daria
so I'd like to start by hearing your perspective on the current situation You know, the three of you, each of you know Israel very well, and you've invested in Israeli startups before, but this is not a regular situation. So I'd like to hear your take on the current situation and how do you see like the Israeli startup ecosystem and if anything changed from your end?

Jacques
So, well, obviously we are very sad about what happened and what continues to happen. It touches us directly, actually it touches us very directly in that we've had several portfolio companies where people have had, you know, tragic losses. We have one where a senior executive has five family members that are hostage. So we're dealing with a situation remotely, very intimately. And of course, we work with our CEOs on that. As far as investing, look, we've invested in Israel no matter what. We've invested in during intifada, we invested during the Lebanon operation, we invested in this and that. And unless this was to become sort of an international conflict with the US and Iran and all that, which we all hope will never happen, I think it's the same for us. And Israeli entrepreneurs have innovated during those times and our companies have performed. We're in diligence, like Aaron mentioned, we're in diligence to look at current Israeli companies and nobody at USVP or in our LP base would say don't do an Israeli investment or wait or whatever, just business as usual from that standpoint.

daria
Aaron, I'd love to hear your take and maybe also if you have anything to add about the general sentiment about Israeli startups, like if you hear other VCs talking, what are people saying right now?

Aaron
Yeah, well, I think the Israeli community is quite broadly ingrained within Silicon Valley and so it's really personally affected myself, a lot of other investors I know. We work with a lot of Israeli founders. So it's quite sad and emotionally, it's probably one of the, and psychologically, it's probably one of the hardest times ever for Israel. And so folks are definitely feeling that. On the flip side, everyone is quite optimistic and very confident in the Israeli spirit and that founders are gonna pull through this. And Israel has a long history of crises and coming out better and stronger on the other side. And so I think the optimism here in the US is quite strong. I mean, I think you saw, I had multiple friends who were investors that actually went to DC to go march yesterday. And so I think folks are quite optimistic. And, you know, for better or worse, the 2020s have been defined by crises, right? We had COVID, then we had the SBB banking crisis. You know, this is a much more terrible, horrible events. But at the end of the day, you know, with any crisis, crises, it's all about doing crisis management and also keeping a steady hand. And NEA and most of the venture ecosystem, where we've been investing for a long while and it continues to be business as usual, looking at deals, sourcing companies, supporting our founders, working more closely with our founders than ever, because you have to think about runway and impact on potentially some of the employees getting called up. But we very much are continuing to look at companies and excited to find more founders to invest in.

Jacques
I think maybe you know Aaron and Shuli, you'll agree with me or not. I think the firms that used to do one-off in Israel, like they don't do Israeli investment as their strategy, they did one here and there, they're probably not feeling like us, right? They're like, oh, you know, I've done one deal in Israel, been there a couple of times. It's very different, you know, they can much more easily get pushback or feel pushback.

daria
Yeah, surely we talked about it yesterday. Maybe you can elaborate on that a little bit. 

shulie

Yeah, I mean, I think that you can hear, you know, and you know, I had the pleasure of working with both Aaron and Jacques for many years, I mean, I think, you know, over a decade, and always run into them in Israel. So the only thing that is different is that the three of us would be in Israel probably this past month and we're not, we're here. But I think that what you hear really from, and it's important for founders to understand, especially for those who made the strategy of investing in Israel as strategy, is that VCs are long term thinkers in how they manage, you know, their engagements, how they think about risks management. The reason a lot of USBCs made a strategy of investing in Israel and I had the pleasure of working with so many of them who never done it before and you know in 2004 decided this is a strategy for us is that there are a few ingredients that made them decide that and that is the incredible talent and ecosystem in Israel the opportunity to back really top-notch entrepreneurs who are ready to go and build global companies. This hasn't changed for them, so there's no reason why this would change now. The thinking primarily is short-term versus long-term managing the crisis. Really, what's happening short-term? How we do really work with our founders or initial, you know, thinking about our team and doing deals in Israel short term? And how do we think about helping our founders in the long term, whether this is going to be a prolonged crisis? And so this is really how a lot of us are thinking. Same with Aaron and Jacques, I've seen incredible support from the wider venture community that we've been engaged with in the last two decades here. Those who've never done deals with Israel or never went there will probably stay on the sidelines in times like this and it will be much harder to kind of you know bring a deal to them. But those of us who've been engaged you know for many years, have a lot of portfolio there and understand kind of the character of the place and the people, you know probably will stick you know to doing the same thing basically right now. 

daria 

It sounds like when I hear all three of you saying these things, it sounds so good, like I get all optimistic. But then I see the posts in our community, founders saying that their fundraising processes stopped and they are having struggles to communicate with our current investors. But Aaron, you know, Shuli mentioned before, you know, preparing for short-term consequences and long-term consequences. So what can founders do differently to prepare for maybe longer amount of time to actually raise money or in terms of other plans?

