2024 VC SurveyQumra Capital: “With businesses operating more efficiently, the coming year holds promise for investors”
2024 VC Survey
Qumra Capital: “With businesses operating more efficiently, the coming year holds promise for investors”
Managing General Partner Boaz Dinte joined CTech for its 2024 VC Survey to discuss how the country is recovering from an economic downturn and war.
“The latest political and security events in Israel certainly posed unique challenges to Israeli companies but also served as a testament to our resilience as a sector and as a society,” said Boaz Dinte, Managing General Partner at Qumra Capital. “Following the events of October 7th, about 15% of the Israeli workforce in our portfolio companies was drafted. That required management teams to develop department-specific plans and leverage different resources within the organization to ensure business continuity.”
It has been six months since the conflict started, and now many reservists have returned to work. “During the past year, during the political turmoil, our key concern was that talented entrepreneurs would look to establish their businesses elsewhere, particularly at the seed stage,” he continued. “The general sentiment now is one of unity and solidarity. People look to build a better country, where the social division and the events of October 7th won’t repeat themselves. I believe this will directly and significantly contribute to our ecosystem, for years to come.”
VC fund ID
Name of the fund: Qumra Capital
Total assets: $1 billion
Leading partners: Boaz Dinte, Erez Shachar, Sivan Shamri Dahan, Sharon Barzik Cohen
Latest investments in Israel: Datarails
Selected portfolio companies: Appsflyer, MinuteMedia, At-Bay, Connecteam, Augury, Simply etc.
From your perspective, was 2023 a ‘lost year,’ or can the events that happened during it be seen as a springboard for opportunities in 2024?
2023 was a challenging year but certainly not a ‘lost year’. In many respects, it laid the groundwork for a more robust and resilient market environment in 2024. Macro events at the scale and precedence of post-zero interest rate policy (2022-2023) had a prolonged impact on the venture landscape. The combination of these with the turbulent year we had in Israel led to what we consider to be an inevitable market recalibration. It’s a necessary, sometimes painful process, but ultimately, it has positive outcomes for entrepreneurs and investors alike. We now see companies that control their spend better, grow more efficiently, are more thoughtful about forecasting, and generally build foundations to succeed in changing market conditions.
Looking at 2024, I am optimistic about the opportunities ahead. These are the times in which the best companies are formed. As companies emerge from the corrective phase, we can expect to see a resurgence of opportunities within the market. With businesses operating more efficiently, the coming year holds promise for investors seeking attractive avenues for investments.
What do you believe is more crucial to the state of Israeli tech: the influence of global processes and the global economy or the local events ranging from the political protest to the war state?
Global economic trends, with a particular emphasis on the US macro environment, remain the key driver for tech performance. This holds true for us in Israel and for our counterparts in the US and (to a large extent) Europe. The Israeli tech sector is export-oriented, with over 90% of companies' sales generated abroad and a significant share of companies’ workforce based outside of Israel, especially in customer-facing fields. Many Israeli companies seek listing in US stock exchanges and are therefore subject to the same market conditions as US and other non-US companies. We are no different from any other major tech hub in that respect.
The latest political and security events in Israel certainly posed unique challenges to Israeli companies but also served as a testament to our resilience as a sector and as a society. Following the events of October 7th, about 15% of the Israeli workforce (which, on average, constitutes 50% of the total workforce in late-stage companies) in our portfolio companies was drafted. That required management teams to develop department-specific plans and leverage different resources within the organization to ensure business continuity. Six months into the conflict, many of the reservists have now returned to work and the business impact, if any, appears restricted to Q4. During the past year, during the political turmoil, our key concern was that talented entrepreneurs would look to establish their businesses elsewhere, particularly at the seed stage. The general sentiment now is one of unity and solidarity. People look to build a better country, where the social division and the events of October 7th won’t repeat themselves. I believe this will directly and significantly contribute to our ecosystem, for years to come.
Has the prestige of Israeli high-tech been damaged, or are the protests and the war merely a 'small bump in the road' from which the sector can recover within months?
