“I’m not a prophet, but it could be like a 2008 crisis. There was talk all the time about a crisis, but in practice our market has only improved, with more money and for many years. Today we are talking about venture capital that needs fixing, and maybe this is a good opportunity.” She notes.
Weinrib and Boaz Peer, Director of Qualcomm Ventures in Israel and Europe, jointly manage the strategic investments in the area of the American communications chip giant, which has included 30 companies since 2010. Prominent exits made by the fund in Israel include Wise, Ravello, Cyberx and Magisto, and today it invests in SentinelOne, WekaIO and TytoCare, among others.
Those responsible for inflating valuations are the investment funds, which enjoy beautiful exits. Why would anything change?
Weinreib: “Funds profit by IPO, but they will earn more if they enter lower valuations in the last round or the one before. There was a time when there was a lot of money in the market that created great competition, which was reflected in a jump in valuations. “Then investors become more conservative and cautious and expectations become more reasonable.”
How do you decide on a new investment without meeting the developer?
Qualcomm operates teams similar to Weinreib’s and Pe’er in areas such as China and India. In a conversation with the two, which takes place at Zoom – one of the fund’s successful investments – they sound relaxed despite the crisis threat to many of their portfolio companies. “People are measured in crisis,” Peer says. “You can see who functions, initiates, and knows how to prioritize. Some cope less well and you can see different styles, but overall I do not think we were wrong. In my eyes this is also evidence of successful companies. Crisis is part of the social life cycle, if not the plague was something else. After 20 years of growth, everyone was expecting a crisis. ”
However, Peer is cautious about the near future: “In a normal investment round in the company, of one and a half years, the aspiring company should increase value during this time. If a company requires multiple customer interactions, I guess the near term will be difficult and we are more careful.”
“The first thing we did when the crisis broke out was to go through about 20 of our portfolio companies, examine their situation and make sure that no one should raise money ‘tomorrow’,” says Weinreib. “We worked hard to extend the life of the company without the need for further recruitment. Some were required to reduce wages, others to cut manpower. Today we estimate that almost all can survive without additional capital until the end of 2021. In an environment of uncertainty investors are harder to invest. “Before making decisions and presenting to investment committees in Zoom, then it was less shaky.”
What is still missing when the interaction becomes completely online?
Weinreib: “When considering an investment, one of the critical things is the developer. A first meeting with a zoom company is wonderful, but getting to know the developer takes many quality hours, and zooming is a bit difficult and tiring. We need a frontal meeting, and if that is not possible, we will need many metrics to deal with it. ”
“We have processes that are managed in an orderly fashion, but in the end many things are unmediated and nuanced,” Peer adds. “You invest not only in society but in the people and the dynamics between them, and you want to see how they conduct themselves. There is body language and mimicry that are more absorbed in face-to-face meetings. That’s why we went back to meetings in Israel.”
“When meeting an investment firm’s staff, it is very noticeable in the interaction between its staff members whether one is silencing or contradicting the other,” Weinreib continues. “We are also trying to understand how much the entrepreneur listens. We are not looking for Yes-Manim, but an entrepreneur who does not listen to the board at all can create a lot of conflicts.”
The phenomenon of the overly dominant founder-CEO has become one of the most notorious problems in the high-tech world in recent years, and includes cases like Travis Klanik Mauber and Adam Neumann from WeWork, and in some ways Mark Zuckerberg from Facebook. , From cultivating a toxic work environment to uncompromising control over the board of directors.
“We invest a lot of time in producing balances when joining the company,” says Weinreib. “Usually if we have old investment funds in front of us, the issue is handled well. In most boards we look to sit next to American and Israeli financial funds, where the balances are very maintained. The power is divided between two or three funds, so we assume most investors make sense and decide the same thing. Between them and sometimes not, but that there will not be one person to decide and then everyone will have to flow with him, and certainly it will not be the entrepreneur or the CEO.
“We do not want the funds to dilute the developer too much, so that he has a sufficient incentive to continue operating when his company,” Peer adds. “But in places where they see an illogical structure, for example that an entrepreneur has too much power or that there is a fund with very high control, we usually do not invest. When everything is good there is no problem, but once there is conflict, these things are reflected.”
How long will we have to read in prospectuses that a company indicates that it may never be profitable?
Weinreib: “We only invest in markets that are strategic to Qualcomm, and there are fewer bubbles. The whole industry hopes that the crisis will bring balance, because there is a real imbalance here that was expressed in unsuccessful issues due to the mismatch between private and public markets. We try to be disciplined and look disciplined. “Of logical multipliers. Not that we did not sin there, especially in times when it was impossible otherwise.”
“WeWork has been the right marker of rapid growth,” Peer adds. “In my opinion, this is out of control. We are looking at investing at a financial and strategic level, and at the financial level the trend of companies that grew very fast, burned a lot of money and did not show a model of profitability on the horizon – will disappear.”