Nick Kingsbury (Amadeus Capital Partners): We are a DeepTech investor, so we do like things with solid IP and outstanding technical teams behind the product.
23 Feb, 2021
Itamar Novick is of Recursive Ventures a eed fund backing amazing tech entrepreneursworking with over 0 Mobile, IoT, and SaaS companies.
His portfolio includes companies like Peerspace, MileIQ, Honeybook, Zendrive, and Airdog. Itamar was previously a venture capitalist at Morgenthaler Ventures and a Partner at UpWest Labs, the Israeli accelerator in Silicon Valley. Before moving to the “dark side” of VC, Itamar was head of product at Gigya, the leading social tools provider for web and mobile publishers, and spent several years in product and engineering management roles at a variety of companies big and small.
Itamar also serves as Chief Business Officer at Life360, the biggest mobile Family Network, with over 80 million registered families globally. The Life360 app keeps families safe when they’re out and about, in their car, or at home
He holds an MBA from Berkeley-Haas and a Computer Science undergraduate degree from the Tel-Aviv Jaffa College.
I’ve been in startups for years now. First as an operator and an executive and later started companies based in Israel with a branch or operations in the US. That is how I got exposed to the world of startups. Later in my career, when I moved to the U and after taking an MBA program there, I was attracted to venture capital and wanted to learn more about the funding of startups and helping them to grow and scale. I joined an institutional VC firm called Morgenthaler Ventures (now Canvas Ventures) and had the opportunity to learn venture capital from some of the best in business. That was back in 2011-2012. Ever since then I’ve gone back to operating and building startups I’ve remained an investor all the time. Actually, I invested in over forty companies in the US, Israel, and other places around the world.
I’m a pre-seed institutional seed investor, which means that I focus on investments in technology startups that are raising from 500,000 up to 5 million. Those are technology startups. I am focused on deeper technological solutions, selling software to enterprises and consumers less tech-enabled businesses, and more core tech-focused businesses. I’m a generalist by trade, which means that I invest in both consumer and enterprise solutions for smaller and bigger businesses. But at any given point in time, I have several theses that I’m chasing down, learning and investing in those areas.
My current investment thesis are mostly focused on data and machine learning. I am interested in using data and machine learning to disrupt antiquated and existing segments, like real estate, financial services, and insurance. Another thesis, that I invest in heavily is around B2B2C companies – companies that are building technology tools for businesses, which allows them to enable customers to better serve their customers. Those types of businesses have characteristics of both B2B and B2C software. A third one is what I call emerging technology. And I’ve made several investments there in IoT, both consumer and enterprise, and also in mobility and industry 4.0.
I’d never say never, but I don’t invest in areas where I canhelp the founders or I don’t have deep expertise in. These areas included: crypto, healthcare, whether it’s medical devices or pharma. Also, I don’t invest in advertising technologies, like ad networks and such types of businesses. Another category that I’d say I wouldn’t invest in is education.
There is definitely a bunch of interesting companies. One of the sexiest and interesting investments that I’m excited about is the company called Tile. They build smart Bluetooth trackers, that helped you, for example, find the loss wallet or your keys. If you’re the kind of a person that keeps losing your keys, Tile is great for you because with one click from your phone, you can basically figure out where you left your keys at. That’s a great business. There are over a hundred million dollar revenue from selling the tiles and the associated software and I am very excited about it.
I would like to mention another investment that I’m proud of. It is a company called May Mobility. They are a US company that is focused on building autonomous vehicles for public transportation. Actually, it is the only company in the US that is live in production. They are driving thousands of passengers every day, mostly on the US East Coast in small eight-people buses that completely drive themselves. It’s a free service that you get in six cities in the US where you can hop on a bus at one point and get dropped at another point. And nobody is driving that bus.
There is always a fine balance between delivering cutting edge services, privacy, and making sure that user data is safe and secure. Many consumers are willing to trade or take on the risk, whether it’s small or big if they know that they’re going to get great service out of it. When it comes to location and tracking that’s definitely a more sensitive topic. If you have a series of locations and data points you might be able to track down the individual.