Aaron

Yeah, we can look at, you know, I'm a believer in you hope for the best and you plan for the worst. And so It's all about runway extension and there's multiple ways you can do that. You can look at potentially furloughs for employees, you can potentially look at asking folks to take lower temporary salaries. There's also a bunch of programs out there, and a bunch of Israeli VCs have gotten together to do, I think, temporary bridge financing in order to extend runway. Potentially look at venture debt. You just really got to evaluate all options and also be quite thoughtful on the contingency planning and figuring out a way to bring down your runway, albeit temporarily, sorry, to extend your runway, but maybe bring down your burn, albeit temporarily, so there's no long-term impacts.

shulie
I want to add something particularly for those in the very, very early stages, seeing that this is where, you know, we mostly invest as first check is, founders who just started, and thinking of going out and raising and, you know, what we've been seeing in the last month, and we've seen numerous founders who decided that rather than going and raising a big amount of money, like, you know, a large seed, they would go for a pre-seed round, I know there are both in Israel and outside of Israel there plenty of people in that stage are able to help you get going in the beginning and validate with you know slightly less money than what you planned and if you can create a plan around a pre-seed right now just to get you off the ground, I would encourage you to do that. We did a pre-seed deal last week actually in Israel and I think it's a team that could have easily maybe go out and raise a larger amount, but they were eager to get going with some really important design partners. So they opted for the pre-seed. So I would say for those of you in that stage, there's plenty of money at that pre-seed and seed stage, and both in Israel as well as outside. And I want to also double-click on the qualification, just like it's when you qualify customers, qualify VCs, qualify their amount of time they spent investing in Israel, how they are doing it, you know, is this really someone who is well entrenched, have history of investing in the country, and there are plenty of VCs like that, both in the early stage as well as late stage. And it's really important to qualify before you go so you don't waste your time in talking to the people who are basically right now not going to make any move. Also, I wanna emphasize, because I've been in the US for so long working with Israel ecosystem is that at no point should you at the boardroom discuss politics or go deep into explaining and doing any of that. And Aaron and Jacques, I wonder what you think about it, but I always tell founders, just definitely avoid if you can getting into any explanation or political argument. It's just pointless and, you know, kind of sidetracks from why you're, you know, there for. 

Jacques

I think on that last point, I want to add to that. I've had discussions with my companies. You know, your company's LinkedIn page is for companies' announcements. It's not for, you know, Israel pictures and Israel, you know, Hasbara or anything like that. It eventually backfires anyway, you know, somebody is going to post something and then somebody will say free Palestine and whatever happens, you know, like people can do whatever they want in their private lives. But unfortunately, LinkedIn, who used to be business only, people have started to post political stuff. Just make it a policy for your teams that they can do that on their personal accounts. They can do that on Facebook. They can do that on Instagram, not on the company's feed. I mean, one thing I want to emphasize though, before the war started, the Israeli ecosystem was starting with a lot of delay compared to the US to reset, right? Like the US ecosystem reset two plus years ago. And I was in Israel the week before Rosh Hashanah. And I was with a bunch of, you know, VCs at a cocktail and they asked me as a foreign investor, they were all Israeli investors, kind of where are we? And I said, you know, honestly, you guys are just at the beginning. And the bottom is going to be in 12 to 18 months. And so a bunch of what's happening is actually not related to the war. The war is a fog on top of it. People have to take stock of that reset, forget the war if they can for a minute, and say, what would my company have done? Free the war? What would have been the valuation? What would have been the wrong size? Recognize that the party that Israel has enjoyed for the last three, four years, that party is over regardless of the war. And the war is sort of making unclear what's what. But that's very important for people to understand. 

