Category Archives: Venture Capital

What are “Solo Capitalists” and why are they winning?

Traditionally, Venture Capital has been driven by the firm. 

The fundamental idea was based on VC Partnerships, with the sum of all partners and investments professionals adding up to more than the individuals themselves. The traditional VC firm with multiple partners has the ability to come across more investment opportunities and be able to better diligence those opportunities. The firm model was seen as lower risk, with more checks and balances in place before cutting a big check.

With the pace of startups right now, though, the firm model is sometimes being left behind. Startups are being built and scale faster than ever. Companies like Deel are reaching unicorn status, scaling from $1m in ARR to $100m, in less than 2 years. Information and deals flow more efficiently, and referrals and trust building happens online and, to a certain degree, in much shorter cycles. VC firms see many more deals, but often they can’t move fast enough.

Funding for startups has also changed, especially at the earliest stages. Good ideas and founders get funded faster than ever, sometimes in days instead of months. Many startups are continuously fundraising. The lines between early stage investment stages (Pre-Seed, Seed) blur together into a series of continued SAFE investment. VC investments builds momentum alongside the company’s business momentum. The notion of waiting for a “formal” big party round is replaced for many founders with several funding chunks providing them with the liquidity they need to continue to scale their businesses.

With the profound changes in startup building velocity and funding ecosystem, it shouldn’t be a surprise that new types of VCs are disrupting the traditional model. The firm model, with its bureaucracy, can’t always keep pace with startup growth. The Solo Capitalists is one model that emerged.

New models are often considered reckless by the old VC guard. But, Solo Capitalists are outperforming many of the traditional funds.

Before we dive into why, let’s first cover the definition of “Solo Capitalists”. Solo Capitalists are typically:

  1. The sole investment decision maker in their fund (and the only General Partner)
  2. Run a lean shop. They often don’t have an Office or Staff (other than Ops and Backoffice, often run by the likes of AngelList and Carta)
  3. Writing larger checks than Angels and competing directly with VCs, raising $50m+ funds and investing $1m+ into funding rounds
  4. Increasingly support their portfolio company’s beyond the early investment stages, leading or investing alongside other VC firms in subsequent rounds all the way to an IPO


Leading “solo capitalists” manage more money than many funds. Oren Zeev manages more than $1.5 billion without additional investment support. Elad Gil, Josh Buckley, and Lachy Groom manage funds in the hundreds of millions with similarly lean structures.

So why does the Solo Capitalist model seem to work so well?

Ultimately, it comes down to the customer.

Entrepreneurs are the customers for VCs (I tend to think about LPs more as partners on the journey). Do founders need VC partnerships? Often they don’t. What founders crave is a single decision maker they can build a trusted relationship with. A partner for the journey who can be hands-on when necessary and understands the business and its evolution.

Founders want a single decision maker who can move as quickly as their business needs (no more “let’s talk again after our next Monday morning meeting”), is unhindered by firm politics or status (no “unfortunately the Senior Partner decided that your business is not one we can continue to support”), and can make informed decisions with full understanding of the business (Why would another partner in the firm investing in Enterprise Software weigh-in on a Consumer investment?).

Further, Solo Capitalists benefit from freeing up the most valuable asset VCs have: time. Without significant operational and partnership overhead, the Solo Capitalist’s time is dedicated to making investments decisions quickly. Solo Capitalists win through speed, empathy, and expertise. Many are current or previous operators, giving them empathy for founders’ journeys. Some bring unique expertise to the table, too.

Naturally, there are potential pit-falls to Solo Capitalists. A single person can’t be an expert in more than a few areas, and having a team of smart folks around the table to weigh-in can help investors avoid missing obvious (and less obvious) hard questions that should get asked ahead of investing. Solo Capitalists often mitigate some of those concerns by seeking help from advisors and experts.

Established institutional LPs are aware of this trend and are increasingly backing Solo Capitalists. University endowments and other institutional investors have funded several top managers. In doing so, these LPs seem to have made peace with the risk of having a solo GP. A side benefit for LPs is that Solo Capitalists are typically more efficient and may generate higher returns due to lower management fees.

Increasingly so, the Solo Capitalist model is a win-win-win to all sides of the Startup funding table — Founders, General Partners, and Limited Partners.