Our companies are always extra careful with that, with or without the EU and GDPR. We are actually headed to a very good place in the world where there is a lot of awareness and regulation when it comes to P – personally identifiable data
I work globally. Most of my investments end up being either in San Francisco Bay Area, New York, Miami, LA in the US, or Tel-Aviv in Israel.I was born and raised in Israelhave a strong connection to the entrepreneurial ecosystem there. I’ve made some investments in Europe, but not as much.
I invest in pre-seed rounds and mostly in institutional seed rounds. There’s no way to clearly bucket stages in the company’s development because every vertical. Every industry is different. But if we want to paint in a very broad stroke how different financing rounds work in early-stage companies, I would bucket them into three categories. At the very early stage, what we call the friends and family round, – friends, family members, and angels participate in the first seed of money that goes into the company.
Then we typically see what is called pre-seed round. Sometimes they are merged into one – friends, family, and pre-seed. Those are typically from half a million to million-dollar rounds that really get the company off the ground, help them hire their first employees, and really push for product market fit. The institutional seed stage, which is the third stage of what I’m focused on, is probably more what series A was 10 years ago. Those are 1-4 million investment rounds here in the Bay area.
At these stage usually most companies only have several employees. They probably have a working product with customers paying for it to some degree. And you can really see a path and how they see their product and how to scale the business from there. I don’t invest in the friends and family round I invest when there is a team, some product, or a prototype, and probably some customers who are leaning, act as their design partners doing a POC or maybe they are actually using it approximately.
My average check size is $150,000 but I should explain the strategy a little bit more. I typically start with that small check of $,000. I want to get to know the founders and understand the business a little bit better. Later I put syndicates on top of that and invest 1-3 million and I double it down on the companies that I truly believe in. So, it really ranges, starting with a hundred k and it can end up with 3-4 million dollars.
I don’t know about requirements that are typical to all venture capital investors. I do deeper due diligence to understand three main parts that I care about in the startup. The first one, obviously, the team. That’s probably the most important thing about the early stages of investment that I participate in.
The second one is the market. The total addressable market is an important indication, whether this is a good or a bad investment. Specifically, for venture cap in the real world, when you are trying to get 20-30X returns or more. So, you want to see a company that’s really focused on winning in a big space.
The last piece that I’m focused on is what they call moat. I want to see something that helps companies to stand out from the competitive landscapend defend position with existing and new customers. There are many types of moats. Sometimes we talk about things like network effects. Machine learning build a moat because you have a lot of datand with that data, you have more accurate machine learning algorithms that lead to better results for customers. I look for that differentiation because in the long term, when the market started displaying and becomes hot, and there are a lot of competitors, you really want to have something viable and lasting that can help you defend your market share and expand it.
Those are three things that I focused on: people, total addressable market, and moatdefendability.
Usually, I in companies that are valued post money in $6-8 million range, so I end up with a single percentage digit holding, less than 10%, and typically more like 1-2%. T I am not leading them.
It’s a little bit of a different model. Because I am not like a traditional big VCs who aim for ownership. I care less about ownership and more about the upside potential of the business. I’m less concentrated than others. If you take a classic series A Sand Hill Venture capitalist, they typically do one or two deals a year and it’s $5 million checks. I typically do 5- deals a year. So, it’s a different strategy. That is more appropriate for earlier stage investment.
I think at the stages I invest to expect anything greater than 1 out of 10 companies will gain a huge success is probably overly optimistic. 1 out of 10 is actually good in the industries I invest in.
So, I see better performance than that. Across a little bit over 40 companies that I’ve invested in, six have already successfully exited. One is Ring, which would be sold to Amazon. Another one is Life360. Also, it’s Credible, MileIQ, and a couple of others. For me and my business, I probably see one of eight companies or one of seven companies really successful. I define that success as being a return of at least , if not 10xon my investment amount.
It varies a lot between industries. Let me give an example. If you’re building a mobile app for consumers and you’re raising money, the bar is actually really high. You probably need to have a working product with a bunch of monthly active users who are engaged with the service and are retained over the long term and have the potency to be monetized in the future. That is consumer technologies.