My view is that the prestige of Israeli high-tech hasn’t been damaged due to current events. Security events don’t change the fact that there are amazing Israeli entrepreneurs out there, driving innovation, and building great businesses at the forefront of global tech. Israeli prestige has been built over decades of hard work and talent, with real tangible outcomes for multiple stakeholders. What has been impacted is the willingness and motivation of foreign investors to invest here until security events are fully behind us. Foreign investors naturally weigh their risks and are subject to human psychology, like all of us. Investors seek unique opportunities but also stability. No investor likes to invest in what he/she perceives to be a war zone. The Gaza conflict has led to a drastic decrease in investment activity but also to great and innovative technologies and products that are being built to assist the Israeli army. I believe once the security crisis is behind us, we should expect foreign activity to be restored, and am optimistic about future prospects for Israeli tech.
How much effort was required of you to maintain the fund's status with your investors in 2023? What were their primary concerns, and how did you address them?
Our investors are incredibly supportive. They value our discipline and judgment. We have consistently maintained an open dialogue and transparent communication. We ensure that we keep our limited partners (LPs) updated on the ongoing situation. For instance, during our last annual meeting, we invited a senior figure to discuss the protests, reforms, and their implications and developments. After the war broke, we assessed the situation and its impact on aour portfolio and have not faced material challenges. We arranged a Zoom call with all investors to explain the situation and cover all our portfolio companies and the potential impact on them. Lastly, perhaps as an ultimate vote of confidence from our investors, we successfully raised another growth fund in 2023, which should begin deployment in the coming months.
How are you preparing for the most pessimistic scenarios, such as the continuation of the war in Gaza deep into 2024, the opening of another front in the north, or further reduction of government support for high-tech?
It is crucial to ensure that all of our portfolio companies have a robust business continuity plan in place, even for extreme events. That may include ongoing and heightened recruitment of military reserves and significant disruptions to Israel's infrastructure, such as power outages and flight restrictions. Customers need to be completely isolated, therefore we place emphasis on specific continuity plans for customer support, sales, and customer-facing operations. While such circumstances may impact R&D teams, outsourcing abroad for a limited time period could also be considered as a solution.
Regarding governmental support, as we primarily invest in late-stage companies, our companies rarely rely on government assistance. However, for early-stage companies, governmental support may prove crucial.
Did you raise fund money in 2023 for an existing fund or a new one? What are your expectations regarding this matter for 2024?
Yes, we raised our forth fund. The fundraising process has been successful, and we are currently finalizing the fund's closure. We will provide further updates as we progress.
How many investments did you make in 2023, and how does it compare to 2022?
We did not make new investments in 2023 as we didn’t find private market conditions suitable and aligned with the correction in the public markets. Numerous late-stage companies raised substantial sums of capital in 2021, at excessive valuations. The impact of these market dynamics reverberated well into 2023, with companies still exhausting cash balances and delaying fund-raise until they ‘grow into’ last round’s valuations. We had to exercise patience and discipline as we are awaiting convergence between public and private markets, and are indeed witnessing signs of improvement in the market today. Looking ahead to 2024, we expect the growth category to become considerably more compelling, with companies demonstrating stronger performance and seeking investments at market valuations.
In your view, will the amounts and/or the number of deals in 2024 be more like those of 2023 or 2021-22?
By now it is quite clear that 2020-2021 was a historical outlier when it comes to deal volume. 2023 was in many respects also an anomaly, not necessarily because of local events in Israel but rather because we’re still experiencing recovery of the market conditions from the excess period of 2020-2021. Looking ahead, I anticipate that 2024 will bring a more balanced, healthier investment environment, likely resembling that of 2017-2018 (pre-Covid vintages).
Which high-tech sectors will you focus on in the upcoming year? Which areas will maintain their prominence, and which ones appear less attractive?
We are definitely witnessing a surge in everything related to defense tech - what's happening in Israel, Ukraine, and elsewhere, making the field intriguing for entrepreneurs and investors to explore. While we have yet to make a bet in this field, there's undoubtedly an increase in activity that is worth paying attention to. AI will continue to be a significant area for investment, offering ample space for innovation, technologies, and companies, whether it’s infrastructure, LLMs, or application layer. We expect to see many interesting deals there in the coming years. Lastly, Cybersecurity will undoubtedly continue to dominate as a category in Israel, benefitting from expertise, dedicated pools of capital for early-stage cyber companies, and a strong track record of success.
Which type of companies stand a better chance of garnering increased attention from VC funds this year - early-stage or advanced rounds?