On-demand is not a “winner takes it all” market

A bit over a year ago I was invited to invest in Lyft’s series F ($1B mega round led by GM) as part of syndicate. Even though the investment was too late stage for me I was intrigued and decided to dig in.

I learned early on that some of the existing investors are selling their stock in secondary transactions. That struck me as odd. Lyft was doing very well back then, almost quadrupling GMV in the last year. I talked to one of the investors and he told me that they believe the on-demand ride economy would behave like others in the consumer space – “winner takes it all”. Uber has won, they hoarded too much cash and control the drivers – the supply – taking everybody else out of the market. He claimed that the Marketplace network effect will prevail and will crush all competitors, including Lyft.

A year later Lyft and others are alive and kicking. Not only are they back in the game, but they are also starting to take the lead in their segments and geographies. While Uber has been self imploding here and here Lyft has quadrupled yet again and has become the more beloved brand. In China, Didi has been able to beat Uber and push them out of the country.

The “winner takes it all” dynamic doesn’t seem to hold for the on-demand ride market.

I’d like to propose a different take. How about we start thinking about Uber, Lyft, Gett, etc. like we think about Carriers. There is a place for multiple carriers players in the market, AT&T, Verizon, T-Mobile and so on. They will compete over price and service and each will capture different audiences. It will be glorious for consumers – prices will continue to drop and the service will get even better.

Will it be good for the on-demand ride companies? Can Uber justify a $70b valuation ? time will tell, but I suspect Uber’s (and others) valuation will be challenged in the next few years and it’s not going to be pretty.

The convergence of SaaS and Consumer

Silicon Valley loves talking about the next big trend and how it impacts the world, so it should come as no surprise that the convergence of SaaS and Consumer technologies (or “Consumerization of the Enterprise”) has been on the radar for a while now.

But there are less discussions about what it takes to win in the “new age” of SaaS companies, nor about the shift in mindset and skillset that startup investors and founders have to undergo to succeed.

To be successful in the “new age” of SaaS Founders and early employees need to have a mix of SaaS and Consumer DNA. Vertical Market Networks, B2B2C companies, and software solutions serving Small and Medium Sized businesses (SMBs), are scaling quickly because of consumer-like characteristics.

Vertical Market Network (read more here) are scaling faster than ever because they are creating virality among businesses. Honeybook (which dubbed the concept of Vertical Market Networks) connects SMBs in the event space, bringing together wedding planners, photographers, and florists, among others, to serve a customer for their project. One service provider usually takes the initiative and starts inviting others, virally growing the reach of the platform. A virtuous cycle begins, similarly to what you would expect in a Social Network, but in this case a business professional network.

B2B2C companies are not a new thing. In the past B2B2C companies were mainly focused on their primary customer – businesses. If businesses were happy the company was successful. But what has been an fairly easy task is becoming harder and harder. Feedback channels from consumer to businesses are prolific and effective and low quality B2B2C products instantly reflect poorly on the brand. Gone are the days where you can have a crappy mobile app and get away with it.

The quality bar required to meet consumer demands, especially in Mobile and IoT, is ridiculously high. Millions of apps flood the app stores and tech startups are going after any connected appliance you could put in your home. Consumer expectations are insanely high and users have little patience for error or quality issues. Everything needs to have a premium feel. If on the web the cost of an error would result in 1x consumer confidence loss, an error on mobile would lead to 10x loss. Even consumer companies have a hard time doing mobile right. One great quote from Facebook: “When Facebook made the move to mobile, it had to ditch its “break a few eggs to make an omelette” mentality, a big change in the company’s core values.” (read more about it here)”. For B2B2C companies to succeed they have to put both the Business and the End-user first. Almost mission impossible.

Last but not least, Businesses themselves are changing rapidly. The United States labor market has been undergoing a substantial shift toward small-scale entrepreneurship. The number of proprietors – owners of businesses – who are not wage and salary employees, has skyrocketed.

Building solutions for SMBs isn’t significantly different than building products for consumers, and requires a shift in focus. The line between work and personal is blurring away, and business users have no patience for systems that don’t meet their demands as a user. Companies serving Small Businesses need Product Development professionals who understand how to build products that have world class User Experience and breathtaking design. Economies of scale is key and Product Growth professional help solutions scale as fast as it takes to serve an online ad.

