Daniel Dines, the CEO of UiPath, a robotic process automation company which has recently filed to go public.

Enterprise & Deep Tech Weekly

Issue #103: For the week ended April 6, 2021

The great acceleration of seed investing.
(from the blog)

I’m not yet 100% sure this is true, but I am starting to think it might be: seed funds and “accelerators” basically can no longer work together. Choose one path and you self-select out of the other.

Seed funds vs. Accelerators

The best seed funds, like the fund we are trying to build at Angular, have gotten pretty good at adding value and connecting portfolio companies with customers and investors. We’re willing to write big checks (relative to stage) and build great syndicates — and in many cases, we add a fair amount of signaling power.

If a founder has a great seed fund onboard, he or she doesn’t really “need” the benefits of an accelerator — and they are probably not worth the significant dilution that they involve. The seed funds should get the company to the Series A — and we have historically run a very high “Seed to A” conversation rate.

On the flip side, if a founder has already given up 7–10% of their company for an accelerator and another 5–10% to angels, they are already massively diluted going into demo day (sometimes well over 20% for as little as $250K). The only way that sort of dilution makes sense is if they can jack up their valuation on the next round — the one right after (or, if they are lucky, right before) demo day.

As a result, accelerator companies typically go down one of two paths: Thin Rounds or Inflated Rounds.

• Thin Round: In this scenario, the startup tries to raise very little and dilute very little (i.e. $1M on $15M post). Thin Rounds are really challenging for seed funds because they typically mean the seed fund won’t get enough equity to make it work AND the companies are typically under-resourced. Smart seed funds are focused on ownership to make their models work and are focused on derisking the path to Series A. Thin Rounds make both of those things much tougher.
• Inflated Rounds: These rounds (typically ~10M+ on ~$30M+ pre-money) are equally challenging for Seed Funds — basically impossible for them. The fund math just doesn’t work: these are basically Series A rounds in companies that have skipped the seed stage entirely. When a round like this is led by a great Series A firm, it’s a win for everyone. But large rounds are not always great rounds and not all Series A investors are created equal. It’s totally ok and maybe even advisable for a company to skip the seed stage if it can — and most smart seed funds are disciplined enough to know these rounds are not relevant for them.

The death of risk

I don’t know yet if the thesis that Seed Funds and Accelerators can’t really work together is true, but I do think a strong case can be made. To me, this is a consequence of our overly exuberant private tech markets and the perceived “death of risk.” Seed funds work when there is seed risk. But if enough founders and funders don’t believe that seed risk exists, the logic of seed rounds drops away.

Let me be clear — this is not an argument against accelerators. In many cases, accelerators can play a valuable role in the life of a company. But this is a recognition of a fact pattern that seems to be increasingly clear: accelerators and seed funds are competing for the same stage of a company’s lifecycle. The best accelerators and the best seed funds are promising startups the same thing: we will get you to a successful Series A. That is the promise we make at Angular — and, so far, we’re delivering on it. Accelerators — which used to be effective funnels to quality seed rounds are increasingly funneling startups to a three-pronged fork in the road — either (1) a strong Series A (great) or (2) an inflated round (less great) or (3) a thin round (not great at all).

So what’s a seed fund to do in the face of this increased competition?
As always, at Angular, we take this as an injunction to be yet more contrarian and to seek out risk: to back founders and ideas that wouldn’t otherwise get backed — and to go all in. Our philosophy is that high-conviction high-concentration early-stage seed investing is an optimal path both for the investors who know how to do it well and for the founders that are able to benefit from it, but it’s not going to be right for everyone. We believe the most sustainable value is created through close founder-funder relationships which can not be scaled easily and must involve some true “cost” to both parties in the traditional forms of capital, governance, risk, equity, and — significantly — time.

We are all accelerators now.

At the end of the day, the best seed funds (in fact the best VC funds of all stages) are actually all really “accelerators” as well — just that we are highly focused and concentrated on a small set of companies we work extremely closely with and care deeply about.

If you are building an enterprise or deep tech startup in Europe or Israel, please let me know… Now let’s get to the news.