There is another area – deep tech and enterprise stuff. I invested in tools for developers and infrastructure for dev ops. In a company like Armory, which is one of my most successful, I invested just based on the «team would know» product. So, it really depends. It’s vertical by vertical, and it’s calibrated against the market. The valuations and expectations of other investors are also determined by vertical and segments. It’s very similar to what other investors do.
The team is definitely what I’m focused on the most, starting with the CEO or the founder of the company. First and foremost, I want to see a group of people that I admire. If I feel that they are so much smarter than me, that is excellent. Very smart people, that can really wrap their minds around the industry that is one indicator.
Another indicator that I’m trying to determine for is intellectual curiosity, honesty, and flexibility. Some people are just not wired in a way where they can easily change their thinking about the world, adopt new ideas, be flexible, and lead other people in doing that. My experience leads me to believe that strong entrepreneurs know how to be flexible and know how to mitigate risks, even when there are a lot of risks out there for the company. I’m very focused on that.
The last piece with people is how really well they fit to solve the specific challenges of that startup. They come from the industry where they have the expertise and they can bring a business or technical set of skills that make them cutting edge for that industry.
I have but I do subscribe to the philosophy that having more than one founder in a company is helpful. What I’ve seen over the years is that often you want to have a partner to run with. There are ups and downs in every startup journey and doing it by yourself is harder than doing it with good partners.
It really varies. I’ve made investment decisions in under a week and sometimes I’ve taken a year to get from the starting point to the point that I feel comfortable with investing. It varies a lot and depends on two factors. First is, as you mentioned, my due diligence process. In areas where I have deep expertise diligence could be made more quickly compared to areas that are more new to me. Then I would require reaching out to more folks and dive inside a little bit more to build a thesis around the investment.
That’s one variable. The other variable is external. It is the market. If there is a deal coming together and it’s being closed and I’m out of time to understand whether I need to finish my due diligence, then I would consider that carefully. If based on all the available data I believe it’s a good deal, I would invest by shortcutting my due diligence. That doesn’t happen often, but it does happen. On the flip side, sometimes I feel that investment is warranted, but the company can’t raise money from additional investors. That also creates a problem for me because my first check is not sufficient funding to really give the company the type of runway they need to get to the next proof point. In that case, even though I’m ready to pull the trigger and make the investment, I need to help the company find other investors so we can get enough money and they can reach their goal.
It is hard to say how long does it take. Usually, it takes two or three weeks to get to a point where I feel comfortable about the business. At least three weeks.
I filter quite heavily at the top of the funnel. I probably get at least 10 to 20. opportunities a week and I would probably jump on a call with one or two of the twenty. I would filter based on stage and vertical, progress in stage, etc., and would take only one or two calls a week. You’d probably find me making an investment every two months. Let’s look at my funnel for a given month, or even two months because that’s usually what I end up investing. Probably I am looking at 50 to 200 companies, having a conversation with 10 of them and maybe invest in one. It’s worth mentioning that those are all qualified opportunities.
I typically would not respond to a cold call. If you want to have a conversation about investing in your startup the best way to do that is to get an intro from somebody who knows me and knows you.
Being an investor, I probably get like 30 if not 50 LinkedIn emails a week from people that I don’t know and who are not in my network. And I just automatically ignore them. I haven’t even included them in the list of 10 to 20 a week that I get because I don’t know those people. And I don’t have time to read for their proposals.
Unfortunately, there are a lot of red flags in the startup pearls. That doesn’t mean that they show up often, but when they fall out I pay special attention to them. I’ll give you a few.
One is a founder who is no longer active in the company, but he still holds a significant percentage of the company. That gives me pause because we’ve given a lot of the company for somebody who’s not actively helping it. Another flag is any sort of issue with background checks, reputation, or anything that is tied to illegal activity. That would be an automatic ‘No’ for me. I just move on to the next opportunity.