One example of a company that nailed it is MileIQ. MileIQ publishes a Mobile App that automatically logs all rides and lets you easily deduct or expense miles with total peace of mind. Most of their users are sole proprietors or professionals using MileIQ for businesses. However, the company has been built from the ground up with a consumer mindset. MileIQ invested early in hiring Mobile Growth specialists and being ahead of the curve in mobile acquisition. The focus enabled the company to scale the number of paying users in a very short time period.

That is why I particularly like supporting SaaS founders that have a mixed background of Consumer and Enterprise. The team should first and foremost excel in building a product businesses love and achieving success by scaling Sales and Marketing.
However, founders will stay ahead of the pack by baking “consumer-like” characteristics into their product, make it viral, a pleasure to use, and a product businesses and their users will rave about. The companies who embrace that will shape the next wave of innovation in business productivity.

Bots are great for the Enterprise, not just for consumers

2016 was already declared the year of bots. While potentially being slightly over-hyped, it seems that many consumer companies have been putting a lot of meat behind their conversational UI efforts.

Facebook is banking on its messaging apps to get back into becoming a leading platform again. They are already allowing users to chat with businesses for customer service and have integrated with Uber to allow people to call an Uber through Messenger. Up-and-comers like Kik are thinking about “importing” WeChat’s success in China to the US.

If indeed there is a broader shift away from traditional point-and-click apps to chat-based user interfaces that is a shift not just for consumer tech but also for the Enterprise. The same fatigue that consumer have with apps is also true for prosumers occupying a work station at work. They get several software solutions for HR, a few more for communication and social networking inside the organization, Many more to sharing content, and so on and so forth.

The transition to bots and conversational interfaces could represent a major point of disruption in the interface paradigm, leading to a slew of incumbent startups going after traditional Enterprise players. There are so many options to explore. What about a conversational analytic platform? How about search and information queries inside the org. run by an bot talking to multiple folks? Maybe a friendly HR bot can help you out with employee benefits? and believe it or not there is already a conversation lawyer out there called Ross (http://www.rossintelligence.com/) courtesy of IBM Watson.

But what about the distribution of those services? Companies like Slack are looking at chat-as-platform as a major next step and that could be one entry. Another simple and under the radar channel is email. Plain old email, requiring no apps to install and barely any configuration to hustle with.

Case in point is Clara. I love my Clara. She might be dumb as hell sometimes, but that is when the human kicks-in and corrects course. Hopefully there is some machine learning going on when that happens as the service seems to improve all the time. I’ve recently surveyed folks who have engaged with Clara only to find out that 90% had no idea they are talking to a machine, with the 10% that did know being Silicon Valley folks who just happened to hear about Clara.

And off course there is Siri and the now Alexa from Amazon. The other I came back home and my three years old toddler has totally lost interest in his previous hobby, the iPad. He spent the entire afternoon busy bossing Alexa around, cracking up whenever she replied to his commands.

Although Alexa currently just resides inside Echo, a consumer product mostly occupying kitchens, I’ve actually started using Alexa for more and more semi work related chores. For example, she is excellent at figuring out what my next meeting is an how traffic is looking (“Bay Bridge traffic is awful today. Thanks for asking”) I can see a natural evolution to engaging with a “personal assistant” – Alexa for business – making every employee a tad more efficient.

All in all it’s exciting development, making technology more accessible and helping us humans become more efficient at whatever we set out to do, including business.

What’s wrong with the Smart Home?

For a while now we have had a slew of companies big and small promise us that the age of the Smart Home is finally here. The industry has seen a rash of early products that have raised soaring expectations and contributed to an expanding universe of ideas – it has become one of the hottest topics in IoT over the last two years (see my post about CES earlier this year – http://www.itamarnovick.com/internet-of-things-is-all-the-rage-at-ces-this-year/)

The “Smart Home” is an idea representing the culmination of many consumer-focused technologies, resulting in a magical residence equipped with lighting, heating, electronic devices, information, entertainment and other home components interacting together seamlessly and controlled remotely. This concept has fueled the imagination of entrepreneurs and tech savvy homeowners. Even my wife got used to having August the Smart lock gracefully unlock the door for her when she comes back home. Yes, she is loving it, thanks for asking.

