Invest in Healthy Technology and Weather all Market Conditions

Jonathan Saacks, Managing Partner, F2 Venture Capital

Jonathan Saacks, Managing Partner, F2 Venture Capital

Last summer, the only thing hotter than the Tel Aviv weather was the wave of flotations by Israeli companies in New York.

Since 2010 tech industries have experienced appreciation and grown continuously. And with COVID, came an accelerated mass move to digitization and allowed the tech ecosystem to enjoy attention, capital, and ride the bullish market like never before.

Yet at the back of our minds, we all knew we were living in an unsustainable market and a correction was bound to occur. And lo and behold, 2022 started with dramatic correction in global equity markets driven by concerns over inflation, rising interest rates, and of course- geopolitics.

In Israel, the tech industry is fortunate to still find itself in a strong and healthy position. A hotbed of innovation, Israel has proven its leadership in many areas- cyber, fintech, health-tech, and more.

We have now achieved a critical mass in terms of companies being founded, funded and those being acquired. Combined with the ever-expanding presence of multinationals with R&D centers, and Israel's proximity to global markets due to its connectivity and cloud-health position, Israel's position is sustainable despite the corrections we have seen and continue to see.

However, to maintain such health and stability, we must continue to prioritize healthy growth over high valuations.

As Israeli VCs, how do we navigate the current landscape and make the best investments?

On one hand, it is still a very competitive environment with excess capital driving up valuations. On the other hand, we have started to see the correction of global markets, and those public tech companies that are not demonstrating profitable growth, or at least a clear path to profitability, are being hammered.

I believe the key to success in whatever market condition we find ourselves in, lies in selecting companies that can grow in a healthy fashion from seed to exit. By healthy I mean having high-margin and profitable unit economics, defining, measuring, and monitoring the right KPIs for every company, every step of the way, as well as making sure companies are delivering value to their customers- continuously and repeatedly.

This is easier said than done, especially as seed-stage investors when so much of the business and product is still in flux. Yet since we appreciate how important healthy growth is, we work closely with our founders and create the right infrastructure to understand and measure their business. Once the infrastructure is there, they can adapt and tweak their KPIs as they grow, adapt and may be even pivot while continually monitoring the business throughout.

"I believe the key to success in whatever market condition we find ourselves in, lies in selecting companies that can grow in a healthy fashion from seed to exit"

Ultimately, what these market conditions yet again emphasize is that growing based on capital raising and valuation alone is short-sighted, and when you hit that speed bump prior to the next round, you may findyourselvesout of money and out of luck.

No matter what condition you find yourself in, the key to success in the Israeli and global startup scene is maintaining discipline and growing in a healthy manner with a clear path to profitability.

Weekly Brief

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