Aaron

I think it's very true I mean, what I've seen in the US is things have really kind of normalized to, you know, in the three or four years leading up to like 2019, 2020, that's kind of like the benchmark in terms of like pace that funds are investing, valuations. And so we've kind of established that again. Unless you're an AI company, I say that with a caveat because anything related to the AI is still quite fast and furious and I suspect that's also happening in Israel as well. But I would look at, you know, what was the environment like kind of pre-COVID? And that's probably what the environment's gonna be like, you know, we're gonna evolve to within Israel over the next year or two.

daria
I want to ask the three of you because you mentioned like try not to talk about politics and not mention it maybe on the LinkedIn's company page, but eventually as I assume that the companies that are on your portfolio, you want to hear how they are dealing with the current situation and what they are doing. I'm also assuming that companies that are now in their fundraising process are required to answer questions about the current situation and how they are dealing with it. So, you know, it's a very thin line, like trying not to go into politics, but yet still address the situation. So how do you suggest founders discuss it
with potential investors?

Jacques
I think, you know, when the war started, a few of my companies were wondering what they should post on LinkedIn, right? Because there was concerns on the part of the customers of what it means and the investors. And I think the answer to that was, of course, there is a war going on. We've analyzed the situation. We have business continuity processes in place, we will support our customers as before, and as customers you shouldn't worry, we'll be there for you, blah, blah, blah. That's perfect. If you start adding to that support, Israel is really great, Israel is going to win, blah, blah, blah, then you're crossing the line. And I think the same way of answering is the way you can answer investors if people are saying, well, how are you handling the war? The first part of my answer is the non-political way to address it and should be the only way that they care about. They care that the company is executing quasi-normally, it's able to stop UPOC, it's able to support existing customers. What happened the last week, which I was surprised. Every one of my CEOs came to the US that they would have otherwise. Like I expect nobody would fly. Every one of them came to the US. And so the ability to show up as if not nothing happened but as if it was from a business standpoint, the same is also the way to message to your customers and to your investors that the company is executing.

Shulie
I'll add to that. I think that initially when the war broke, I think that what I've seen in our portfolio is that some people who were overly transparent and communicative, and I wanna say that this is key for investors. This is two things that are super critical for investors is communication and transparency. And if you do it on a regular basis, it's amazing. During crisis, you have to do it twice. You have to communicate more frequently and you have to be more you are facing, give an analysis of how do you think your runway will last, how you're dealing with talent being away in the war. Just provide as much analysis and as much transparency as you can to investors. We also as investors felt that we need to be overly communicative with our own portfolio. So in the last month, we've initiated a lot of calls to our teams in Israel, in engineering teams, CTOs who are there because some of our CEOs are on this side of the world. But we felt that it's really important for us to, for them to know that we hear them, we are there for them, we're supporting them if they need anything, you know. So it's really, really key to continue this, not to disappear or to kind of brush off the gravity of the situation. Just provide a very clear analysis of what it means for your company, your goals, your metrics, things that you anticipate you would achieve short term and long term.

daria 

I received a question on that in the chat. Someone was asking about startups that just wanted to launch their fundraising process, but either pre-seed or seed, but haven't started yet. What should they do? Is it the right time. Should they wait? 

Shulie

I would say it’s the right time! I would say yes! I mean if you feel like you have what it takes to start talking to investors, the team is full time, there is a very clear vision of what you want to go after, you thought about the market, you have created a plan, and you feel like you can start talking to very early stage investors who you qualified as people who understand your space, can think with you long term about this, who are ready to write checks. There are plenty of those investors both in Israel as well as outside of Israel. 

daria 

Another question we received and maybe Jacques, maybe you can answer that about the conversation among investors about founders. If they're worried that founders are active in Army Reserve, are there any questions about that topic? Because there are a lot of CEOs that are now on reserve duty.

Jacques

Right. Look, I think it's very hard to fundraise if you're not at work, right? That's a reality. I have a CEO that's on reserve. He's been on reserve since the beginning. Would he be able to fundraise right now? Maybe but he would have to find the time, right? I mean, when you're fundraising, you need to do a bunch of phone calls and all that. I think you have to be realistic about that. But assuming that the CEO themselves is not on duty and they can assemble what it would take normally to assemble, then they should be able to raise. I think one element which people I feel do not pay enough paying enough attention, I brought up a couple of times is, you know, the salaries of people on reserves are paid by the government. And so you don't have them, but you have a longer runway, right? And so I'm not saying one compensates for the other, but it's not zero either, right? And so, you know, it's not like they're gone and you still have the same burn rate. They're gone and your burn rate went down a bunch, right? So people need to think about that as well as a runway extension. Obviously they're gonna have a lot of time reaching the KPIs, but you know, both come in balance.

