“The pandemic created an abnormal situation in the industry and led to an acceleration in many activities and areas and the value of companies rose to irrational levels. There was an overheating that suddenly stopped and led to a rethink. But, I like a good crisis because the best companies are built then and it’s a good way to see that you’re focused on the right things. I’ve built part of my career through crises and I’m very excited about this period,” says Mäelle Gavet, who has managed Techstars, the world’s largest accelerator, in an interview with Calcalist since the beginning of 2021. Techstars invests every year in about 500 startups in the pre-seed stages and Gavet believes the next few years are going to be very difficult for the high-tech industry.
“In 2021, we’ve seen companies achieve unimaginable value with a very small activity base and we’ve seen seed companies valued at tens of millions of dollars without any financial consideration. We big seed investors are supposed to be happy when the value goes up, but it doesn’t work like that. There are companies whose value increases are not healthy. We still don’t know when the crisis will end, if this summer or in five years. There is a lot of uncertainty. We have thousands of companies in our portfolio and many investors in our companies and institutional investors who are partners with us, and I’ve heard all kinds of opinions from them about when the crisis will end. Nobody really knows what will happen and we teach our companies to be flexible and ready for anything.”
What do you think will happen?
“Unfortunately, what I think will happen is that 2023 and 2024 will be a graveyard for start-ups. Companies still have a lot of money and there are still big rounds. Some of the companies that received money at a very early stage and did not know build themselves are not prepared for the crisis. Those companies that did not have time to raise enough are expected to encounter quite a few difficulties.”
Gavet has been in the high-tech industry for quite a few years. In his last role, he held a senior position at Ori Allon’s company, Compass. From his perspective, he sees a difficult future for the industry in the near term. “In addition to the aforementioned graveyard for many startups, I think we will also see an army of zombies among VC funds, who will not raise a new fund. They will work and invest, but mostly they will deal with the money that is already there. there will be many funds that will not survive in the future. There are over 2,000 active funds in North America, Europe and Israel, and in my opinion, the world doesn’t need that many of them.”
Will the impact of the crisis be different between companies?
Gavet believes that the main problem will be for companies in advanced stages. “We are seeing tough times for companies there, with value drops of 70% and great difficulty raising money in general. These are companies that were built for a quick IPO, either through SPACs or an IPO. direct bag, and all that no longer exists
“Also the companies that issued through SPAC and in general created a negative impact on the industry affect the future. Companies in less advanced stages will be able to raise, mainly through their existing investors, even if it will be accompanied by a decline in value. In very early stages I think it can go up, but I no longer see meaningless value scenarios in the Seed and pre-Seed stages, we will also see due diligence checks that take much longer at each stage of the investment. “
We see a lot of layoffs in the industry in Israel. Where does it go from here?
“Unfortunately, I feel that we are only at the beginning of the wave of layoffs and we will see many more in the coming years. I don’t think companies have internalized the crisis and some are still living off the funds they raised in the past and haven’t hit a wall yet.”
Gavet doesn’t like the industry’s use of the term “unicorn” (a startup that raised a $1 billion-plus valuation), which has become synonymous with success, and says he hasn’t even heard of it. term “centaur”. , which refers to startups that have passed the $100 million mark in annual revenue, which she calls dragons. “The industry has focused on flashy companies like Airbnb and Uber, while we see more positives in less flashy companies. Unicorns and dragons are mythological creatures. Dragons like to fight and win, so we need to focus on them and not unicorns,” she says. “The unicorn-only focus created most of the problems in 2021, growth at any cost, very little financial capacity, and we prefer dragons with the financial capacity to deal with any crisis that comes their way.”
You worked at Compass, which has an Israeli background. How do you feel about this period?
“Compass has changed the residential real estate market in the United States. In 10 years it has become the largest real estate broker and has invested more in technology than any other broker to help its agents be more productive.”
Gavet recently decided to put his familiarity with the field on paper and published a book titled: “Trampled by Unicorns: Big Tech’s Empathy Problem and How to Fix It”, whose main focus is the lack of empathy of managers in the industry. “Big tech companies create a sense of lack of empathy and don’t think about the impact they have on people,” she says. “Being a good leader is measured by how you influence others, but you have to be aware. My book tried to answer the question of how we got to be such an empathetic industry and how to manage it. But there is hope. Most of companies are not empathetic because they are run by engineers and humans are part of the formula and they try to take people out of the equation and that makes them not empathetic.
“The book was written after I had worked in the industry for 15 years and after I didn’t understand why good people make terrible decisions from a human perspective. I tried to understand why companies suffer from a lack of empathy and then I also looked for the solution.”
Techstars is one of today’s leading programs for growing businesses in the early stages of establishment. Hila Ovil-Brenner recently retired from managing Techstars Israel, prompting Gavet to travel to Israel in an attempt to find a new manager. “We had nine shows here in six very successful years, but we can do more. We are looking for a new manager here and we see great importance in Israel. I hope we have two shows next year and we have an obligation to do it.” so next year too We will continue to invest in 50-70 companies in Israel and this is only a small amount of what can be invested here.
“We’re like an early stage index and we operate around the world in a variety of industries like ag tech, educational tech, and food tech. We’ve even invested in music and have hits and partnerships there. There’s a lot of innovation going on in the world and I am very optimistic about the Europe, Middle East and Africa region. Israel is a major innovation hub, also beyond cyber and AI. There is also a lot of potential in Africa and we are opening offices in Lagos.”
What are you mainly looking for?
“An area that has been of great interest to us in recent years is food technology and agrotechnology. Food insecurity is something that has not existed for many years. My grandmother may have felt it in the past when she was at war, but it is a phenomenon that was not thought of until the climate crisis and Russia’s war in Ukraine. This phenomenon requires technological solutions from the world of entrepreneurship.”