“Productivity per employee will probably swing back to more normal levels.”

“Companies don’t lay off their best employees first. These folks will find it the hardest to regain employment given this and that they will be ‘in the market’ the longest until things get back to growth,” said Avi Eyal, Founder and Managing Partner of Entrée Capital. “The culture of working from home will change back to being a lot more in the office and fantastic perks will be pared back. Productivity per employee will probably swing back to more normal levels.”

These were some of the predictions he shared with CTech when asked about how the layoffs that have been seen recently in the sector will affect the market. Entrée Capital provides venture capital to Seed to Series B companies around the world and has $1 billion under management.

Name of fund/funds: Entrée Capital
Total sum of fund: $1B under management
Partners: Avi Eyal, Ran Achituv, Eran Bielski, Adi Gozes
Notable/select portfolio companies: monday.com, Riskified, Breezometer, Open Web, Fundbox, Rapyd, HiBob, Snapchat, Glovo, Coupang, PillPack, SeatGeek, Stash, Gusto.

Eyal joined CTech for its “2022 VC Survey” to share some of his insights and recommendations for companies as they approach 2023.

If 2020 was the year of the pandemic, and 2021 was the year of records, how would you define 2022 in the VC sector?

2022 is the year that reality finally sets in. We are in a recession and it’s not mild. Things will get worse, not better. The war in Ukraine, inflation, and government changes in China, the USA, the EU, and the UK will have long-term and far-reaching effects on everyone. Tech is not an island, it’s part of every business and will win and lose as the rest of businesses will.

Who are the big winners of 2022 and why?

Businesses with positive free cash flow.

Who are the big losers of 2022 and why?

Tech companies from Seed to late stage that raised funds at a high valuation that have expense bases and who won’t survive 2023.

What do you expect in the VC sector in 2023?

There is far less dry powder than most people think. Most of the dry powder is actually management fees and reserves, and funds will find that unless they are in the top 10th percentile by returns over many vintages, they simply won’t be able to raise new funds as LPs will have less allocation and fewer dollars to put into this asset class.

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

All global processes affect Israeli tech – quite simply, Israeli tech relies on foreign sales entirely. When foreign buyers put decisions on hold, cut back spending and let go of staff, it affects Israeli tech directly and in the most important way: revenue and cash flow.

How should different companies prepare for the coming year?

It’s probably too late to prepare. If you have not taken the hard choices by now, you are probably on a bad trajectory.

What sectors in high-tech should we look out for in the coming year – and why?

Everyone will suffer a slowdown. HR Tech and Cyber particularly so.

HR: Do the layoffs, those that have already happened and those that are coming, help to fix in any way the distress experienced by companies over the past 2-3 years?

Companies don’t lay off their best employees first. These folks will find it the hardest to regain employment given this and that they will be ‘in the market’ the longest until things get back to growth. The culture of working from home will change back to being a lot more in the office and fantastic perks will be pared back. Productivity per employee will probably swing back to more normal levels.