav Leitersdorf, Managing Partner at YL Ventures, told me.

For example, cybersecurity is expected to grow from $75 billion in 2015 to $170 billion in 2020, while autonomous Vehicles will be a $42 billion market by 2025 and the commercial drones market will be $6.6 billion by 2020.

Out of its first two funds, the firm made 10 investments, half of which were acquired. That includes FireLayers, which was acquired by Proofpoint, and BlazeMeter, which was acquired by CA. Other investments include Twistlock, Karamba Security and Hexadite.

In addition to the new fund, YL Ventures also revealed that is going to be expanding its leadership team with the addition of venture advisors; the first announce advisor is Justin Somaini, chief security officer at SAP. Somaini will introduce deal-flow to YL Ventures, help the firm with due-diligence calls and give advice to portfolio company CEOs. 

"I’ve been collaborating with YL Ventures for some years now and know they have unparalleled access to Israeli cybersecurity talent and innovation," Somaini said in a prepared statement. "I’m looking forward with great anticipation to working more closely with the entrepreneurs the fund selects to help them bring the next wave of technological innovation to market."

In additionl to Somaini, YL will be announcing venture advisors to cover all of the sectors it currently invests in.

"Our venture advisers must be experts in the domain for which we have brought them on board to advise. Our venture advisers have decades of experience in their respective sector, have cunning abilities to help us evaluate startups in their respective sector, and also have great coaching abilities that will help and guide our portfolio company founders," said Leitersdorf.

Ultimately, the firm's goal is to be the go-to VC for Israeli entrepreneurs raising seed-stage rounds for their B2B software companies.

"In contrast to other VC firms and angel investors who invest smaller amounts of capital in many companies, YL Ventures makes very few investments a year and keeps a carefully-selected portfolio in order to support each of its portfolio companies in its own unique path. YL Ventures truly sees itself as a hard working ally of its entrepreneurs and fully commits itself to their success by leveraging its vast Silicon Valley business network to accelerate their growth in the U.S. and beyond," Leitersdorf told me.

"YL Ventures has extensive knowledge and expertise in its fields of interest and actively helps its portfolio companies become market leaders, providing them the needed strategic and tactical advice. An important part of YL Ventures’ model is few investments with high conviction. And so, the firm reserves more than half of its investable capital for follow-on financing of its existing portfolio companies."