“I expect to see a slowdown in the pace of investments; VCs will take more into consideration,” predicted Yael Alroy, Partner at Viola Ventures. The venture capital firm invests in Israeli early-stage startups and has joined CTech to discuss the future of the sector as 2022 comes to an end.
“Having said that, we believe crisis times create interesting opportunities – great startups emerge in these periods, and startups are redefining their long-term value creation, business models, and operations. This is also the time to peruse M&A opportunities,” she added.
Name of fund/funds: Viola Ventures
Total sum of fund: $260M
Notable/select portfolio companies: ironSource, Pagaya, Redis, immunai, Verbit, 4M analytics.
Alroy has answered CTech’s questions outlining some of the predictions she believes will come to fruition in the year ahead. In the second part of our survey, we asked her to vote on startups from its portfolio companies that deserve attention in the coming year.
If 2020 was the year of the pandemic, and 2021 was the year of records, how would you define 2022 in the VC sector?
“2022 was the year the bubble burst, and the Enlightenment happened.”
Who are the big winners of 2022 and why?
“The big winners of 2022 are the founders and companies who raised large enough rounds in 2021 and have enough runway for the next few years (at least two years from today) in addition to startups in recession-proof markets.”
Who are the big losers of 2022 and why?
“The big losers of 2022 are the founders and companies who didn’t raise enough of a Seed round in 2021 and are stuck in a “Death Valley” between Seed and A and don’t have enough traction or product market fit to raise a meaningful A round.”
What do you expect in the VC sector in 2023?
“I expect to see a slowdown in the pace of investments; VCs will take more into consideration.”
“Having said that, we believe crisis times create interesting opportunities – great startups emerge in these periods, and startups are redefining their long-term value creation, business models, and operations. This is also the time to peruse M&A opportunities.”
What global processes will affect (positively and negatively) the Israeli market?
“The strong correlation between the public and private markets affects the Israeli fundraising environment as well. We’ve witnessed it in the third quarter in which investments were down by X% and we believe we’ll continue to see this trend in the following quarters. The immediate impact is on growth and mega-rounds and following that on the early-stage rounds.
“The political polarization, including the U.S-China relationship, will also have an impact on Israeli companies, especially on the ones that operate in the Semiconductor space.”
How should different companies prepare for the coming year?
“Startups that have raised a large amount in 2021 will be probably free from fundraising in the near future but will need to focus on restructuring their cost structure and try to get the last valuation in their next funding round. Early-stage companies might need to consider extension rounds. Growth companies should consider taking debt.
“Startups at all stages should focus on stretching their runway for a longer period, not overspend their last round and try and increase their number of customers, customer lifetime value, and build a strong customer base.
“The keyword is efficiency. Learning to utilize their money in smart ways, and increasing their NDR.
“Forget about growth at all costs, build a business with a path to profitably: real businesses and revenues and not growth at all costs.”
What will be of the dozens of unicorns born last year?
“The unicorns with revenues of over $50 million will survive and stay unicorns. The “hype” ones will struggle a lot more. Having said that, the ones with enough money to grow to their evaluation will be ok. There will definitely be unicorns that will lose their status. There will be a lot more back-to-basic. Building real companies with real revenues and intrinsic value.”
What sectors will experience an acceleration in VC investment and which will suffer a slowdown – and why?
Acceleration: Climattech, Tech-enabled services, AI, generative AI, future of work.
Slowdown: Luxury consumer spending, premium products, employee benefits – sectors that suffer from inflation in the market and slowdown in spending.
HR: Do the layoffs, those that have already happened and those that are coming, help to fix in any way the distress experienced by companies over the past 2-3 years?
“Yes, the market will balance itself out in my opinion, the power will go back to the employers or at least towards there after it’s been very unbalanced for a while with an extreme emphasis on the employee. We will see higher retention of employees.”
Nilos, Lama AI – Viola Ventures’ notable portfolio companies
A developer of a custodial wallet for non-crypto native companies entering the web 3.0 space.
Founders: Raphael Fettaya and Eytan Messika
Founding year: 2021
Number of employees: 10 employees
Explanation behind investment:
We are big believers in Web3 infrastructure plays. The Nilos team is solving a huge gap, bridging financial and treasury services for both Web2 and Web3 companies who are looking to embed on-chain revenues with their fiat operations in a seamless, compliant and secure way.
The company provides a technology platform that empowers Banks, Fintechs and other industry players in the embedded finance ecosystem to enable fast efficient access to bank-rate credit opportunities including term loans, lines of credit etc.
Founders: Omri Yacubovich (CEO) and Ran Magen (CTO)
Founding Year: 2022
Number of employees: 20
Explanation behind investment:
We’re strong believers in the potential of embedded fintech. This is the second investment for Viola in this space.