Ashesh Shah (The London Fund): Be Brave!
20 Jan, 2022
Renana Ashkenazi is a General Partner at Grove Ventures, a technology-oriented venture capital based in Israel. Renana has a strong technical background and unique experience in global innovation, strategic marketing, and technology spheres. Prior to joining Grove Ventures, she worked at Applied Materials in managerial and technical positions. Currently, Renana is also involved in several companies, supported by Grove Ventures, as an investor or an observer.
How did it all start? How did you decide to enter the venture investment business?
That was actually not that trivial. I’ve started my career at Applied Materials. My Bachelor’s degree is in Engineering, so it’s a pretty natural decision to make. After a few years in Applied, where I started in R&D, I moved to Chicago to do my Master’s in Electrical Engineering. I also worked at the Center for Innovation and Global Health Technology, developing diagnostic devices for poor-resourced countries. After a few years there, I came back to Israel, had a very short and unsuccessful startup episode, and returned to Applied to build a new technology division. After a few years there, I started thinking about what I am going to do when I grow up. I started talking to a lot of people, to friends who were entrepreneurs, who were working at VCs, and one of my meetings was with one of the partners at Grove Ventures, the fund that I work at today. It was not only about the fund; Grove is a very technological fund, and the investments are very tech-oriented. He was telling me about the fund; it sounded very-very interesting, especially for some with my tech prep background, but also very far from what I was doing until that point in time. After a week, he called again and asked if I wanted to meet with Dov Moran, who is the Managing Partner of the fund and the inventor of the USB flash drive, in my world, kind of Beyonce. I said, “Yes, of course,” and we met. Honestly, we fell in love, we had a really big professional crush, and at some point, he said, “You should really come work with me,” and I said, “What am I going to do? “and he said, “You should manage the investment team.” I said, “But what do I know about early-stage investments?” He said, “You’re smart; you are going to learn.” It took me two days to make the decision to do this shift, that was three years ago. I started as a Principal in the fund, and I’ve just become a General Partner about a few weeks ago. That turned out to be a very good decision.
What was the most unusual startup you have ever supported? Or, maybe, your favorite or memorable one?
One of the most exciting startups I work with is called Ramon.Space and what they do is develop processing units for space. Space is a very harsh environment for computing systems and electronic devices because of the radiation, the extreme temperatures, because you can’t really go up there and fix something when it breaks. They’ve developed a very-very unique architecture for processors in computing systems in space, and that’s one of the most exciting companies that I work with because it’s a very-very exciting industry. New space is booming, there are a lot of applications that you couldn’t imagine a decade ago because launching things to space was very expensive, but now what we’re seeing in space is the same revolution that we’ve seen here on Earth during the past few decades. A lot of AI, a lot of high-end computing, very-very interesting. Another company is a digital health company that’s developing a solution for primary care physicians that is optimizing their workflow, so they don’t need to spend hours going over full charts and VMRs. What they get is a very concise summary of what we call a patient portrait, and I can go on and on. One of the funniest parts about this job is that every day you meet crazy startups, crazy ideas. Last year, I met a startup that tried to code DNA on plants so that when your pet dies, you can code its DNA onto a plant, and you have your pet with you on a tomato plant. It’s pretty crazy what’s out there.
Is there anything that surprised you the most when you just started working in venture capital, apart from a huge number of interesting companies?
One of the things that surprised me is that there’s really an endless pool of amazing entrepreneurs and ideas that are just completely out there. Something that is not really a surprise but a realization that you need to understand once you work in VC is that groundbreaking technology and great ideas are not enough to build a good company. At the end of the day, it has to operate in a big enough market to be able to generate enough revenue and so on. That’s the biggest realization that I had; that amazing technology is just not enough.
How many startups do you usually review per year, approximately?
A lot. We see close to one thousand startups every year. We do deep dive, deep due diligence on a few tens, I would say around 40, so that’s a massive cut, and we end up investing in anywhere between 5 to 8 companies every year.
What particular industries are you interested in the most?
As I said, Grove is focusing on the intersection of technology and science and digital transformation. It really causes a vertical because if you look at the portfolio, we’ve invested in semiconductors, sensors, automotive, but also cloud infrastructure, DevTools, DevOps; Digital Health is a sector that we are very interested in. We are also interested in AI startups. A lot of companies nowadays define themselves using this term, so I would say a truly transformative AI technology.
