YL Ventures has a deep focus on the Israeli tech market, on cybersecurity in particular, and in working closely with early stage startups developing their route to market, which includes the channel.
Venture capital firm YL Ventures, which focuses on early seed-stage investing in Israeli cybersecurity startups has announced the closure of its new fourth fund with $120 million of committed capital. Fund IV brings the total capital under YLV management to $260 million.
YL Ventures is a seed stage venture capitalist that invests in what they believe to be promising businesses in their early stages. This company’s investments are all Israeli companies, and they have funded 16 so far. Managing Partner Yoav Andrew Leitersdorf, a serial entrepreneur and early stage investor for over 25 years, heads the fund from San Francisco, while Partner and Head of Israeli Office Ofer Schreiber is based in Tel Aviv.
This is the first of YL’s four funds to explicitly focus on cybersecurity.
“This will be the first that is specifically focused on it,” Schreiber said. “Traditionally, we have focused on B2B software technology. We never invest in consumer. It is also always in companies with really deep technology. However, In our previous three funds, cybersecurity was just one of the sectors that we focused on. The first three funds looked at many sectors like cloud infrastructure, SaaS, and autonomous vehicles. This is the first fund that was designed to focus on cybersecurity alone, although the second one wound up that way after looking at other companies as well.”
This fund is significantly larger than the second one as well. The first three funds have $140 million combined under investment, including $27.5 million in the second and $75 million in the third. This one has $120 million.
“Many investors have invested with us since the first one,” Schreiber said. “The vast majority of investors in Fund 4 are not new LPs. Most have been with us for many years now.”
VCs make money when their portfolio companies exit, by being acquired, usually by a larger company. The alternative exit route is to do an IPO, but YL Ventures specifically hasn’t had one exit by that route yet. Eight of the sixteen investments have been acquired, including ), Hexadite (by Microsoft), Blazemeter (by CA), and FireLayers (by Proofpoint) and Twistlock, whcih was just purchased for $410 million by Palo Alto Networks.
Schreiber said that YL Ventures has several distinct value-add components as an investor.
“We focus on Israeli technology companies specifically, and in cybersecurity,” he said. “We have developed our own knowhow and expertise about how to build a very successful cybersecurity company. We have expanded our value-added program around go-to-market activities as well.
That’s something where Israeli startups typically need help.
“There are many technology people based in Israel, many with deep routes in IDF intelligence, who have very rare and unique skillsets,” Schreiber said. “But they lack, in many cases, business understanding about how to bring their technologies to market. That’s where we help them. We benefit from a dual centre of gravity, in having best access to great tech talent in Israel, and in having connections with great access to the market in the U.S.”
Those connections include a network of over 1500 CISOs, as well as many top-tier channel partners.
“We also have great relations with venture capital companies in the U.S., although they aren’t necessarily focused on seed stage companies or on Israel,” Schreiber indicated. “It’s a very broad network with very deep relationships.”
The current portfolio base includes: Karamba Security, which makes embedded security for connected systems; cybersecurity asset management provider Axonius; Medigate, which provides cybersecurity for medical devices; Vulcan Cyber, which provides continuous vulnerability remediation); and Hunters.ai, which provides AI-powered autonomous threat hunting. The most recent is Orca Security, which has a full-stack cloud security visibility capability, and is founded by the former CTO of Check Point Software.
Only one of YL Ventures’ 16 investments has failed, which brought lessons they have tried to avoid repeating.
“Our investment in that one was 2010, a long time ago,” Schreiber noted. “It was the one in which we had invested the least amount of capital. We identified early on that things were not developing as expected.”
Schreiber said this failure indicated the important of executing a very thorough market validation before making an investment.
“We want to make sure that the core tech being developed by entrepreneurs is something that customers want and will pay for,” he said. “There also were issues around Go-to-Market. They developed security products for small websites – small customers who don’t have a lot of budget. That was another of the lessons learned. All of our other companies without exception are focused on enterprise customers – large organizations with security teams that have budgets.”
Schreiber noted that YL Ventures core strategy of making two to three investments a year, and for relatively large seed amounts, is uncommon in the VC industry.
“We are relatively unique,” he said. “Most seed stage companies believe in diversification – more companies, with relatively small amounts of money in each company. It’s a variation of spray and pray. In contrast, we are very focused in terms of sectors and concentrated in the total amount of companies in the portfolio. That enables us to specialize and provide not just capital but also attention and resources to each portfolio investor. We love to be hands-on investors as much as we can. Being a specialized investor in a specific geo, stage and sector helps us be experts at what we do.”
The dynamics of expanding market presence beyond a small home territory has made Israeli tech companies traditionally channel-friendly, and that is at the heart of YL’s strategy as well, although Schreiber noted that it brings some challenges for
“We look at channel partners as a way of growth for portfolio companies,” he said. “All try to develop channels together with direct sales. We advise companies at a very early stage to do direct sales, because the channel likes to see some prior validation. But as our companies mature and scale, that’s where channel partners because critical for us.
“Some of our companies engage with partners in early stages, some in later stages, but as an early stage VC, we represent innovation in cybersecurity,” Schreiber added. “We recommend to channels to be aware of what’s up and coming. This involves awareness of new vendors who are not typically in state to work with partners just yet, but be aware of them in terms of cultivating a potential relationship at a later point.”
Ultimately, Schreiber said, their portfolio companies need to develop these strong channel relationships to flourish.
“To succeed, you need to have a better Go-to-Market strategy, which means you need to work with partners to scale your business operations. That’s where we come in.”