What to expect from your investors, and other insights from U.S. cybersecurity VCs

On October 18th, we held an incredibly interesting fireside chat with leading U.S. investors: Brendan Hannigan (Entrepreneur Partner at Polaris Partners), Chris Thomas (Founder & Partner at Fontinalis Partners), Alex Doll (Founder & Managing Member at Ten Eleven Ventures) and Charles Beeler (General Partner at Rally Ventures). The panel was moderated by our Managing Partner, Yoav Leitersdorf (YL Ventures).

Our goal was to provide Israeli entrepreneurs with insights into how things look from an investor’s perspective on a range of topics. As investors in Israeli startups (each panelist has invested in a YL Ventures portfolio company; one even invested in two), the speakers touched on a number of issues that were directly relevant to our audience.

You should definitely watch the full video, but here are my takeaways:

How to choose your investors?

• Choosing investors is a grueling task – these are long term relationships that will have direct implications on your journey as an entrepreneur. You need to evaluate VCs as you would a new hire on your team. Interview your potential board members and run extensive references on them.
• A couple of characteristics that are very important include:

1. Chemistry – there must be a good fit between you and your investor. Life is too short to partner with people you don’t want to work with.
2. Willingness to provide tough and honest feedback – Good investors will give you meaningful feedback, even when it’s not what you want to hear. You should be looking for a partner, not a best friend.

• Entrepreneurs should look for investors who are dedicated to making them successful, and so you should seek out partners who see themselves as an extension of your company’s core functions. Examples of areas where you should expect your investor to add value include:

1. Go to Market – The risk of early stage companies is usually not the technology, but the GTM (go-to-market) strategy. Getting a couple of customers is (relatively) easy, but scaling beyond that is incredibly challenging.
2. Follow on Rounds – A great partner at any stage will be able to introduce you to top-tier follow on investors who can help your company as it continues to scale.
3. Relocation – If you plan to move to the U.S., you should choose an investor who can help you do that and who understands the advantages and risks associated with such a decision.

Some tips for Israeli entrepreneurs

Given that we invest only in Israeli entrepreneurs, it piqued our interest to hear what U.S. VCs have to say to this group. Israeli entrepreneurs are known to be very hardworking, assertive and direct, which are all traits that help them when penetrating the U.S. market. However, there are a few things to keep in mind:

• There is a chasm between Israel and the U.S. in terms of the importance of GTM strategy. Entrepreneurs often feel that anyone who doesn’t understand the product they’ve built is an idiot, so they blame their sales force when the product doesn’t sell. Israeli entrepreneurs should know that a beautiful GTM operation is as sophisticated and complicated as developing a very complex application, and that this is actually where many companies stumble.
• In general, the GTM team should be where the market is. For Israeli entrepreneurs, that usually means relocating to the U.S., but there are a few challenges that come with that. Maintaining a good relationship between the GTM teams in the U.S. and the engineering teams in Israel is critical. In great companies, the feedback cycles between early customers and the engineering teams are short, while the rate of feature delivery to customers is high.

Hot areas in cybersecurity

The reason that security continues to be such a big issue is that technology is much more proliferated than in the past. Almost every white-collar job involves technology, whether that means developing software or just reading emails. Where there is technology, there will be hackers. All members of this panel have invested in Israeli cybersecurity companies, so it was interesting to hear what areas they are focused on:

• There is a dearth of security professionals in the world right now. An amazing and innovative security solution that requires numerous highly skilled people to operate won’t be successful. This opens new opportunities both for companies that can deliver simple and consumable products and for companies that provide cybersecurity training to employees.
• There is an opportunity to leverage the vast amount of data being captured, alongside AI algorithms, for cybersecurity purposes. This is a major theme that can run across a lot of areas in cyber that are still untouched, like AI for ICS, IoT or security analytics. Don’t focus on the technology, but on the outcome – think about how your solution will address a particular security problem better than anyone else’s.
• Applications are developed very differently now than they were a couple of years ago, as features are released daily and deployed in the cloud. Building dedicated security solutions with this in mind is a very intriguing offer.

Final Thoughts

It is always great to hear experienced U.S. investors sharing their unfiltered thoughts and insights, and I think that this is especially important for early stage Israeli entrepreneurs to hear. There is more than one way an investor can help you navigate the difficult journey of building a great company, and entrepreneurs should definitely dedicate a significant amount of time interviewing investors and looking for the specific kind of expertise and background that can add value. I am always happy to sit down with entrepreneurs who seek advice at an early stage, so feel free to reach out at [email protected]!