Why We Believe In Early Stage Startups

Mosche Raines, Managing Partner of Labs/02

The secret to investing in early stage startups

When thinking about some of today’s most successful tech companies, especially those from Israel, we immediately think of the companies that have made “exits” – whether through an IPO, or by being acquired.

The likes of Mobileye, Waze, Gong.io, and Monday.com immediately spring to mind. In fact, there are currently 80 Israel-founded unicorns (companies who are valued at over $1bn). The rate of increase of funding for Israeli companies is up 136%, way above the global average of 71%, and easily surpassing other tech hubs such as the U.S. at 78%, Singapore with 95%, and the UK at a 105% increase.

Investors have made significant returns on their investments in these companies, posting 50-fold returns and more in some cases. There is even value for those coming in at a relatively late stage – for example, investors purchasing shares in Monday.com at their IPO price would have made a 25% return as of this writing.

Yet many people forget that these giants were, at one point, early stage startups. And investors that were involved at this stage of the company’s lifecycle earned extreme returns.

So what is the secret to investing in early stage startups?

Different investing models

The majority of VCs are focused exclusively on companies at the “A” Round stage, and beyond. While the number of late-stage deals (B Round and beyond) has grown by close to 70% between 2015 and 2020, the early stage (pre-seed and seed) deal count has grown by only around 10%.

And this is understandable – these investors want to see traction, they want to see which other investors are interested, and in most cases they are precluded from investing in early stage companies, even if they see the value, by their own policies and operating principles.

On the one hand, at this point in the company’s growth journey, there is now more information in terms of the prospects of the company, by definition. On the other, the investment is now more “expensive,” there’s more competition around getting into the round, the company itself can offer less to investors in this particular round, and growth is now more limited.

A blue ocean

The space referenced previously can quickly become a “red ocean” for investors. This cycle can lead to inaccurately inflated valuations, and set up companies for failure rather than success.

But there is another way.

A blue ocean, a space where the most phenomenal future unicorns are in the incubation stages (more about this coming up,) where the technology that will change the world has just been born.

These are early stage technology companies, about to embark on a rapid growth journey, and this is where tremendous opportunity exists.

Some investors are already spotting the opportunity: according to Fortune, quoting Crunchbase data, early stage funding in global startups totaled $201bn in 2021, doubling the previous year.

…But you need the right ingredients

Of course, this sounds great. But if it was so easy, as the saying goes, everyone would be doing it. So what’s the secret to identifying the early stage companies with the brightest futures? It comes down to the following key ingredients.

Identify early

Being the first to identify something special – from both a team and a technology perspective – is the first critical step.

Israel is known as the Startup Nation, and as Labs, we are at the very heart of that innovation both physically – being in close proximity to the disruptive innovation coming out of Hebrew University with Labs/02, as well as Ben Gurion University of the Negev with Labs/08 – as well as through strategic partnerships with the likes of the Israel Innovation Authority and Yissum, the technology transfer company of The Hebrew University of Jerusalem, to get first and exclusive access to many of these companies.

Nurture

Investing cash is not enough. For a company at this stage to thrive, what’s required is incubation, support, mentorship, and a world-class network.

Again, this is where Labs/02 prides itself: our incubator has successfully enabled numerous startups to grow to the next stage, and our network – including our association with OurCrowd™ – ensures that we can offer these companies the best chance of future success.

Launch

Once these companies are running successfully, the work doesn’t stop. Growing to the next stage is critical, and for this, early stage companies need assistance across the board.

At Labs/02, we grow with our portfolio companies, celebrating wins, providing introductions, and offering ongoing support.

Finding the next Mobileye™

There is a magic to early stage startups. The way a team, an idea, and technology come together to create something that never existed before.

So next time you read about the latest Israel-born unicorn, remember that the company was once an early stage startup, and you could have invested then.

We make this possible, and it’s a magic I’m proud to be a part of every day.

Want to shape the future of deep tech with us?

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Frenel Imaging

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Shulamit Brodsky

Finance & Controlling

Shulamit has over 15 years of experience in finance. Prior to joining Labs/02, Shulamit served in finance positions at several companies, and in a VC. Shulamit has extensive experience working with both startups and the Israeli Innovations Authority . Shulamit holds a BA in Economics from Odessa State University, Ukraine and BA in Accounting from Open University, Israel .

