1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures (Part 4)

Sramana Mitra: How do you see unicorn mania in Israel? As a seed investor, you could get buried under later-stage liquidation preferences. How do you protect yourself?

Guy Resheff: One thing that I would say that’s markedly different is that, in absolute terms, the number of unicorns generated in Israel is significantly smaller. That has driven some type of thinking within the Israel venture community that strives to achieve more limited goals. There’s a lot of talk about Israeli companies being sold at prices that are too low. Multiples have not been lower, but the exit price is lower.

Sramana Mitra: You’re not really playing the unicorn mania game to that extent which is a good thing.

Guy Resheff: One great example of exactly what you said is a wonderful company called Mobileye. Mobileye was really the pioneer in autonomous driving. They built the world’s first camera-based system and collected all the data and laid the foundation for autonomous driving.

Mobileye was sold earlier this year to Intel for $15 billion. Intel has decided to strategically locate all of its automotive activities under Intel Mobileye. Can you guess the number of VCs that invested in Mobileye?

Sramana Mitra: No.

Guy Resheff: It’s zero.

Sramana Mitra: It’s a bootstrapped company.

Guy Resheff: It was not bootstrapped at all. It was backed by all sorts of parties starting with angel investors through visionary high net worth individuals and family offices and in later stages by some of the best investors in the world. These are some of the best names out of Wall Street.

Sramana Mitra: They skipped the venture capital piece.

Guy Resheff: Exactly. You can see why this is what I would call a deep technology multi-dimensional problem. VCs tend to shy away from it.

Sramana Mitra: I fully agree with you. The unicorn game has to be played carefully and intelligently. You gave a good example of how to play it. Actually I wrote a book called Billion Dollar Unicorns a few years ago. We highlighted three or four case studies of bootstrapped unicorns. Zoho, for instance, is going to do probably a billion dollars in revenue next year with no outside financing at all.

There’s another healthcare IT company called eClinicalWorks out of Massachusetts that has the same dynamic. They’re probably going to do a billion dollars in 2018 with no outside financing at all. There are some very interesting examples of how people have played the unicorn game but in a very different way.

Guy Resheff: Those are rare cases and probably due to a confluence of situations related to technology, markets, and exceptionally unique entrepreneurs.

Sramana Mitra: These are very powerful entrepreneurs.

Guy Resheff: I would recommend entrepreneurs to think carefully about how much capital to put in at each stage and what kind of things would need to be demonstrated to investors to attract capital. In many cases, entrepreneurs make the mistake of underfunding their companies and finding themselves midway and therefore not being able to go onto the next stage. It is true that with unicorn mania, the opposite happens as well. There’s overfunding.

My opinion is that we see this in the automotive industry these days. Anything that has the word autonomous associated with it tends to be raising a tremendous amount of money at very high valuations. There are many parties who are looking to get a piece of this amazing transition. Neither one of these is a positive thing and every entrepreneur should think hard before trying to play either one of these.

Sramana Mitra: What are your parting comments for our entrepreneurs who may be interested in working with your firm?

Guy Resheff: I’ll say something that’s more general. One thing that I’d recommend to every entrepreneur is to do a five-minute read of something very interesting. It’s from the Future Manifesto of the Founder’s Fund. It’s titled What happened to the future? They did a great job in articulating why it’s not only imperative to get back to real innovation by solving hard and difficult problems, but it also skews the bias in the favor of the companies attempting to do this.

We’re following a very similar approach in our investing. If it’s popular, it’s probably overdone. It is probably overpriced and overcrowded. If you believe that you might have an opportunity to develop a unique technology that’s highly differentiated and protectable that could transform a meaningful segment in a meaningful market, please let us know. We tend to latch on to your difficult problems and help you solve it.

Sramana Mitra: Great! Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Guy Resheff of Grove Ventures
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