However, Despite the “future is now” proclamations by industry observers, Smart Home technologies have been in the works for years and even though the first wave of Smart Home products is out there in the market I think we are very early in this cycle.

There are too many blockers and products are not working as well as they should. Here are a few challenges that have been plaguing this market.

Products not yet ready for mass market
While people are interested in the technology, they also aren’t ready to buy it. And I don’t blame them. Many products feel like a V1 or even a beta, with a disregard for usability and an incoherent story about what the product can do for people. This mean that anyone interested in buying a connected product quickly encounters a cautionary tale that makes them think twice about spending $200 on a connected door lock.

Connectivity standards
WIFI and Bluetooth are just not a good fit for connected home devices. Even Bluetooth Low Energy (BLE), which is a newer standard is not a great fit. It’s nobody’s fault, but the devices and consumers who buy them end up paying the price. These standards haven’t been designed with IoT devices in mind and don’t support use cases such as super low latency with consistent very reliable connection.

ZigBee and Z-Wave have been touted for years but market adoption of both is still anemic. Case in point – have you ever seen a smartphone that has any of these new IoT standards?

End point solutions vs. Platforms
So far, with the exception of SmartThings and a few others, the big promise of having connected devices talk to each other has not been delivered. The solutions that are selling well are actually all point solutions – Dropcam, Nest Thermostat, Canary, etc.
Non of these devices are “Platform” today. Unfortunately, the few platforms that are out there are not playing nicely with the leading point solutions leading to a frustrating user experience.

I think 2016 or 2017 will be a wonderful year for Home Automation filled with breakthroughs. Now all we need to do is fast forward to that time… I can’t wait for my fridge to start talking back to me when I forget to throw out my out of date eggs.

The Israeli VC market gap

The fact that there is currently a sizable gap in the Israeli VC market is not new, but lately it seems that the situation is slowly improving. Also, US based venture firms have noticed this market gap and are making a move to benefit from it.

A quick recap of the he Israeli VC industry history shows that 2010 has been the most difficult year for Israeli VC funds since it’s inception in 1992. Despite improvement in macro economical factors in 2010, Israeli VC funds were not able to attract new capital during 2010 (Yes, that’s right, they have raised $0). 2009 wasn’t that good either, with only $234 million raised by Israeli VC funds and $200 million of that amount raised by just one fund – Sequoia Israel.
Local Funds still hold approx. $1.2B and are able to continue investing in 2011. Accordingly, Hi-Tech investment in Q1 2011 have gone up by over 100% compared to Q1 2010, with 140 Israeli high-tech companies raising $479 million from venture investors, both from local (69%) and foreign firms (31%).
However, the future doesn’t look as promising and the ability of Israeli VC firms to raise follow-on funds in 2011 and 2012 will have a strong impact on the future of Israel’s high-tech sector.

Meanwhile, a few US firms are moving to close the market gap. This week, two firms have expanded their Israeli activity – Innovation Endeavors and Greylock Capital.
Eric Schmidt’s innovation endeavors, Founded a year ago, does not manage a predetermined amount of capital, but locates and invests in early-stage start-ups. Innovation endeavors appointed Doron Alter to head its local team and the fund’s managing partner, Dror Berman, will closely supervise the Israeli operations.
Greylock Capital has just announced a new $160 million fund aimed at internet technology companies, deployed between Europe and Israel. This is Greylock Capital’s second fund, with he first one investing in Israel since 2006.

With new and improved dynamics in the US IPO market and Israeli internet startup firms such as Conduit and Wix doing well the IVC’s (Israeli Venture Capital research center) outlook for capital raising is cautiously optimistic. Furthermore, Israel’s Ministry of Finance has recently announced an incentive program for Israeli Limited Partners to invest in Israeli funds and the program is expected to increase investment by $220 million in 2011-2012.
Hopefully the improved dynamic coupled with renewed US interest will help keep Israeli innovation on track and further boost the local Hi-Tech industry, which is the Israel’s most notable economy’s growth engine.