Why We’re The Leading Venture Incubator For Early Stage Startups
Mosche Raines, Managing Partner at Labs/02 and Shai Eisen, Partner at Labs/02
Executive summary: by creating a unique incubator/investor model, Labs/02 has carved out an exclusive space as a Venture Incubator for early stage startups. Combined with several key advantages – from geographical proximity to strategic partnerships – Labs/02 has positioned itself, by design, to be at the forefront of finding and growing tomorrow’s Israel-born unicorns.
In the U.S, 1 in 3 startups move from pre-seed or seed stage to “A” round, according to Crunchbase statistics. While I believe the actual number to be significantly lower than this, what this does show is the potential such startups have.
In a previous post, I spoke about the early stage startup space, and why it’s so exciting. As I mentioned, as much as there is incredible upside to these opportunities, there are also pitfalls for those who are not experienced in this space.
It takes a set of very specific “ingredients” to come together harmoniously, in order to maximize the chances that an early stage startup will translate into a massive success further down the line.
I’d like to propose what I believe these ingredients to be – and why what we’ve created at Labs/02 sets us up to be the leading venture incubator for early stage startups.
Access to cutting edge technology
A successful startup has to have protectable technology that sets it apart. With companies today moving so quickly, a startup can have the world in the palm of their hand, only to have a Microsoft or Google release a similar feature, for free, thus undermining their entire business model.
Protectable innovation is therefore the key to sustainable tech-based success. And what better way to find this innovation, than at the source. This is one of the reasons that Labs/02 has such close strategic partnerships with key academic institutions.
Labs/02 collaborates closely with 2 leading academic institutions in Israel, both of which have worldwide acclaim in terms of the innovation coming out of these institutions. In Jerusalem, a key partner is the Hebrew University of Jerusalem. Founded before the modern State of Israel came into existence, the original Board of Governors included Albert Einstein, Sigmund Freud, and Martin Buber, and the University is the alma mater of no fewer than 15 Nobel Prize winners. In fact, some of the Labs/02 companies are run by faculty and ex-faculty at this prestigious institution. Labs/02 also has a strategic partnership in place with Yissum – the technology transfer company of The Hebrew University of Jerusalem – where Labs/02 gets first and exclusive access to many first-in-world tech innovations.
Through Labs/08, the organization has access to the incredible Beersheba tech scene, specifically in partnership with Ben Gurion University of the Negev – a premier academic institution, and known to be one of the best places of higher learning in Israel. This partnership includes the likes of Ben Gurion University of the Negev (BGN) Tech Transfer, BGN Technologies, BGN Cyber Security Labs, and Oazis, the BGN Accelerator.
These are just two examples of the strategic partners and deal flow sources in the Labs/02 network that enable us to enjoy first (and often exclusive) access to cutting edge technologies.
The double filtering process
One of the biggest challenges when it comes to pre-seed investments is that there are a lot of unknowns. There is no history of revenue, there is no data regarding product/market fit, and there are few (if any) customers who have validated the product and can provide valuable feedback.
In essence, there is uncertainty around the startup’s technology, and its business potential.
Labs/02 applies a unique double filtering process for evaluating early stage startups, that addresses and mitigates these major uncertainties.
The two layers of filters applied are through the Israel Innovation Authority’s robust acceptance program, and the OurCrowd business viability screening process. The IIA helps identify groundbreaking, next-generation disruptive technologies, and the OurCrowd team leverages best practices as a leading VC to ensure these technologies are viable and have significant business potential. Furthermore, by partnering with OurCrowd, we also provide our investors the assurance of seasoned and successful co-investors.
While OurCrowd and its successes are well known, the Israel Innovation Authority might be less famous, but is crucially important when it comes to Israeli tech.
The IIA’s mission is to strengthen the Israeli innovation ecosystem, and promote innovation, entrepreneurship, and disruptive technologies. The IIA has robust vetting procedures to be accepted to its prestigious programs, including evaluation by leading experts to ensure that accepted technology has:
- Significant technological innovation.
- Significant business potential, including in the global market.
- A suitable team that has the potential to meet the proposed work plan and lead the company to success.
- The company has the potential to become a significantly large entity.
Labs/02 portfolio companies have to pass both of these challenging vetting processes in order to be accepted.
The outcome of this double filtering process is Labs/02 portfolio companies with advanced tech, that are focused on areas with real need, potential, and a viable business opportunity – thus giving a high level of confidence in the opportunity.
Maintaining a hybrid approach
Too many investors in early stage startups give a check and then send the entrepreneur off, checking in once a quarter and otherwise waiting for results. On the other hand, there are incubators out there that give great lectures and seminars, but all companies graduate with, at the end of the incubation period, is a professional business plan. What’s more, some of the better known names in this space are more interested in ensuring that they look good, than in the welfare of the startup company. They put on a great show, but have little to show in terms of results at the end of the day.
We believe in a hybrid, venture/incubator approach. This offers the best of both worlds: funding to help the company grow to the next stage and beyond, while offering deep support, mentorship, and an incredible network.
- 1. Funding: this means full lifecycle support, from pre-seed to further funding rounds and beyond. Generally the pre-seed round is led by Labs/02, with the following rounds led by OurCrowd and supported by its investor network
- 2. Facilities: as a startup is scaling, the last thing it needs to worry about are the logistics that can hold it back. At this critical juncture, we provide work spaces, and access to back office services such as payroll, a CFO, and other key services.
- 3. Network: we provide access to a global network of customers, business partners, and early adopters – including through the broader OurCrowd organization.
- 4. Strategy: product strategy and marketing is also provided by us; we hold portfolio companies’ hands through these process, from conception all the way through to a viable product and business model.
- 5. Full cycle: we’re not just about mentorship that ends on demo day. For us, our the value we provide runs through defining, building and offering the product or technology to the world. Our focus is full lifecycle support – from invention to globalization..
Scaling successfully
Often, an early stage startup company needs to swim against some pretty strong tides in order to make it to the next stage. And once this next stage does happen, smaller early stage investors are locked out of future rounds.
At Labs/02, we’re proud to be part of the OurCrowd ecosystem – supporting entrepreneurs as they build incredible companies, with everything from introductions, to a network, to easier access to later funding rounds.
This point is critical: the way we structure our investments means that you can mitigate dilution risk, and with 80% of portfolio companies graduating to the OurCrowd platform, you can continue to invest in these companies as they grow.
For more information about Labs/02 or any Labs/02 portfolio company, contact partner Shai Eisen: [email protected]