Unfortunately, there are more specific flags that add up to my investment due diligence process. For example, if the company is addressing a market, that is just in the tens of millions or maybe in the low hundreds of millions of dollars a year, I would probably stay away from that opportunity because I’m really looking at VC-scalable startups that can reach valuation billions of dollars. In order to do that, you’ve got to be addressing a big market. So that’s another flag.
One more that I’d like to mention, even though I’ve become more flexible about that over the years, is husband and wife teams. It’s not a complete ‘No’ for me. But from my point of view, as an investor, when you have a husband and wife team, you double whammy and the risk. You’ve got the startup risks. Would the startups succeed? Would they be effective in executing all that is needed? But there’s also another risk that they bring to the table sharing the same house and being a couple. For example, if they fight then the entire investment in the company can go down due to that. That’s an extra risk and I don’t always want to take it.
It’s a little bit generic. I would say execution in startups is hard, but what’s harder about it is that it’s continuously evolving. Managing a two people team, a ten people team and a hundred people team is not the same thing. You need different forms of communication and organization to be able to scale up a startup. And it’s not just about the organization but also about the founders. Can they scale up? It’s very rare to find people that can both handle extremely well when there are two guys in some garage and you just need to get something out there, and people that, at the same breadth can manage a thousand employees running in a big organization and dealing with the leadership challenges that you get at that scale of the company. That’s a typical challenge for the founders where only a few can go up all the way from zero to billion.
Conferences are a necessary evil for startups. However, I would ask: What is the goal?’ What exactly are you trying to get out of networking and going to conferences as a startup? First and foremost, startups need to head down building their product. They should focus most of their time on building the product and iterating it with customers. However, there are specific needs and requirements that you might be able to get out of the conferences. For example, if you’re fundraising and want to meet a lot of investors, then it is worthwhile to go to conferences that have a lot of VCs in them and start networking with them to get the relationships going so that you can raise money. That’s one good use.
Another good use of a founders’ time during events is, if there’s some sort of a startup competition, or if there’s a lot of sales prospects in that event that they can specifically target. Let’s say, I know I’ve got 20 prospective customers in my pipeline going to this event. I got to be there because I got to beef up my sales cycles. Basically, events can be good, but you should be focused and targeted on what you are trying to get out of it. And you won’t waste time going to events and networking instead of building your business.
Not dramatically I have to say. I guess I’m more open than ever do invest in remote companies and teams given the situation. But I’ve been investing before, during, and hopefully would invest after the pandemic. COVID-19 becomes more manageable. And I didn’t change my high-level theses and approach to investing.
That’s an interesting question. I definitely see it as an inflection point. If you will look at the NASDAQ or at the China Tech Stock indexes they’re definitely going up. What we could see here is that tech is actually doing really well. A lot of things in our lives are being digitized even more with COVID. More traditional industries are suffering. That does spell opportunity. But it really varies from company to company. For example, one thing that I’m seeing in my portfolio is what I call the 20x60x20 rule.
20% of my portfolio is seriously in pain due to COVID. Those are companies in areas like events, traveling, or hospitality. Companies in those areas are, honestly, in a very bad spot under COVID-19. But the bigger concern I have is that there could be structural changes to the business model even post COVID because the world has changed. So that’s the first category or 20% of the portfolio.
Another 20% of companies are doing extremely well under COVID. Unfortunately, we live in a world where so many people are unhealthy and suffering and it’s very sad. But the situation is that some companies actually benefit from that. Not the people, because they are suffering, but because of the change in how people behave and how they shop because of COVID. That’s another 20% of companies, that potentially are getting a huge boost to their business and it’s positive for them.
The rest of the company, about 60%, are either in some sort of a freeze or slow down due to COVID. They’re not structurally impacted, their business is fine and they’re going to get back on track. But because it’s harder to reach customers, to lock down deals, to hire people remotely, etc., they are slower. Sometimes even grind to a halt in terms of the growth while under COVID.
