YL Ventures On What It Looks For In Entrepreneurs Launching Tech Startups

Money is needed to launch a tech company, and if the entrepreneurs are not in the U.S., they might want to look for help to make it into Silicon Valley. YL Ventures is a firm that funds and supports Israeli tech entrepreneurs that want to break into the U.S. market.

The firm invests in a wide range of technology startups, including cybersecurity, autonomous vehicle technologies, drone technologies, cloud computing, big data and SaaS companies.

YL Ventures Vice President John Brennan and his team told International Business Times what the company looks for in entrepreneurs and gave some advice to those who want to launch a startup.

How do predictive analytics help YL Ventures find promising startups?

We use an automated deal-flow system that identifies early-stage investment opportunities for us, based on several key indicators. From our experience, the strongest indicator for an interesting startup is the founders’ background. Therefore, we focus on identifying and engaging with founding teams that have highly relevant technological experience.

YL Ventures says it “cherry-picks” innovators. What do you look for when choosing entrepreneurs?

YL Ventures is a highly focused seed-stage VC firm that targets 2-3 investments a year. The reason we invest in so few companies is that we believe that entrepreneurs in these early stages, even if their vision is completely hashed out, will benefit from our fullest attention and support in order to grow their companies successfully, and we want to be able to provide them hands-on assistance. This unique strategy allows us to be very selective and helps us to evaluate in potential investments:

First, the most important thing at this stage is an exceptionally strong team with deep technological experience, strong leadership qualities and a willingness to adapt and react to unexpected circumstances and evolving market needs. Even if a team has an amazing idea, we will not invest in a team unless we rate them as exceptional.

Second, we are looking for a big market opportunity – we like it when a team identifies a real pain point in the market that is difficult to address and doesn’t have a good solution.

Third, we look for companies that develop deep proprietary technology (core IP) and solutions that require exceptional engineering skills; these generate a high entry barrier for competition.

Our three most recent investments are excellent examples of this approach: Axonius (Unified Visibility & Control of Endpoint Devices), Karamba Security (Automotive Cybersecurity) and Twistlock (Virtual Container and Serverless Security). The founding teams of these startups each had the rare combination of deep technological skills, profound business understanding, and clear-cut leadership qualities – and they all develop disruptive solutions for emerging technological platforms in major markets.

Can you give an example of one of how much was raised for one of your clients and for what they will use the money for?

Our last investment was in Axonius, an Israeli startup that develops a unified platform for organizations to see and control all of their mobile, compute and IoT devices, instances and machines, whether they are on premise, remote or in the cloud.

Axonius raised a $4M seed round led by YL Ventures, with participation from Vertex Ventures and Emerge. The funding will be used for the development of the Axonius Platform (the platform is currently in limited availability to qualified customers; general availability is expected in early 2018), generating initial market traction in the US and working with a few large enterprises, and expanding its R&D center in Israel.

This may seem like a relatively large seed round, but it’s important to note that it takes time and a lot of resources, mainly high-quality engineers, to develop a deep-technology product that can be deployed in enterprise environments. Also, when it comes to targeting enterprise customers, sales cycles are quite long. Therefore, we think that this is the right amount required for this type of startup to hit the right milestones ahead of a Series A round.

Can you talk about the company’s focus on elevating Israeli startups and how YL Ventures’ Silicon Valley presence helps out Israeli entrepreneurs?

We are a Silicon Valley-based firm with strong presence in the Israeli ecosystem. Our Israeli office is mainly focused on identifying investment opportunities in brilliant Israeli entrepreneurs and our U.S. office specializes in helping our entrepreneurs penetrate the U.S. market and scale globally. We usually encourage our portfolio companies to move their HQ and operations to the U.S. very quickly following the investment in order to get closer to their clients. We guide them through this process and transition and help them build their company in the U.S. using our vast business network for introductions to customers, strategic partners, board members, key hires, top-tier follow-on investors and potential acquirers. A lot of VCs pride themselves on helping entrepreneurs, but in our case, we take it very seriously and consider it our main value proposition to our founders. [...]

If you had to give one advice to someone who was thinking about launching a startup, what would it be?

We would suggest that you start the entrepreneurship journey by identifying a very big problem space and forming a stellar founding team. The product will come later. We see many technological entrepreneurs starting with an idea for a product before validating the market need. We strongly believe in “betting on the jockey”, which means partnering with the strongest founding teams we meet. A strong team that is looking at an interesting market will find the right product to develop.