Can you name industries that you really like yet will never invest in, if any?
That’s a tricky question because one thing that I’ve learned is never saying never. What you can see in the last decade is that industries that you would think are impossible to transform, that were very hesitant in embracing technology, like Construction or Health Systems, are now much more open to innovation, digitization. Industries that were used to be a big no-no for VCs are now much more accepting, so it’s very difficult to think of an industry that we would never invest in. What I could say, and that relates to what I said in the beginning, is that we understand that it’s not enough that the technology would be very advanced, that the market would be big. There’s also a matter of how the market is willing to accept the technology, who and how can pay in that market, so there are a lot of considerations that are looking not only into the tech or the vision itself.
Investors usually prefer to work with teams, but have you ever supported a one-person startup?
Investors have their theories, and the theory says that investing in a team is better because it’s a rollercoaster. The path is full of challenges and difficulties. There are also good times, but there’s a lot of low points, so it’s easier to withstand that with a team. That’s one reason why investors like to invest in teams and not in the single founder, and the other is that in the team, you’re looking for a lot of different things. You’re looking for someone who understands the market and its dynamics, who is very proficient with the technology, knows how to build companies, and it’s very, very rare to find all those attributes in a single person. With that, some very successful companies have been founded by a single founder, so I wouldn’t say that it’s a no-go for us. We would definitely look at companies with a single founder, given that he has the ability to bring others that possess all those qualities that you’re looking for in a team.
Speaking of teams, are there any particular qualities you especially like and would like to see in teams you invest in?
Yes, definitely. You’re looking for founders that are very knowledgeable in that particular industry that they’re looking to operate in, for, as I call it, hungry teams, teams with a ton of motivation, with that spark in their eyes. You’re looking into the dynamics of the team because it’s not enough that every single person in the team will be a star; they have to be a team of stars where the interaction and the dynamics work because it’s a very long marathon.
What is the geography of your interests?
Grove only invests in Israel-related companies. By the way, the reason we do that is that we feel like our ability to support those startups is easier. When you invest in the early stages, then you work very closely with the teams. Early-stage startups don’t have a full strategy team, product team, market team, PR team. You’re their holding and their hand throughout the road, and it’s just trickier to do when it’s not in the same geography.
What is your due diligence procedure, and how long does it usually take?
Once we meet a company that we think has potential, we finish the initial meeting and write down all the questions that we want to be able to answer to reach a high enough level of conviction. In theory, those questions are always the same; we always want to answer the questions related to the size of the market, the competition, the technology, the team. In reality, the focus for each company is on a different aspect. For some, the market is clear, or the fact that there is a problem is very-very obvious; for some, the tech is not even the challenge. You want to understand what are the exact specific questions you want to feel comfortable with in order to make a decision. Our due diligence process starts with listing down what we want to answer and then who we want or how we want to answer those questions, with what type of resources. It could be Google and reports, a list or a type of people or companies best suited to help us get answers: industry experts, potential customers, and, of course, references of the team. Once we have that plan, we hold partners meeting to make sure those are all the questions to answer because when I’ll reach to the investment committee and ask the partners to vote, I want to make sure that I answered all the questions. We’ll have a meeting to make sure that I’ve captured all the questions. Of course, more questions will come up, more ideas of who I can talk to and who I should focus on in the due diligence, and then we start doing the work. We talk to industry experts, to people who know the team, to potential and existing customers; of course, all of that is done, including the team, the entrepreneurs. Then, we hold an investment committee with all the data that we have. When you’re investing at an early stage, you know that a lot of questions will remain unanswered.
As you said, you prefer to enter at early stages, and when do you usually decide to exit?
You also asked how long the due diligence process takes. I’d say the fastest would be a week; the longest would be many weeks depending on the stage of the company. When do we exit is a good question, and I think the answer depends. We stay as long as we are needed, as long as we can continue and add value to the table.
How big is a check you usually issue?
We’re currently investing out of our second fund. The first fund is $110M; the second is $120M; our check sizes vary between $1M to $5M, but there are extremes to both ways. Our typical check size would be around $3-4M. You also need to take into account that this past year we’ve seen seed rounds increased in size, so our check size increased in direct correlation.
To your mind, what is a fair stake to take from a company for investment?