Angular Insights: Talks for Enterprise Founders

Angular is hosting a series of online interactive events with our community of early-stage enterprise tech founders from across Europe and Israel. These talks are designed to deliver practical startup advice in an easy-to-consumer format — with plenty of opportunities to engage with our speakers. Typically, these take place on Wednesday at 3pm UK, 4pm CET, 5pm Israel. To register for any of the sessions, just click on the links below.

• May 26: A Talk with Dror Davidoff, Co-Founder & CEO of Aqua Security
• June 2: A Talk with Dana Oshiro, General Partner at Heavybit
• June 9: A Talk with Leigh Moore, VP of Marketing at Snyk
• June 23: Lemonade — Building an Engineering Organization from Startup to IPO with Erez Dickman, Vice President of R&D at Lemonade
• June 30: Building Developer Products and Communities with Amir Shevat, Co-Founder & CPO of Reshuffle
• July 21: A Talk with Lenny Pruss, General Partner at Amplify Partners

Check out: www.angularventures.com/events for additional upcoming events.

From the blog

Why we invested in Levity.ai: A no-code ML-powered workflow on every desktop
Why we invested in Firebolt: Next-gen cloud-native data warehouses (& Eldad Farkash)
Why we invested in Candu: Democratizing Front-End Development
US Immigration: Updates in US Immigration Impacting Founders
Going to America: Lessons on moving to the US from Israeli startups
JFrog Investment memo: What JFrog looked like in April 2012
Milestones, gratitude, and the challenges ahead: Reflections on an IPO and the ones that got away
League Tables: The most active US VCs in European & Israeli Enterprise Tech
The Data: Enterprise & Deep Tech VC in Europe & Israel
Defining Enterprise/Deep Tech. What do we actually mean by the phrase “enterprise or deep tech?”
Introducing the Angular Ventures Team. Getting to know Anne and Andrew.
Launching Angular Ventures I. What we do, why we exist, and how we got here.
US incorporation? Just do it. Why nearly all enterprise tech companies should incorporate in Delaware.