Aaron

Yeah, I mean, one area we've been looking to do for current investments, and this is probably matters less for seed and more for series A and beyond is, you know, what does that next layer of management look like? If you as a founder or CEO get called up, who's gonna be the interim CEO? If you're head of sales, you know, it gets called up at your head of R and D, who's the second person? And having a good plan and also, you know, being comfortable with them, spending time with investors, because I think investors are really double clicking going much deeper on the team than they have before. to really get a sense of, you know, who's the second in command, spend time with them, you know, are they going to be able to run the company for three months, six months? You know, so, think about that. If you were not to be the CEO right now and to have somebody who's the designated CEO, who would they be? And maybe train them and prep them. so that, you know, if you end up in that situation, things can transition as smoothly as possible.

Shulie

I have a question actually for Aaron on your like recent deal that you're working on. Seeing that NEA is a pretty large organization and you've been investing in Israel for a while, does the process look the same within the fund right now? I mean Do you need to think about risks differently? Your communication with the partnership is different. how do you really manage right now the situation?

Aaron

 I mean, the process looks very much the same, right? No matter what's happening, we've got a standard course of due diligence. We have to be realistic and recognize that, you know, it's a risk. But the truth is, and our LPs know this as well, it's always a risk. Whenever you're investing in the Middle East, right, this is just an inherent risk that you take. And it might look like more certain because we're investing in a time of war, but three months ago, six months ago, a year ago, five years ago, there's always just risk endemic to the region. And we know that, my partners know that, our LPs know that. Certainly during times like this, some of our LPs will ask questions and say, how many companies do you have in Israel? How are you supporting them? How are you making sure to, they have what they need. How are you thinking about a new investments in Israel? And we tell them exactly what I just told you. Like we're big believers that Israel is gonna produce some huge companies. They already have, there's amazing founders and we'll continue to conduct our standard course of business and due diligence. We'll definitely spend, I would say a little bit more time in understanding that next layer of management and also really wanna dig into the contingency plan and runway. And we're asking more questions about how many folks are being called up in the reserves and is that slowing down your product roadmap or your sales? So there's a little bit different. I would say that's slightly different, but that's just a few more questions, particularly regarding that. Everything else is really standard course of business when we're thinking about evaluating founders and making sure we have all our boxes checked before we invest.

daria
OK. Yeah, we have another. You got it.

Yigal

What about our evaluation? How the situation will affect the investors? Our evaluation, would they try to lower it because of it? How things are going in that front? 

Aaron

 I was gonna say, having, you know, being in the late stages of an investment right now, having looked at others, I think valuations have come down, but it's not because of the, it's not because of the war. It's just the kind of what we talked to earlier. It's just the standard correction that's happening where things are being pressured and companies are raising money today at the same valuations they were raising a year ago, just like its happening in the US, right? So I think its more just supply demand relative to the venture industry and the cyclality of that. And it's less it's very minimal investors thinking, oh, we can get great deals now because, you know, there's a crisis going on. 

Jacques

Exactly like Aaron said, I would be shocked if somebody that's serious about investing in Israel would say the words, yes, but because of the war, we need a lower valuation. Like if they're telling you that, then they're not committed to investing in Israel.

daria
It's important to hear that. I'd like to ask you about your expectations from your current portfolio companies and maybe companies that you're in touch with right now about fundraising, but what are your expectations in terms of communication? Surely you touched on that a little bit before. Employee management, you know, seizing opportunities that might be harder right now. How do you see that, Aaron?

Aaron

I think Sulie said it very well earlier, right? It's, you know, what investors really care about is transparency, communication, and predictability. And so with your current investors, and productivity as well. So hopefully you're coming to your investors with a plan, recognition that there's a war going on, recognition that folks are gonna be called up for military reserves, and just being very open and honest about what that means. Here's the number of employees we have, here's who got called up, here's the impact on our business, here's the impact on our runway, here's the options we're exploring if we need more runway. And things are changing week to week. So, I might even encourage maybe like a weekly update or a bi-weekly update. Anytime there's a material change, whether it's more folks get called up or maybe folks come back, I think it's just important to keep your investors updated because that's really what we value in times of, you know, in all times, especially in times of crisis.