It depends on a lot of things: on the stage, on the team. Typically, in the seed rounds, companies give up anywhere between 18 to 30 percent of the company. Something typical would be around 22-25%.
What are your red flags when you see a team or a startup that seeks investment?
Honestly, the first thing and by far the most important is team dynamics. That’s the first thing you notice, and it’s really one of the most important things because, as I said, it’s going to be a rollercoaster. You want to make sure that the team knows how to work together, that they know how to fight, disagree, and agree. You’re looking at how the team interacts during the meeting: who talks, how do they respond when someone is talking and has to add something, how do they respond to one another. Team dynamics is by far the most important thing, and problems in team dynamics are the biggest red flag.
Have you ever rejected a startup and then regretted it?
All the time. We’re in the business where we make a lot of mistakes. If you think about it, you see one thousand startups a year, you end up investing in five or six or seven, and that means that you say no to a lot of good investments. Especially because there are so many unknowns at the early stage, you can definitely miss, and that’s part of the game. I think that the key is to focus on your wins and not on your losses.
What is your target multiplication on exit?
If you look at the VC economics, then at the end of the day, you want to be able to return three or four times the fund. If I’ve raised a fund of a hundred million dollars, then I want to be able to return to my investors three or four hundred million dollars. Of course, more is great, but that will be a good target. If you look at the statistics, which says that in a portfolio of fifteen companies, five will be limited returns, a few would be a multiple of one or two, and then a couple would be of fair multiple, that is three or four, then you’re always looking to find that extreme case that will return the fund and a one hundred times multiple on the investment. If I invested $1M, then I want a $100M return. Those are the rare cases, but that’s what we’re targeting. That’s why we’re looking at the companies that are operating in the industries or the markets of billion dollars and more.
What is your process of working with startups once you invest in them?
Again, because we invest early, we work very-very closely with our teams. Other than the process itself, in which we have a weekly meeting with each founder, we work very closely on a day-to-day basis. That’s per the need, from brainstorming on the strategy and what’s the next relevant use case to target or what’s the right geography to go after to how do we structure the next round of financing, reach the most relevant investors, and who are those relevant investors. We also have internal marketing, PR, and HR teams, so we do a lot of that work for other companies as well. We do a lot of PR; we have our HR person who helps with executive placement for the startup. We’re basically there throughout the way.
To your mind, how much runway should a startup have to feel safe?
I think that changed in the last couple of years. Today, when you go fundraising, you want to make sure that the money will last at least 18 months, but that’s not enough; I would target 24 months. Fundraising takes time, so you want to make sure that you finish fundraising and don’t immediately need to start fundraising your next round. Also, you fundraise until you can reach the next fundable milestone. How do you decide how much money to raise? You need to understand what is the next significant milestone you can reach that will justify a higher valuation and will enable you to raise the next significant round. That typically takes time, so 18 to 24 months.
Has your VC’s approach to investment or selection changed after COVID-19 started?
I don’t know if it changed in terms of selection, but we did adjust with some of our processes, for example, Zoom meetings, which is something that we would never consider because we always said that the interaction with the founders is very important. We haven’t made an investment that was entirely remote, but we’ve definitely started. We do a lot of our first meetings today on Zoom. In some ways, I think, our processes become more efficient because due diligence calls and reference calls can now be done on Zoom, which makes it much more quick and efficient.
Generally speaking, do you see COVID as a threat or an opportunity to the VC business?
I think it’s definitely an opportunity because it’s made possible a lot of things. If you think about how the world has responded to COVID, it was basically the digitization of every aspect of our day-to-day life: how we see the doctor, how we do the groceries, what we do in our free time. That created a ton of opportunities for the ones that were flexible enough to adjust and respond to that. It changed a lot of things even in terms of regulations: if you think about Telehealth in the United States, then a lot of regulations that posed a challenge have changed due to COVID. Definitely an opportunity, but it’s not to say that it didn’t come with a cost.
What are the common mistakes startups usually make?
I’d say that one mistake is not understanding what the investor in front of you is looking for. In VC economics, you want to understand the model that funds operate by. There’s a reason why we’re looking for startups that operate in markets that are one billion dollars and more because we need to get our multiples. It’s very important to understand how investors think in terms of their financial model, to tell a story that fits that, not to lie, but to tell a story that answers the question that the investor in front of you wants to answer. Another mistake is not understanding who you are talking to because not every VC is fit for every entrepreneur. You want to find a fund that is relevant in terms of stage and sector, that doesn’t have competing portfolio companies, and is in the right stage in terms of their investment timeline. A fund that has just raised its fund has a different risk profile than a fund that is close to the end of its investment period. The lack of homework on who they are talking to is a mistake.