I don’t have a crystal ball and I don’t believe anybody who tells me they have it. I believe that at some point things are going to go back to normal, but there’s going to be a new normal. One thing that I can tell you is based on what I’m seeing. An unprecedented number of startup companies are considered to be remote first. That means that most of the people you’re hired or going to hire to work in your startup could be based remotely. And that’s different than what we have before COVID-19. That is definitely an acceleration in remote workforces.
Let’s go back to the previously mentioned 20% of companies that benefit from the situation. One example is an investment in a startup called DEEL we have made less than a year ago. Recently Andreessen Horowitz, a leading VC fund, invested 15 million dollars in that company. They focus on helping the US companies to hire, pay in and comply with regulatory requirements for, to manage contractors that are located outside of the US. And for example, if a US company wants to hire a Ukrainian contractor they will help them engineering a deal, will facilitate the entire setup, payments and regulatory side for both the Ukrainian employee and the US employer. So, that business is booming under COVID.
Let’s focus on areas that I’m closer to. Facebook is definitely a breakthrough on a lot of levels. I believe one of my portfolio companies, which I also work at, – Life360 – is a breakthrough company as well. It’s a public company and is still small. It’s an ultimate tool to protect and keep your family safe in the city, physical and digital world. And there’s a lot more there.
I’d probably say Airbnb or Uber. It’s another category. I think what both of those companies have done is really taught us that startups can be not just tech, but also business model innovation. You can come up with new business models that are part of the right technology, which eat up the world. And I think Uber and Airbnb exhibit that very well. You can’t miss that.
Let’s go one by one. Steve Jobs. I’m not sure I’d want him as a friend, but I’d love him as a partner. I actually worked at Morgenthaler Ventures and my bosses and general partners have invested in Apple in the series B. They do not complain about that investment.
Steve Wozniak. I’d probably have him as a friend. He looks like a really cool guy.
Bill Gates. I would probably want to do business with him. He’s the most successful software entrepreneur of all time.
Mark Zuckerberg. I actually know him a little bit. I’ve worked with Mark early on in Facebook. I wasn’t employed on Facebook, but I was working with them doing integrations. I think he’s a brilliant product person who has an amazing intuition and what it takes to build a great consumer service. And I would have loved to invest in Facebook back in the day.
Elon Musk. I’d probably have him as a friend just because I like cool cars. And so does he.
If I need to choose my favorite, I’d probably go with Bill Gates. He has done so many unique things over the years. He is really the founder of modern software technology. Especially in the enterprise. He has done amazing things on both the business model, creating a vast of defendable businesses and making computers accessible, available, and useful for every person on this planet. What he has done is unprecedented. I think without him or people like him we would not be living in this digital world that we are in today.
There’s nothing specific that I can recommend. There are some good books out there for entrepreneurs like Crossing the Chasm and others. I like Steve Blank’s work around MVPs. There’s a couple of good books there, but nothing specific comes to mind.
You should think long and hard whether you want to play the VC game. VCs want to invest in scalable companies that could reach a valuation of billions and billions of dollars. Not every company is actually built or designed to be that way.
There are a lot of types of companies and a lot of different business models. You don’t necessarily need that unicorn valuation. Sometimes such businesses are exactly what the founders need and exactly what they want to do. Don’t automatically try to raise money from VCs. Try to understand whether it’s the right fit for you. And after you understand it and decided to raise money from VCs, think long and hard about who are the VCs that run around the table in your company. Investment from a VC is a long-term partnership. It’s like a marriage. But in a marriage, you can get a divorce. In startups often there’s no divorce to be made. You’ve got a shareholder in your company who might not be aligned with you in the long term. And it’s very hard to get them out of the system. So that goes back to my point about thinking long and hard about who you want as a partner in your startup journey.
That’s an easy one. That would be Tel-Aviv for sure. It’s an amazing city. For me, having been born and raised there it’s such a special city. It’s so lively. It’s 24/7 always on. There is one thing about Israel and specifically Tel-Aviv. Israeli are spread everywhere in the world and they soak in other people’s cultures, food, all that stuff. And then they bring it back to Tel-Aviv. So, it’s such a great kind of multinational and international influence country. Especially when it comes to food. If you’re really a foodie, do not miss Tel-Aviv.