Vertex Israel’s 2 New Funds
Over the past few months, we raised 2 new funds, totaling $400M: Vertex VI, a $230M early-stage fund, and a $170M Vertex Opportunity II fund. Vertex VI maintains the same strategy we have been following the past decade — leading early-stage rounds (from Seed to B), across a wide range of verticals and markets. As our job is to find the exceptions and exceptional stories and founders, no opportunity is too early, and no market is out of mandate. We originally planned to raise a smaller fund, but ultimately ended up with our largest fund to-date due to dramatic changes we have all seen, namely the massive growth in round sizes, followed by increased volatility and uncertainty in the markets, that we believe require more reserves to allow us to support our portfolio in a wide range of scenarios.
Vertex Opportunity II is designed to allow us to further support break out companies as they scale and raise larger rounds, and while we are not objective, we think we will have many such opportunities across our portfolio.
2021 was a hectic year. We invested $200M across 15 new portfolio companies and 22 follow on rounds. Checks ranged from $0.5M to $10M. Our philosophy continues to be around building a diverse portfolio and trying to be early movers into emerging markets. This strategy has allowed us to be early investors in companies like Trigo, Nexite, Innoviz, Ownbackup, Cymulate, Verbit, CyberArk, Waze, SolarEdge and many others.
The massive fall in public market multiples would surely have a significant impact on returns of VCs, and Vertex is no exception. Trying to focus on the glass half full, we had little inclination in recent years toward investing in hyped stories. Our focus on fundamentals, and the need to see a realistic path to a large, sustainable businesses, pushed us to invest in companies that had a real chance in finding a product market fit and building a capital efficient go to market strategy, terms that were mostly forgotten in early-stage companies in recent years. As a result, we have seen the aggregated ARR of our portfolio growing from $300M to $550M in 2021 (mostly SaaS revenues of companies we initially invested in early stages), and as most companies maintain a healthy, sustainable growth, we believe our portfolio could reach the billion-dollar revenues run rate mark by end of next year. Four of our companies (Yotpo, Ownbackup, Axonius, Verbit) should be IPO-ready within 12–24 months. Companies like Cymulate, DataRails, ZenCity, Guesty and Tabit have reached critical scale, are growing quickly, and are emerging as leaders in their respective categories. Lastly, deep tech companies like Trigo, Nexite and Identiq have developed unique technologies for some of the largest markets in the world and are making rapid progress commercializing their technologies… and we are just as excited about the remaining 30 companies that are earlier in their journey:). Clearly, the coming years may prove to be more challenging for most companies. Money is getting more expensive, and it is fair to assume demand is likely to decrease as people and companies are rationalizing their spending, but as we remain optimistic about the long-term trajectory, we feel it is a time to double down on being patient investors (and founders). Our general approach these days is to extend runway for 2+ years, make sure we have a good grasp of unit economics and advise our CEOs to rationalize their investments across departments to prioritize long term strategic areas.
Lastly, wishing for a better world for our daughters and sons, we also wanted to share what we are seeing in the market on gender equality. Absolute numbers are unacceptable, and likely going to take years to even start to close the gaps. However, we hope we are starting to move in the right direction. Diversity and equality have become a strategic discussion in every board and a high priority goal for every CEO, understanding this is a critical piece in building a company (and VC firms). We have seen the first female-led billion-dollar company in Israel, and more importantly, we are seeing the next wave of female entrepreneurs. Over the last 2–3 years we have invested in 5 companies with female founders, representing around 20% of the companies we invested in during this time frame. 4 of these companies are led by female CEOs. Just to be clear, we invested in the amazing founders of Nexite, Joonko, EverAfter, Bites and Vee, because we thought these are the best opportunities we currently see in the market, and we believe they are going to build phenomenal companies.
So what’s next? As we are all increasingly hearing and speaking about things like rising interest rates, conflict in Europe, falling stock markets, supply chain bottle necks, so it is safe to say we are entering an era of uncertainty. Customers may be slower to buy new products, investors risk averse and employees’ preferences may tilt again toward job security. While these are likely to affect the mood in coming years, with fewer mega rounds and more modest holiday parties, they are also likely to accelerate many of the technology related trends, and allow new ones to emerge, making it actually a great time to be a founder (and investor).
And as for us, we can only promise what we can control, so we will continue to look to partner with the best teams, remain approachable and easy-going, and stick around in the bad days just as much as in the good days…