Updated: Sep 4, 2022
- Confidential -
Please find J-Ventures Q2 Report-
a. A letter about the fund's Investment strategy and the extension fund
Dear J-Ventures LP,
We would like to share with you our fund update for Q2/ 2022. We are adding a presentation to this letter to give the full details and overview
J-Ventures Fund II is now in the middle of its 3rd year of activity with 27 portfolio companies with nearly 50% of the fund's capital now deployed. Our portfolio companies had raised thus far an additional funding of $1.1B+, out of which, $633M were raised during the first two quarters of 2022.
As you know, the first 6 months of 2022, were completely different than the last years, and the sentiment for tech investments and valuations has changed 180 degrees. It takes longer time to raise any round, more funds are focused on internal rounds, and the valuations compared to previous years. These changes pose great opportunities for investors as well as for companies to acquire target companies.
J-Ventures community expected these changes to come, and we are happy we kept most of the fund for investments in “post bubble” valuations and more reasonable timing- which historically are the best time to invest in tech. We invested in a diverse portfolio which can grow regardless of the economic downturn. As a community and fund managers we managed the past two years' investments with the same investment discipline - Invest in companies with variations that are connected to the actual growth, revenue driven, Co-invest with top tier VCs and in serial founders and always conduct our independent due diligence process.
While the latest headlines are about the crisis- we should remember that the VC Industry has nearly $539B of dry powder to invest in startups (even in 2022 funds raised $137B to date, vs. $142B of 2021) - which is the highest ever. This means that good companies will still raise money, though it might take them longer, and have a lower valuation than two years ago. For us, this is an opportunity to invest our remaining funds (over half) at better terms and in better companies. In Q2 we started to see the changes in the market, mostly in the time startups take to raise funding. The valuations also dropped slightly beyond seed stage (where valuations actually went up), in mostly A-C rounds decreasing by 10-14% (according to CBInsights report). As many VCs supported their own portfolio and Safe rounds became very common, we believe that in the next 1-3 quarters we will see a more dramatic change in valuations.
Deal flow and investments: in Q2 just like in Q1 we saw hundreds of companies. However, compared to the first two years of investments, we started slowing down our investments in Q4/ 21 and the first half of 2022 on our belief that the market was still too expensive to invest, and in many cases there was hardly any correlation between the valuation and the execution. We keep a high bar- and out of 350 companies we had in our Pipeline this Q we ended up investing only in 1 after we performed 8 Due Diligence processes .However we continued to meet great companies (though not always great investment opportunities) backed by strong investors and even though we passed on most of them, the vast majority of them closed rounds amid the downturn (e.g Shopic raised $35M, Penfield AI raised $25M, Datagen which raised $50M and many others). We believe that the next 12 months will be the best time to invest and plan to speed up when we see great companies who are also great opportunities.
1. Fund Raising: As our portfolio is mostly revenues driven, it showed strength during these times and none of the companies had a down round in an equity round. However, some, even the most successful ones, had struggles raising given the time/environment as it took them longer to raise than in the past. Over 50% of the portfolio raised money in the past 12 months which will be sufficient for at least 18 months of runway. Our portfolio is working on their operating budget adjustments to increase runway timeframe, and the deal flow we see is already accepting the new burn rate / valuations. As we write this report and since the beginning of 2022, 17 of our portfolio companies have already received Term Sheets for further investments or secured part of the rounds.
2. Portfolio Performance :
88% of our portfolio is generating revenues, of which 73% over $1M, 50% over $5M and 30% over $10M. All the companies had a significant growth in rev since we invested (in some cases like Cents, Beehero, Veev, Visby Medical, Connie Health the growth to over $10M has happened in 36 months or less). **based on the projections from the CEOs, it looks that despite the “downturn year” - companies continue to grow fast in revenues and aim to become profitable. Over 33% of J-Ventures portfolio who passed the $1M annual revenues predict a triple digit growth in 2022 vs. 2021.
We do expect budgets to drop, mostly in enterprise software and CyberSecurity. We see it less in the industries where Cents, Beehero, Veev, Visby, Connie Health, Epic and Heart vista, Atidot, MDGO, Hourly, Calmigo, Joylux operate for example.
We held many conversations with our portfolio founders before the change in the sentiment and to prepare for changes in the market conditions and have a longer runway. In some cases, they acted fast.
Investment strategy and criteria: For J-Ventures, the past 10 months were on one hand a slow down of investments in new companies waiting for the market to stabilize, and on the other hand, focusing on portfolio management and helping the companies achieve benchmarks and raising additional capital if needed. We are keeping our investment philosophy to co-invest with leading VC funds (like Lightspeed and GGV, Pitango and Team8 in 2022) and in serial founders.
1. Our business model is to provide value add and not just be a financial investor in them. Over the past months we doubled down on some portfolio companies while we decided not to invest further in other ones, who are having enough financial support and new investors. We believe that a good portfolio management is not just about keeping companies active with our financial support but about pruning & investing in the ones we strongly continue to believe in.