Europe/Israel Enterprise/Tech

• UK/Payments. SumUp raised $890M to help businesses power revenues through card payments — by way of physical readers, online payments, invoices and other services.
• Israel/SME Insurance. Next Insurance raised $250M for their small-business insurance product suite that covers a number of categories (workers’ comp, commercial auto, general liability, etc.) for different classes of workers.
• Israel/Ecommerce Marketing. Yotpo raised $230M for their eCommerce marketing platform with the most advanced solutions for customer reviews, visual marketing, loyalty, referrals, and SMS marketing.
• Israel/Cloud Security. Orca Security raised $210M for its platform which reads a customer’s cloud configuration and workloads’ runtime block storage out-of-band to detect potential vulnerabilities, malware, misconfigurations and authentication risks.
• Germany/HR. Staffbase raised $145M for their employee engagement platform that provides employers with a suite of communications tools including an employee app and internal newsletter and intranet platforms.
• Israel/IT Infrastructure. Incredibuild raised $140M for their designed to help accelerate computationally-intensive tasks by distributing them over the network.
• Israel/Digital Asset Custody. Fireblocks raised $133M for its digital asset custody, transfer and settlement platform.
• Israel/Cloud Security. Wiz raised $130M for its cloud security platform which gives 360° view of security risks across clouds, containers and workloads.
• France/HR and Payroll. Payfit raised $107M for its payroll and HR software platform that lets you manage your payroll from a web browser and automate as many steps as possible.
• Finland/Open-Source Implementation. Aiven raised $100M to provide managed open-source data technologies, like PostgreSQL, Kafka, and M3, across all major cloud infrastructure platforms.
• Germany/Automation. Camunda raised $96M for their open-source workflow and decision automation platform.
• Israel/ML Capital Allocation. Capitolis raised $90M for its platform that drives resource optimization for capital markets, and enables financial institutions to more efficiently allocate their capital.
• Israel/Care Coordination. Viz.ai raised $71M for its intelligent care coordination system which leverages advanced deep learning to communicate time-sensitive information about stroke patients straight to a specialist who can intervene and treat.
• Israel/Self Content Delivery. Zoomin raised $52M for its information customer content self-service provider which turns user guides, knowledge articles and community discussions into intuitive self-service products.
• UK/No Code Financial Markets. Genesis raised $45M for its software solution that gives non-technical employees the tools to create ways to monitor and manage real-time risk, high-frequency trades and other activities.
• France/Ecommerce Logistics. Cubyn raised $41M for its one-stop-shop for all your logistics needs that lets e-merchants outsource fulfilment and delivery logistics.
• Israel/Security. Morphisec raised $31M to offer enterprises cutting-edge cyber prevention that automatically stops the most dangerous attacks in an automated and easy-to-manage manner without any impact on users, performance, or IT teams.
• Israel/Cyber Security. Vulcan Cyber raised $21M to help businesses prioritize and fix security vulnerabilities with its vulnerability remediation orchestration platform.
• Israel/Synthetic Data. DataGen raised $18.5M for its simulated, privacy-by-design visual data sets to train deep machine learning models for real-world tasks.
• UK/Infrastructure Risks. nPlan raised $18.5M for its system, which utilises machine learning and AI analytics to predict outcomes of construction projects and mitigate risk.
• Israel/DataOps. Rivery raised $16M for its data management platform that gives companies control over their organizational data through the ingestion, transformation, and orchestration of data processes.
• Israel/No Code Data Tooling. Noogata raised $12M for its no-code AI data analytics for enterprises that aim to empower users to go beyond traditional business intelligence by leveraging AI in their self-serve analytics.
• Norway/Employee Collaboration. Whereby raised $12M for its collaboration tool for easy video meetings.
• Hungary/Online Fraud. SEON raised $12M for its fighting fraud software protecting online businesses.
• Israel/Security. SCADAfence raised $12M which platform secures industrial networks as they increase automation, digitization and connectivity.
• Spain/Spanish Voice Assistant. Sherpa raised $8.5M for their voice-based digital assistant and predictive search for Spanish-speaking audiences which is focused on building out privacy-first AI services for enterprise customers.
• Poland/Air Pollution. Airly raised $3.3M for its software that provides actionable insights about air quality with its AI-driven algorithms that predict air pollution for the next 24 hours.

Worth reading

Enterprise/Tech News

• UIPath’s moment. As the company prepares to go public, they have released an S-1. Here’s a very complete teardown of their very impressive numbers (and business model) from Jon Ma, and some quick insights from Jason Lemkin of SaaStr. I think all of us are going to be studying this one for a very long time.
• ServiceNow moves into RPA. The software giant acquired Intellibot, an Indian RPA company, for an undisclosed amount.
• A closer look at Stockholm tech. The FT examines the growth of Sweden’s tech eco-system, powered by Spotify and Klarna. “Sweden’s relatively small home market of 10m people means that most start-ups quickly turn their attention to international expansion…In the early days, many of Sweden’s first tech success stories — such as Skype, payments company iZettle, and games developers King Digital and Mojang — sold out to deeper-pocketed US competitors such as Microsoft and PayPal. It was a way of addressing worries about the depth of funding for start-ups in Stockholm. But those fears have dissipated in recent years as the likes of Spotify and Klarna have attracted international attention.”
• MessageBird is on an M&A spree. The Dutch omnichannel customer communication platform announced acquisitions of 24sessions and Hull.io, following last-years acquisition of Pusher.
• The race for Israeli chip talent. Facebook becomes the latest multinational tech giant to announce an expansion of its chip-making activity in Israel, following Google, Nvidia, Microsoft, Apple, Amazon, and others.
• AR on the battlefield. Microsoft announced a $22B contract to build AR headsets for the US army. Just like the internet itself, perhaps a defense-related push might be what it takes to help push AR into the mainstream.
• Silicon Valley techno-babble. From whence you hire is how you will speak?

