"We examined a deal with a very well-known startup, with wonderful technology and excellent entrepreneurs, but when we came to close the deal with them, we understood that they had a problem with the vulnerability of their product to cyberattacks and threats, and that they needed to rewrite half of their product from the beginning," said J.P. Morgan head of digital strategy, fintech and markets innovation Ziv Gafni. "This was work that they had to do, but the moment that a startup like this surmounts this kind of hurdle, it's in a completely new category. There's no doubt that when startups work with large corporations, they can grow very much in terms of their internal processes, and that is very important for them."
Gafni was speaking to "Globes" tech correspondent Ofir Dor at the Globes Most Promising Startups 2021 Conference, in the presence of the winning companies. Gafni told the panel on the growth challenges facing startups that examining the team was the most important parameter for him and his staff at the investment bank when looking at a company - as an investor, partner, or customer.
"A good team is a team in which the managers complement one another, with good chemistry between them, with each one an expert in their field. Unfortunately, I have seen teams that argue among themselves during a presentation, and that doesn't create a good feeling. Startups have many problems along the way, and lack of chemistry between entrepreneurs, or ego games between them, are not good for the company if they want to survive the growth stage. When you have a high-quality, harmonious team, it will know how to adapt the product to the market, and will make the right pivot when there is a need for it."
Vertex Ventures general partner Yanai Oron, who has invested in two of the outstanding companies in Globes' ten most promising startups of 2021 - DataRails and Nexite - explained that he looks at a number of areas before making an investment decision. "Sometimes it can be a difficult decision to invest in an entrepreneur in a field that you are not sure about but in which the potential for returns is high because not everyone is investing in that field. Often, we venture capital people need to take a risk and to see the promise in a company even though it is not the most sparkling asset. Michael Jordan wasn't number one in the NBA draft but he had all the attributes to succeed and become the most important basketball players in the world.
"We always prefer an entrepreneur who runs alone while sharing his decisions with us to an entrepreneur who will tell us 'come let's have a meeting about this and we'll think of a plan and work on it now, one year ahead," Oron said. "I've got an entrepreneur who showed me how, in order to create a buzz on the web, he distributed the product for free to 100 companies - these are ideas that even we hadn't thought about.
"At one time, we made a mistake about how a founder needs to look or to speak: a pleasing looking man with an authoritative voice. Today, we look for something different. There's a new generation of fast action entrepreneurs in innovative sectors like open code or AI who are creating success and positive momentum so quickly and sometimes under the radar."
Adina Eckstein, COO at Lemonade, which has featured in the Globes Most Promising Startup rankings in the past, spoke about the social challenges involved in growing a company from a small number of founders into a huge publicly traded company with more than 1,000 employees. "We built a decentralized culture in which each product was surrounded by its autonomous teams, which made decisions and ran forwards quickly," she said. "We built organizational structures in which every product - such as, for example, pet insurance or car insurance, included in it a team of analysts, development and content staff, marketing and project managers with their own unique roles, aims and resources. As soon as a unit like this grows beyond a certain size, we immediately break it up into a smaller unit - this is what helps us create uniqueness for each product line and run forward quickly."
JFrog COO Orit Goren said that in order to keep the organizational culture up to date, the company comes every few years to each of its employees, customers and partners and asks them to list what in their opinion the values and the vision or the organizational codex should contain. "We ask them. What is JFrog for you? These values are written from scratch every few years and adapt themselves to reality."
Tom Livne, founder and CEO of Verbit, a unicorn engaged in the automation of transcripts, and which has appeared in the Globes Most Promising Startup rankings in the past, claims that despite the cooling of the stock exchanges and the fall in company valuations, there is no reason to rule out an IPO. "The considerations are sometimes not just about the company but also its shareholders and investors, so that it can create liquidity. It's also good for employees who know that you know how to reward them. Ultimately, you have to look to the long-term. A share price goes up and down, but when you look at the transcription market, which is worth $30 billion, and we don't even have 1% of it, but we have large growth potential as a leading tech company in its field, both in terms of resources and market share, then you know that you have much greater value to create. Companies fall in value because of macroeconomic factors but nothing has changed at those companies - JFrog and Lemonade - have remained the same companies."
Full disclosure: The event was held in cooperation with J.P.Morgan, Microsoft Israel, and Merlin Ventures TLV
Published by Globes, Israel business news - en.globes.co.il - on December 8, 2021.
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