2. Leverage our community to further help our portfolio - in many cases we were the smallest investor with the highest value add and it was reflected in mentioning us in the PR of large rounds like Visby Medical, Bright Security, Epic, AllStar, Connie Health etc.
Bringing our Value Add into our portfolio: J-Venture's power is based on the engagement of the very unique and successful community of experts - VCs, Serial founders, Executives in almost every area. Their involvement in Sourcing (2400 deals a year), Screening (255 participated in DD in 2021, and 105 since the beginning of 2022), and helping through J-Advisory and beyond - is unparalleled to any other VC and especially in such time, founders and VCs appreciate it and want us to join (2 companies opened oversubscribed round to let us join, We see deal flow from all top tier funds). Our group Intros to investors resulted in over $20M+ of funding to our companies this Q, we helped with Strategy, Customers, Partnerships, Board members etc. Companies like Bright Security ($20M), Visby Medical ($136M), AllStar ($2M) Hourly ($27M) mentioned J-Ventures in the PR, though we were the smallest investor in the round.
Meetings in Person and over zoom in Q2: 4 LP Meetings over Zoom with 300 participants and 3 in person meetings - 2 in Israel, one in Silicon Valley with participates of 250 Kibbutz members
Deal Flow Q2: 350+ companies reviewed in the deal pipeline, of which 89 companies were screened and 8 companies presented to Kibbutz . 36 LPs participated in due-diligence of 8 companies in Q2.
Helping our Portfolio: J-Ventures team and Kibbutz have been involved with nearly all aspects of helping the companies – Fund raising, Strategy, GTM, Product, Negations, HR, Design Partners etc.
New Blog where you can see all updates and also send your own thoughts and invites https://www.j-ventures.com/blog
Changes in J-Ventures team
New team members from Our Kibbutz:
Adi Yaron, former Product manager at Zinga and Kibbutz member joined J-Ventures as a Ventures partner
Dan Rubinstein, A serial founder of 2 exits, former Director of Product at FB and Google and Head of Product at Palantir and one of J-Ventures founding members joined as a Venture Partner
New Operating Partners From the Kibbutz:
Guy Miasnik – As serial founder who sold Athoc to BlackBerry for $300m+ and former Chief Strategy officer of BlackBerry. Guy leads J-Advisory with Harold and Aliza and been one of J-Ventures founding members- Joined as an Operating Partner
Doron Reuveni – Founder, former CEO and now Chairman of Applause ($1b mark cap) joined as an Operating Partner
Emre Onder – Former EVP/GM at Xilinx and currently corporate development of Analog Devices, joined as an Operating Partner
Laurie Shahon – Board member of 20+ public boards joined our Investment Committee (along with Marc Abramowitz, Gil Frostig, Michael Rolnick, David Wagonfeld, Jim Koshland and Oded Hermoni).
Ram Ben Yishai who was our Associate in the past year will start to work as a Product manager at Zynga and will be active mostly in our community. Good luck Ram (and happy to say J-Ventures Community helped him to get to his new position).
Final words…Extension fund and thank you
As we slowed down our rate of investments waiting for the right opportunities and have nearly 50% of the fund to deploy in new companies, we decided not to raise our 3rd fund, J-Ventures Fund III and continue with the original plan to raise it in late 2023/2024. However, we have amazing group of Mensch and Womensch you all referred to us over the past months who would like to join our Kibbutz and bring a lot of value add to our community and to the success of the fund (executives from Google, FB, Twilio, Box, WD, Intel, Dell etc, VCs, FO, Experts in Media, AI, Data, Gaming, Healthcare and Agtech and community members from new locations - Australia, Brazil, Austin, Miami, Chicago and age groups). For these new joinees we will open a small extension fund to the current J-Ventures fund which will invest alongside J-Ventures in new companies at a determined ratio and will give us more power to get better terms in what we project as a great time for new investments. J-Ventures will keep the same average size checks of ~$500k in new companies going forward.
Because the purpose of this new fund is to bring new kibbutz members, and not just for the sake of raising additional capital for J-Ventures, we will not open this extension to existing members in the fund. We know many of you want to invest more but we wanted to keep this extension fund simple and straightforward with the goal of making our Kibbutz stronger for the long term. We expect to have documents prepared and distributed in September and close the extension fund during October. We are aiming to raise between $5 and $10 million dollars and add 40-60 new kibbutz members. We believe it will have a significant contribution to the sourcing, screening and helping of companies and add to the performance of the fund. Bruchinm Habaim to the Kibbutz!
The Extension Fund will have the same General Partner structure as the existing
J-Venture fund with the new Venture Partners, Operating Partners, and IC members.
And last last words…Thank you all! for helping, engaging, sourcing, screening, supporting each other and our large community (this year with over $1M of donations), and being an amazing community of mensch and womench from 30 different communities. J-Ventures success is 100% about you.
Oded Hermoni, Managing Partner and Jim Koshland, GP and Chairman of J-Ventures.