1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 2)

Sramana Mitra: A follow-on question that comes to my mind is that if you are looking for most of the core R&D to be done before you come in, what is the assumption about how the prospective company funds that R&D phase? Is it coming out of university research? Is it coming out of government agency research? Where is your deal flow coming from?

Guy Resheff: It’s a wide variety of sources. Just to make it clear, we don’t expect a vast majority of R&D to be completed. We usually enter at a point where there is a tremendous amount of additional development to be done. It’s really just the fundamental basic research that we should be able to validate. We have an extensive network of entrepreneurs that we communicate with.

Sramana Mitra: Specifically the question that I’m asking is not so much about where your deal flow is coming from but rather, how is your deal flow being funded before you would consider investing in them?

Guy Resheff: Typically, there could be several avenues. For some companies we see coming up, it is through university research. Others have raised small angel rounds and have gone through the process with a minimal budget of under half a million. We don’t tend to follow other institutional investors.

We don’t tend to enter the stage where the company is already flushed out to a dozen people. That’s too late for us. We like to enter the initial stage where the DNA of the company is still being formed. It’s usually just the entrepreneur that’s working on it either on their own resources, a very small raise, or university setting.

Sramana Mitra: It sounds like there’s a substantial pool of angel investors in Israel who are willing to fund this R&D phase ventures.

Guy Resheff: I wouldn’t characterize it necessarily as very different or more abundant than the Valley. Maybe, the opposite is true.

Sramana Mitra: In the Valley, it used to be true at one time that angel investors were willing to fund R&D stage ventures. Nowadays, it’s becoming fewer and fewer. People want all that to be bootstrapped or done on the entrepreneur’s dime. Customer development has to be completed before anybody is willing to fund a company these days.

Guy Resheff: I do see that as well in certain market segments where it’s possible to do that.

Sramana Mitra: It’s harder and harder. If you have very deep technology, getting a lot of customer validation done prior to being able to develop a certain amount of technology is not so easy. It creates a much more complex chicken and egg situation.

Guy Resheff: I think we got quite lucky to spend our days with some of the most brilliant people in the world. I keep getting impressed at the very creative and innovative ways of entrepreneurs. That’s really the kind of people that we look for. In some ways, it’s also a type of filter that’s good for us.

How well are they able to make progress in this tough environment on scrappy budgets? What have they been able to leverage? How are they casting their problems differently in order to make that validation more accessible? We don’t do many deals every year. Maybe four or five. We typically see close to 800 companies a year. The ones that truly stand out are able to find problems that you can de-risk with a reasonable budget and find supportive people around who will buy into their vision. That’s one important characteristic.

We like to deal with technologies that we know will have a very large impact on large markets. I tend to say that the angel investors as well as VCs are also thinking along similar lines. It’s a little bit less about how much money you’re applying now and more about the size of the potential outcome.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures
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