1Mby1M Virtual Accelerator Investor Forum: With Yanev Suissa of SineWave Ventures (Part 7)

Sramana Mitra: This is your first fund, right?

Yanev Suissa: Yes.

Sramana Mitra: Have you had any exits yet?

Yanev Suissa: No, we’ve been investing for about a year.

Sramana Mitra: Next question is about unicorn mania. How does a seed investor protect themselves in the event that there is huge amount of capital being raised? You said that you follow through in your investments, but how far can you go with that given that the trend right now is raising huge amounts of money.

Yanev Suissa: It’s a fantastic question and a really difficult one that I think all VCs think about. SineWave is even more unique for that because we’re a small fund who chases whales. There are some angel and seed investors who will look to put a million in and sell the company for $15 million. For us, we’re really looking for the much bigger company because of the nature of who we invest with.

We have that problem in particular because we play with big boys. It’s a unique challenge. We actually have more money in the fund than it appears on the surface. Our investors can invest more into our companies. The fund is actually bigger than it seems which is a model that some VCs use. A lot of them call it an opportunity fund. One of the things that we’ve deployed at a seed or A round, we will do a bit larger tech than we might have normally.

We have ownership earlier so that the later dilution isn’t as impactful. Also by investing on the earlier side, because the jumps in valuation have been so significant recently, I think that’s partially because traction can be very quick and also money that’s being thrown around increases the valuation significantly.

About 10 years ago, your dilution risk was a little bit more significant round to round than it is now because when a company is doing well, the jumps are so large in valuation that even if you didn’t do any of your pro rata, you’d still own a good amount of the company. To be honest, putting heavy terms in later rounds can usually be hard to do when a company is doing exceptionally well.

If they’re doing exceptionally well, our ownership is what it is. We can’t participate at a $60 billion Uber round, it’s unfortunately a situation we’re in.

Sramana Mitra: You sell out at that stage?

Yannev Suissa: It’s actually a trend that we’re seeing. It’s not just the seed guys, but even the big VCs.

Sramana Mitra: It’s a trend that I’ve seen as well. It’s almost like a requirement because, otherwise, you can’t play this game. If Softbank comes in with $880 billion and every company’s exit path is Softbank, at some point you’re going to have to sell out.

Yanev Suissa: When a startup gets to Series D and upward, they’re really quite established. They’ve got hundreds, if not thousands, of employees. The same kind of value that a VC would give you in helping you build the team and helping you source the talent, at that stage you’ve got anyone you want to help you. For a VC to sell to one of the bigger ones, 10 to 12 years is to wait. If it starts getting to 15 years, then the VCs do get pressure from the investors to exit. To sell at that stage, it’s okay. You’ve added your value. You’ve done your work. There are other players who can do the new stage of work and it makes sense to move on.

Sramana Mitra: This is very much a common trend right now. People are making different decisions on when to sell, but I think the hyper-segmentation of the early stage business is also resulting in a lot of exits into Series A and sometimes Series B, Series C, and definitely Series D. Basically, early stage guys are getting out.

This was a very interesting conversation. I pushed you quite a bit, but I thought it was a great conversation. Thank you for your time.

This segment is part 7 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Yanev Suissa of SineWave Ventures
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