What qualities, you think, are important for a good VC?
I think that you have to be curious and comfortable with making decisions when there are more unknowns than knowns, and you need to have the mental plasticity that allows you to consider opportunities that you’ve seen fail in the past. When you see so many startups, then you see a lot of startups failing; you’ve seen everything fail. You need to not attribute past failures to current opportunities. Just because something failed in the past – a business model, a technology, an industry – doesn’t necessarily mean that it’s going to fail again, because a lot of things could change: the market environment, the technology enablement, so mental plasticity is also a very important quality.
Where do you get your daily information from?
It’s difficult to answer because there are a lot. I read a lot of tech blogs, and I love the new a16z blog called Future. I try to get information from as many resources as possible.
Regarding the information on deals, do you scout actively for ideas and teams or just wait for inflow?
We definitely actively scout because it’s a very competitive space. You can’t sit and wait for the right entrepreneurs to come, you want to find the best entrepreneurs out there, the most interesting deals that are the most relevant to you, and we’re very active in doing that.
What are the key metrics you consider when a company seeks investment?
Because it’s early, it’s very difficult to rely on financial matrices. We’ll get three things, and you will get the same answer from any VC you’ll talk to. Some people call it differently, but you’re always looking at the same three things. We’re looking at the team; that’s difficult to quantify, but there are ways to quantify your impression of the team. We’re looking at the technology or the product, how defendable it is. Defensibility doesn’t necessarily have to be IP or patents; it could be traction, user base, deep industry knowledge, the team. We’re looking at the defensibility of the product and the technology and its differentiation, how different it is from anything out there. We’re also looking at the market to understand that it’s big enough, that there’s room in that market for another player. We’re looking at the trajectory of the market to make sure that it’s big, but it’s also growing, and there are people in that market who can pay. We’re looking to see, as I said at the beginning, that the market is open for disruption, willing to accept innovation and technology. Those are the three main aspects that we look at, but under that, you can list a lot of other things, for example, projections, expansion potential, and so on.
Considering the geography of investments, do you see any major differences between Israel and, to say, the US ecosystem and the US market?
That’s a good question. In Israel, a lot of times, we say that it’s a great place for technology, but it’s not the right market because Israel is very small. The market is always outside of Israel. I think that when approaching the US market, you have to be very aware that it’s different in terms of everything: the dynamics of how the market looks, who pays, how do they pay, how do they analyze, competition, what are the sale cycles. That could be dramatically different between sale cycles here in Israel and in the US and globally, in general. There’s definitely a difference when it comes to the business itself.
What long-term consequences of COVID do you see on the ecosystem, if any?
I think it’s still early to say. It’s made things generally more efficient and increased the pace. Another aspect, and that may be a short-term implication, is that there’s a lot of money in the market for many reasons, and that impacts valuation, the size of the rounds, the type of investors that are relevant for the founders today. I think that will stabilize, but it’s something that you definitely see now.
What are the most important things you learned from startup founders?
Everything is possible.
The same question for fellow investors. Is there anything you learned from them?
I think that one of the things that I learned from fellow investors is that gut is not enough.
If you were to think of VC business as a game, which game would it be? Chess, checkers, backgammon, go, card games, maybe?
Maybe that game with the snakes and ladders. I think it’s that one because you can win and succeed a lot, and then you lose, fall back, and start from the beginning. I think that’s a game that doesn’t necessarily describe the VC ecosystem but the entrepreneurship ecosystem in general. It’s a rollercoaster; you go up, and there are a lot of successes, and then you go down and start from the beginning because a lot of the assumptions that you made have been proven wrong and you just need to start again.
Finally, your three pieces of advice to startup teams and founders.
Due diligence your partners, choose your partners as you would choose your wife or husband. Due diligence your investors, choose your investors as you would your husband or wife. Make sure that you have the right investors to back you in terms of their experience, professional approach, and the chemistry that you have with them. Whenever you can sleep, sleep because there will be a lot of sleepless nights.