Expect more scrutiny of VCs in 2023, says Hyperwise Ventures

“We expect that in 2023 it will be even more difficult than in 2022 to raise capital – much more control and smaller start-up cycles for beginners, and significant real income for A-cycles” , said Nathan Shuchami, managing partner at Hyperwise Ventures. “Although it’s hard to predict, we expect that many US-based A+B VCs would prefer to sit on the fence and ultimately only invest 50-60% of what they have. invested in 2021.”

According to Schchami, the company has not changed the way it operates in 2022 and it does not plan to change it in 2023. I believe that the current global economic crisis may present great investment opportunities for early stage funds. startup like Hyperwise Ventures.

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The Hyperwise Ventures team

(Photo: Avishag Shaar-Yashuv )

Name of fund(s): Hyperwise companies
Total fund amount: Fund 1: $70M, Fund 2: $120M
The partners: Ben Omelchenko, Aviv Gafni, Nathan Shuchami
Notable/Selected Portfolio Companies: Argon Security, Pontera, DealTale, CyberPion, Kubiya, Armo Security, Speedb

Hyperwise Ventures joined CTech to share their perspective on the VC space.

If 2020 was the year of the pandemic and 2021 was the year of records, how would you define 2022 in the venture capital industry?

2022 can probably be classified as the year of disillusion – both in Seed and A-round valuations and sizes, and also in the desire to invest in futuristic and unproven technologies (e.g. Metaverse, NFT, etc.)

Who are the big winners of 2022 and why?

Funds that have been disciplined not to follow the buzz and the crowd in 2021, even at the cost of not making new investments in 2021 in inflated valuations and questionable, unproven technologies. These funds can use their saved capital to make excellent investments in 2022 and 2023 (attractive valuations, and only after conducting appropriate technical/commercial due diligence).

Who are the big losers of 2022 and why?

Startups that in 2021 (and also in Q1/22) raised Seed and A rounds in sizes and valuations that are economically unjustifiable (Seed) and unrelated to company results (A). These startups are now finding themselves cash-strapped, trying to raise either extensions until the last round or additional capital in a down round. Some of them would probably end next year.

What do you expect from the venture capital industry in 2023?

We expect that in 2023 it will be even more difficult than in 2022 to raise capital – much more control and smaller seed rounds for beginners, and significant real income for A-rounds. Even while it’s hard to predict, we predict that many US-based A+B VCs would prefer to stay on the fence and ultimately only invest 50-60% of what they invested in 2021.

We have not changed the way we operate this year and we do not plan to change it in 2023. We plan to stick to our conservative investment criteria and make 1-3 new seed investments in 2023. We believe that the current global economic crisis may present great investment opportunities for early-stage funds like Hyperwise Ventures.

What global processes will affect (positively and negatively) the Israeli market?

Higher interest rates would make it harder for new funds to raise capital and for startups to raise risky loans.

The global recession would make it much harder for Seed and A startups to generate meaningful revenue to justify decent A or B rounds.

The geopolitical situation with China and Russia would negatively affect the supply chain and make it much more difficult for HW-based startups to meet delivery deadlines, which would affect revenue recognition and customer satisfaction.

Last but not least, the recession and the geopolitical situation would further increase cyber espionage and criminal activity, making it difficult for organizations to reduce their cybersecurity budgets.

How should different companies prepare for the coming year?

We recommend startups that have raised A or B rounds this year to ensure they have enough money to last at least through the end of Q1/24. This may in some cases require downsizing the team to the fundamental prop value. In most cases, 2023 will not be the year for opening up new markets, but rather for strengthening and streamlining successful existing markets and offerings.

What will the dozens of unicorns born last year be?

Since a lot of money has been raised, many of them will not raise additional money during a bearish cycle, but will instead downsize and reduce the burn rate to ride out the crisis. In a conservative and hesitant market, the amount raised is much more important than the valuation.

Which sectors will experience an acceleration in venture capital investments and which will experience a slowdown – and why?

Cybersecurity, AI, Fintech and digital health would continue to attract attention and capital in 2023. Futuristic, capital-intensive or “hip” B2C projects (e.g. quantum computing , Metaverse, NFT) would have difficulty raising capital.

RH: Do the layoffs, those that have already taken place and those to come, contribute in any way to repairing the distress experienced by companies over the past 2-3 years?

At the moment, we are not yet seeing a reduction in salaries, however, the sharp increase we saw in 2021 has stopped, and candidates are no longer submitting unusual requests. We believe, however, that in 2023 we could see a reduction of around 10% in average salaries.

Armo Security, Kubiya, Liminal Security – the main portfolio companies of Hyperwise Ventures

Cybersecurity: The open source Kubernetes security platform – from development to production, from configuration to execution – designed for DevOps teams.

Founders: Leonid Sandler, Shauli Rozen and Ben Hirschberg
Year of creation : 2019
Number of employees: 40

Investment Explanation:
The first and only end-to-end open-source Kubernetes security platform built by security experts that has seen hyper-growth in community adoption.

Kubiya

DevOps Tools: The Siri for DevOps. DevOps Virtual Assistant that uses conversational AI to provide end users with secure, on-demand access to cloud resources, operational workflows, and organizational knowledge.

Founders: Amit Govrin and Shaked Askayo
Year of foundation: 2022
Number of employees: 15

Investment Explanation:

​The first and only approach that solves the painful productivity problems of DevOps by combining advanced conversational AI technology. The CEO is a second-time entrepreneur, and the CTO organically conceived the idea from his first-hand experience as DevOps.

liminal security (stealth)
Cybersecurity – end-to-end secrets management, security and compliance

Founders: Itzik Alvas and Adam Cheriki
Year of creation : 2022
Number of employees: 8

Investment Explanation:
The first holistic approach that solves a much-requested security problem around secrets by passionate and dedicated founders who have experienced it first-hand in their previous jobs.

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