How to Startup

• Roll-Up vehicles. AngelList launched roll-up vehicles this week. RUVs are designed to be a super easy way for founders to get a number of angels to sign up to a round together, and hand proxy rights over to the founder. With founders increasingly looking to add other founders and angels into their cap tables, this is looking to be a no-brainer easy way for founders to control those dynamics.
• Series A deck template. Creandum put out a very detailed Series A template and guide. While every company is different, this is not a bad starting point for thinking about this.
• Open-source dilemma. Tomasz Tunguz highlights a key GTM dilemma facing modern open-source companies: (1) start on-prem and move to a cloud-based managed service offering or (2) jump straight to the cloud and forgo the on-prem step. Worth noting that Ed Sim offered a third option in his weekly newsletter: start on the cloud with a managed offering and use a tool like Replicated to early offer an on-prem option.
• IPO speedbumps. Nicolas Colin wrote a great analysis of Deliveroo’s challenged UK IPO from the perspective of an early-stage founder. “Some people think there’s no reason for non-US companies to flip to the US when they seek to go public, but here are the hard facts: the success of an IPO depends on having investors able to understand your business and willing to agree on the right price for your company; it also depends on having investment bankers and analysts able to act as intermediaries and educators for those investors.”
• Is the IPO window closing? Extra Crunch has this story on Kaltura putting its IPO on hold and a slowdown in SPAC formation. Calcalist (no paywall) has more. “A source who spoke to Calcalist under the condition of anonymity said that Kaltura was willing to reduce its asking price and offer only around 17 million shares instead of 23.5 million. However, the company received indications that even this wouldn’t be sufficient to make the IPO seem more alluring, resulting in the postponement of the IPO and raising serious doubt whether it will ever go ahead.”
• Rethinking WeWork. Scott Galloway, one of the most vocal critics of WeWork’s valuation, now thinks that the company might make sense at the $10B valuation level given new management, new strategic, and the new world we live in. It’s worth a read as an example of intellectual honesty.

How to Venture

• A VC bears his soul. The best thing in a VC Twitter this week was this thread by Frank Rotman of QED. “Fundamentalists believe that financials matter because a company’s enterprise value will eventually collapse to a function of margin, volatility, profit and growth. Revolutionaries believe that dominance is the goal and financials will follow….Fundamentalists believe that financials matter because a company’s enterprise value will eventually collapse to a function of margin, volatility, profit and growth. Revolutionaries believe that dominance is the goal and financials will follow.” The second best thing in VC Twitter may just have been his other thread on how LPs are thinking about inflated VC performance. “Another LP stated that they’re pretty discerning and can tell when a VC routinely backs companies that build mouse traps that are enduring and sustainable. Liquidity generated when a company is still figuring things out is not the same as liquidity from a great company. The best VC managers routinely back companies that a typical public market investor would want to hold onto for a long time because they are obviously good businesses. Good managers spot good businesses when they’re still private.”
• A strategy for diversity in VC. Thanks to Sarah Noeckle’s outstanding newsletter, I came across this great piece on what VCs should do to truly increase the diversity of their portfolios over the long run.
• Big tiger. Tiger Global announced a $6.7B VC fund, one of the largest VC funds ever raised and, amazingly, about twice the size of the fund they set out to raise. Tiger’s streak of great investments includes Stripe, Roblox, and Peloton.
• Ready to up your media game? VC content strategies may all need to adjust to a new reality that A16Z is heralding.
• The rise of nano VCs. Cendana, a leading fund-of-funds focused on emerging managers, announced a $30M dedicated vehicle targeting nano funds of less than $15M. “The goal is to find the next Lowercase Capital. Not everyone knows this, but Chris Sacca’s first fund was $8 million and it returned 250x. Manu Kumar of K9 Ventures — his first fund was $6.25 million and returned 53x. So you can generate substantial alpha with these smaller funds.”

Portfolio News

Aquant’s Service Leaders Spring Break brings together service superstars for a week of virtual peer-led sessions.

Crux OCM’s CEO, Vicki Knott, shares her thoughts on if renewable energy can power an entire city.

Planable’s CEO, Xenia Muntean, shares how elite social teams grew during the pandemic in the latest 417 Marketing podcast.

Vault Platform’s Lauren Abramsky will be sharing her story about speaking up at work, and the tech that Vault Platform has created to help on April 7. Register to attend the session.

Valohai built a Pokémon or MLOps tools game. Can you catch them all?

JFrog is expanding their Tel Aviv office and hiring 300 people worldwide.