In 2024, there will likely be a diverse mix of investment activity similar to what we experienced back in 2017 and 2018. Both early-stage and late-stage companies have opportunities to attract attention from VC funds. Seed-stage companies may encounter slightly more challenges raising capital in these times. Companies raising their A and B rounds will face heightened scrutiny and must prove real market traction and execution capabilities to secure funding. Late-stage companies must showcase their ability to adopt a more data-oriented approach to demonstrate their readiness for further growth and expansion.
What changes will you implement in your approach to evaluating investments in startups in the coming year, compared to the previous two years? What practices will you abandon, and what criteria will you now demand from founders?
You have to split that answer into two parts. The first has to do with company-specific performance and the second has to do with valuation frameworks. On the performance side, it’s critical that companies demonstrate the ability to grow at a cost-efficient manner. From founders, we expect both transparency and resourcefulness. Many companies encountered challenges over the past two years with a weaker demand environment for their products and services. That’s different from the explosive growth we saw more broadly in 2021. While we look for that strong growth profile we understand that each company has a different journey. Ultimately we look to partner with founders that proved they can adapt and build foundations for healthier and more resilient growth.
On the valuation side, we will be closely aligned with public markets when it comes to positioning and benchmarking investment prospects. I think that the 2020-2021 timeframe was a good lesson for investors and founders on discipline and approach to building healthy companies. We look to partner with like-minded founders that plan for the long-term rather than optimize for dilution in the short term.
Do you think it is likely we will witness encouraging IPOs, the emergence of unicorns, or remarkable exits in 2024?
I anticipate several leading Israeli companies to explore IPOs in the latter half of 2024. There is some uncertainty around timelines but mostly because of upcoming US elections and heightened volatility that may ensue in the markets, and not because of company readiness. Mature companies optimized for efficiency post-Covid and I believe many are ‘IPO-ready’. That includes some of our portfolio companies at Qumra. M&A has been down globally as expensive financing costs, and high private valuations reduced buyers’ appetite. Similarly to the IPO window we anticipate gradual recovery on the M&A front as well. As for unicorns, we care more about building and investing in healthy and scalable businesses rather than seeking the unicorn tag-line. Naturally, some companies will enter that bucket this year. As the market matures and rationalizes, we anticipate the title to be more indicative of business quality and performance, without much of the hype we’ve seen in the past.
Practical and current tips for founders planning upcoming money-raising efforts:
I would recommend founders to be realistic and persevere. Nevertheless, you have to aim high. It is extremely important for us to speak with CEOs who demonstrate a path to profitability and are able to explain the competitive advantage their company has compared to the market competitors. At Qumra specifically, we're also interested in finding companies with intentions to stay here for the long haul and not just a flash in the pan.
Name two portfolio companies that you think will thrive in 2024:
Minute Media
Sector + description of the product/service - A global, digital, sports media platform. Minute Media developed a technology platform that powers the creation, distribution and monetization of digital short-form sports and culture media. With over 400 platform partners, Minute Media harnesses Voltax, a technology platform with robust capabilities to manage and distribute both owned digital brands and brands of partners using the company's publishing platform.
Founders + year of establishment: 2011; Asaf Peled.
Reasoning why this is their year: In 2024, Minute Media stands out as a company on the rise, fueled by strategic moves and notable achievements. Their acquisition of STN has significantly expanded their portfolio and bolstered their presence in key sectors. As it continues seeking strategic acquisitions to broaden its market reach even further, Minute Media's outstanding financial results, coupled with its focus on content innovation, international expansion, and forging strategic partnerships, solidify its position as a leading player in the dynamic digital media landscape.
At-Bay
Sector + description of the product/service: Cyber Insurance for The digital age. At-Bay is a cyber insurance company built for the digital age. The company developed an end-to-end solution with comprehensive risk assessment, a tailored cyber insurance policy, and ongoing monitoring for brokers. With At-Bay, brokers can get tech-driven underwriting and tailored pricing within seconds, creating full automation of their day-to-day operation.
Founders + year of establishment: 2016; Rotem Iram and Roman Itskovich
Reasoning why this is their year. In 2024, At-Bay is primed for significant growth in cybersecurity, fueled by key strategic initiatives. Their innovative cyber risk assessment stands out in the industry. In 2023, At-Bay delved further into security technology and initiated a managed detection and response product; it partnered with CrowdStrike to empower SMBs with critical security capabilities; It had remarkable financial performance and grew gross written premium revenue to $301 million. At-Bay solidified its position as a market leader.