Ruby Chen

Venture Partner

Ruby possesses a proven track record in initiating, leading and executing deals ( >25 investments and multiple M&As) at global industry leading companies (Hyundai Motor Company, Amdocs and NICE Systems). Ruby joins Labs02 after establishing and leading the Hyundai CRADLE Israel office creating an Israeli mobility investment portfolio of 10 startups (vehicle sensors, cyber, deep tech, and energy related). Ruby is highly networked with a great reputation in the Israeli tech scene, serving as BoD member, BoD observer and strategic advisor to multiple growth companies.

Shai Michel

Steering Committee

Shay Michel is a General Partner at Merlin Ventures, where he leads the firm’s Israeli office. Shay is a serial entrepreneur who has founded 4 companies in the CDN and IT world, and for the last 5 years has been the managing partner of toDay Ventures, an Israeli seed-stage fund. In December 2020 he joined Merlin Ventures to stand up and run its efforts in Tel Aviv. Shay has worked with startups like Cybereason, Aqua Security, Luminate and Fireblocks from their pre-seed stage to help them define their products and create initial MVPs. At Merlin Ventures, Shay sources and leads deals in Israeli enterprise cybersecurity companies. Merlin Ventures then leverages parent company Merlin Cyber’s 25 year history of working with US Federal agencies and provides the resources and knowledge necessary to help accelerate portfolio companies growth into US public sector markets.

Amir Ben Levy

Associate

Amir is an associate at Labs/02. As part of his role, Amir seeks out disruptive startups, conducts due diligence on investment opportunities, and assists portfolio companies with Business Development and Investor Relations activities. Amir has a solid background in economics and business, having spent 5 years at the Ministry of Finance where he was involved in promoting significant economic reforms. Amir is a graduate of the prestigious PPE program at the Hebrew University of Jerusalem.

Eliav Schreiber

Associate

Eliav researches and evaluates business strategies, products and markets on behalf of the Labs02 Investment Team. Following an investment, Eliav works closely with portfolio companies to assist with everyday challenges and to help prepare for further fundraising. Before joining Labs02 he led research teams as a Captain in the Research & Analysis Unit of Military Intelligence, where he served for five years. Wrapping up an honors program LLB and MBA from the Hebrew University, and passionate about innovation, Web3, photography, and snowboarding.

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Want to shape the future of deep tech with us?

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Micha Risling

Advisor, Product and Technology

Micha is a high-caliber and innovative executive and strategist with 20+ years of experience and a proven record of building, launching, and leading new organizations, geographies, products and teams for start-ups and mature companies. In his last position Micha served as the SVP of Marketing, Product and Business Development at Valens. Micha has a track record of turning people into leaders. Micha’s unique career crosses industry boundaries and includes the Automotive, mobile, CE and communications industries, with special focus on the Semiconductor industry.

Loni Snape

Advisor, Marketing

Loni is an expert at helping brands tell their story to the right audiences in a meaningful way. She is the founder of 98 Marketing, a marketing firm for startups that specializes in content marketing, social media marketing, and digital strategy. Prior to founding 98 Marketing, Loni founded a music-focused live streaming and crowdfunding app aimed at helping musicians make it big. She brought musicians with millions of followers on board using social media and influencer marketing techniques. Coming from New York, Loni prides herself on working with incredible Israeli startups and helping them give across their message to successfully target the US and other English-speaking markets.

Sandeep Varma

Advisor, M&A, Business Development

Sandeep is an accomplished strategy, M&A and business development executive with an extensive history of navigating hi-tech companies through market disruption and transformational change. With close to 20 years of cross-functional leadership experience, he has driven key strategic initiatives at Symantec, Dell, and CA Technologies to grow revenue, enhance operating margins and enter new markets to increase shareholder value. Sandeep’s strategic initiatives have translated into approximately $5B of buyside, public, private and cross-border acquisitions, divestitures, partnerships and investments in the Cybersecurity, IoT, BigData, AI/ML, DevOps and broader enterprise software markets. Sandeep holds an MBA from the Kellogg Graduate School of Management at Northwestern University and a BA in economics from Wesleyan University in Middletown, CT.