shulie

I want to add something here that I've seen some of our portfolio doing that I thought gave me, at least as their investor, a lot of hope in how they are handling the situation and really showed me that there is incredible resiliency in the team. That is, some of the teams have a team on the U.S. side. Americans all over the states, Israel is far away from them. They are working mostly in sales, marketing, customer success and things like that. And what the company did is they basically created a really short video of all these US employees talking solidarity with their Israeli counterparts. And what the CEO told me is that that small gesture created incredible, I would say, cohesiveness in the team. He felt that it was a small gesture but it meant a lot to the Israeli teams and it made the US team feel a lot closer to the Israeli team. I think it's important to do it not only with the investors, it's important to do it with US employees because they don't know war, they don't understand, maybe they've never visited Israel. They sit in, you know, Chicago, California, New York, and they work on your behalf. It's important to help them feel part of the process and, you know, to have this internal communication as well and create that solidarity within the team. And for me, that provided me a sense of, you know, these guys really got it together. They really have internal communication, they communicate it to the outside, they're creating cohesiveness. They'll really get through this. And I think that's important to show investors as well. It's like, how is the team doing, morale-wise? How are they handling the lack of, you know, maybe availability to speak to customers, really dive deep and talk about those kinds of small things that you've done to create a greater opportunity for when things are going back to normal, hopefully. 

daria 

Yeah. Maybe one or two last questions we got, we received in the chat. The first one is how open are U.S. investors to having an Israeli-based parent company, considering not just the war, but all the recent events that happened in the recent year. We had a lot of questions about it in our community. So I'm interested in hearing what you're thinking.

Jacques
Look, it was always a better idea to have the top company be a US company for all kinds of reasons. The Israeli ecosystem doesn't understand that. But you have 90% of problems that you could have just go away by having a top co-being US. And I think people overestimated how much the demonstrations of the first half of the year impacted that. It didn't. How much the war impacted that. It doesn't. It's still a better idea to do it that way. But neither of that had a really major any impact on us being willing to Israeli company.

daria
Aaron, you want to add anything? 

Aaron

Yeah, I mean, we've invested in both, but it's far better to actually have a US entity, just in terms of legal reasons, as well as just ability to close due diligence, fees and everything like that when you are raising around. Also, I think what a lot of Israelis don't realize is it also opens up the opportunity to fundraise from a much larger pool of investors. There's just folks who just aren't sophisticated enough to know what it's like to invest in an Israeli entity. They don't really have the experience there. Some funds even have LPs, they have restrictions, and the LP puts restrictions that that fund in the US can only invest in US entities. Not that they can't invest internationally, but they can only invest in US entities, which means if you're gonna do international, those companies have to be incorporated in the US as well. And so I think it'll save many headaches down the road if you just have that US top company.

Jacques

Yeah, without going into details, it makes IP issues go away, it makes transfer pricing go away. And if you were to be acquired by a US company, which is what's going to happen to 90% of Israeli companies, you just took 30% of the diligence and made it disappear. But yeah, not impacted by demonstration, not impacted by the war.

daria 

So maybe we'll end with like, you know, something, one takeaway you want the founders here in the audience, you want them to leave with today. Shuli, maybe we'll start with you.

shulie
I would leave with, you know, Israelis are strong, resilient, and optimistic people. And this is really a little bit of a kind of dark, dark day. You know, we definitely are super connected to the news and what's happening. And every morning I wonder, you know, what happened while I was, you know, asleep here in California. And, and, and I can only imagine what it's like to be there on the ground, connecting to, you know, so much of the heartache that is going on. But I do want to say that I've seen, you know, the incredible strength of a lot of people in times like this. That's what inspires me is really, you know, seeing that, you know, people are really pushing through delivering products, you know, talking to customers, being out there despite everything.

Daria

Jacques?

Jacques

I think we're supporting you, we've always supported you and we'll continue to support you. And if you open for business, we open for business.

Daria

And Aaron, last but not least.

Aaron

Yeah, US investors, I mean, we recognize it's a very tragic and hard time for Israel. And at the same time, we're here to back founders. We're here to invest in founders and build generational companies. And if anything, this just shows the benefits of investing in Israeli founders, which is their resilience and their inability to say no and their ability to persevere and make things happen in even really tough times.

Daria
I think I'm taking few things from what the three of you are saying, but the main things are first, for founders, look for investors who have already invested in Israel in the past. It will probably make the fundraising process less, not easier, but less hard in these times. And the second is communication. Like, communicate whatever you're going through, even if it's, you know, dealing with reserve duties or, you know, understaffed or whatever it is, communicate and show how you are dealing with the situation and be transparent about it to give confidence to the other side. So I want to thank you for taking the time and sharing your perspective.

Thank you. 

Daria
And hopefully to see you in better times in the future.