1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 3)

Sramana Mitra: If you look at the last six months of your deal flow, could you synthesize some of the most interesting trends that you have observed?

Guy Resheff: A common one is artificial intelligence. It’s everywhere.

Sramana Mitra: SaaS for large markets is kind of over. Everything in SaaS right now is niche.

Guy Resheff: If what you mean is that the basic infrastructure has been laid, that’s true in many ways. The caveat that I would say about that is, it really depends on the types of problem that you’re trying to solve. In our case, we are in Hardware-as-a-Service for the lack of a better term. These are cases where hardware is uniquely enabling a SaaS business model.

I invested recently in a company that is developing a wrist band that can measure almost any human vital sign including blood pressure. One approach that has been taken by people in the past is to try and sell this as a consumer hardware FitBit-like device. We’re doing something completely different. We are effectively selling this to healthcare providers as a service. They are, today, spending billions on monitoring roughly 3% to 5% of the population. They have chronic conditions.

We can use our technology to identify when they’ll go to the hospital three or four days before it happens. The delivery method for us is a SaaS service alerting the organizations monitoring the patient for these types of deteriorations before they occur.

Sramana Mitra: That’s an interesting go-to market strategy.

Guy Resheff: I tend to agree with you that many of the SaaS deals tend to be limited in scope but there are entrepreneurs who are doing much better.

Sramana Mitra: Also, the definition of limited. There are $100 million to $200 million TAM opportunities in niche SaaS. If you build a capital-efficient company as an investor and as an entrepreneur, you can make plenty of money in those deals as well.

Guy Resheff: This question has a little bit to do with the economics of the venture model. There have been a lot of discussions about this. The short of it is, in order for a VC to run a fund of any meaningful size, it’s really hard to do without building a company that can attack markets that are bigger. They need to be able to generate revenues of somewhere between $100 million to $150 million. It’s really hard to do that in a market that’s not in the order of a billion dollars.

Sramana Mitra: That’s right. I think the trend of the industry is that there are lots of micro-VCs that are operating small funds these days. The market has probably 500 or 600 micro-VCs that are operating funds in the $10 million to $50 million range. Those guys can actually claim these smaller markets and still make plenty of money.

If you’re talking about the larger funds, of course, it’s the regular venture game and the regular company in the portfolio has to hit a home run. You can’t play these smaller singles kind of hit opportunities. If you’re playing a small fund, the strategy can be vastly different.

Guy Resheff: Absolutely. There are plenty of great companies around that are not venture scale.

Sramana Mitra: The vast majority of the companies out there are not venture scale.

Guy Resheff: Correct. I wouldn’t discourage anyone who’s passionate about an idea and feels that he can build a company and take it to $20 million in revenue. There’re absolutely people around with smaller funds that would back these opportunities.

Sramana Mitra: I have a few trend questions. I’m looking for answers specific to the Israeli ecosystem. How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor mitigate the Series A gap?

Guy Resheff: Generally speaking, this is a good time for the industry. There’s quite a bit of capital around. We’ve been through a few of these cycles. This is probably one of the easier times to go out and raise money in the cycle.

Sramana Mitra: As a result, there has been a proliferation of seed-funded companies. The numbers that we’re seeing here is 50,000 to 70,000 pre-Series A investments, but the Series A numbers still remains constant at 1,200. There’s a big drop off. What is the situation in Israel?

Guy Resheff: I would say it’s quite similar. The absolute numbers are a fraction of what’s in the US. In terms of cadence of investments and funnel shape, I wouldn’t say it’s necessarily that different. The Israeli venture capital industry has modeled itself very closely after Silicon Valley. You tend to see the same kind of things.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures
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