Avi Douglen

Advisor, Cyber

Avi Douglen is a leading software security authority, and has been designing and developing secure applications for over 20 years. His consulting agency, Bounce Security, supports organizations of all sizes in integrating security methodologies and products into their development processes. He spends a lot of time with startups and development teams, providing architectural guidance and training them to build secure products. Avi Douglen also leads the OWASP Israel chapter, is co-founder of the OWASP Threat Modeling project, and is a community moderator on Security.StackExchange.com.

Itche Weinreb

Advisor, Sales

Itche is a Channel and Revenue Expert and former VP Sales at Checkpoint Systems. His unique perspective comes from transforming one of the biggest cyber security companies in the world, creating new revenue streams for both hardware and software products and penetrating new markets. Itche has 25 years of experience in high-tech B2B Cyber Security and Telecom companies such as Checkpoint, Cyberbit and Comverse, with extensive experience in global sales and go-to-market strategy development. Itche has an EMBA from Ben Gurion University.

Tal Gilor

Partner

Tal evaluates and implements venture investments in startups based in Bee’r Sheva and takes an active part in them with all related to strategy, investors relation, and day-to-day operations. Prior to joining Labs/02, Tal spent 11 years working within Motorola Solutions and performed multiple roles, including SW developer, SW Manager, Product Manager, and Open Innovation Manager. In his last role, Tal managed Motorola Solutions Venture Capital in Israel. Tal holds a B.Sc in Computer Science from Ben Gurion University and MBA from Bar Ilan University.

Menachem Shefer

CTO

Menachem Shefer has over 15 years of experience in the IT industry, with global roles in companies at IBM and Samsung. He received his BSc in Physics and Computer Science from Ben Gurion University and he is an MA candidate in Philosophy of Science from Tel Aviv University. Menachem has significant experience with mentoring startup companies in their R&D process to commercialization.

Michaela Lachman Menashe

Finance & Operations

Michaela has over 25 years of experience in finance, human resources, operations, and logistics. Prior to joining Labs/02, Michaela worked at several high-tech companies, such as Operative (SintecMedia), Vyyo (Phasecom), etc. Michaela utilizes her extensive experience in order to assist startup companies with growth.

Shai Eisen

Partner

With extensive experience in the tech industry and expertise ranging from engineering through operations to business and product development, Shai Eisen joined Labs/02 as an operating partner in 2021. Shai brings a proven track record in launching and growing new and innovative products across a wide range of industries and applications. Shai holds an MBA from Columbia University and a B.Sc. in Computer Engineering from Northwestern University.

Ofer Dar

Partner & CFO

Ofer Dar is a seasoned CFO with 20+ years of experience in financial positions of technology companies. Prior to joining Labs/02, Ofer served as CFO of the JVP Jerusalem Incubator. Ofer has extensive experience working with both startups and the Israeli Innovations Authority (formerly OCS). Ofer is a Certified Accountant and holds a BA and MBA from the College of Management.

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Founders

Full Name

Full Name

IntellAct: Provides airlines, airports and ground handling teams full visibility into aircraft's turnaround services

Stav Erez

Advisor

Prior to joining Labs/02, Stav was an entrepreneur focused on building startup accelerators and helping founders build businesses from scratch. Stav has a knack for taking ideas she is passionate about and bringing them to life. She co-founded SifTech, the first entrepreneurship center and accelerator program in greater Jerusalem and also founded Jnext. In 2016 Stav joined OurCrowd as Director of Business Development. Stav is a graduate of Hebrew University’s prestigious PPE program and was featured in Forbes 30 under 30 in 2015.

Moshe Raines

Managing Partner

Moshe Raines is the Managing Partner of Labs/02. Prior to Labs/02, Moshe spent 20+ years as an entrepreneur as well as working in various Business Development and Corporate Development executive roles in Israel and the US. Moshe’s experiences cover Aerospace & Defense, Semiconductors, NAND Flash, Wireless Power, and Wireless Mobility with an emphasis on M&A and capital markets. Moshe draws on his vast experience advising companies of all sizes on capital structures, capital raising, M&A and strategic alternatives to be a value-add investor. Moshe received his M.Sc. degree from University of Bridgeport, CT.
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