“The pivot away from Russia and China in the tech sector is hard to overstate”

“Capital-intensive businesses such as hardware-based solutions and companies that require significant working capital to grow will find it harder and more expensive to finance their growth,” said Moshe Friedman, Head of Amdocs Ventures. “The pivot away from Russia and China in the tech sector is also hard to overstate. Companies with IP, manufacturing, or customer concentrations in those geographies will be penalized.”

When speaking about those companies that may be suffering this year, Friedman highlights current international conflicts as a reason why they might be having a tough time. However, recent years have also shown advances in relations between countries.

“The opening up of the Arab world via the Abraham Accords is probably the single most important development of our generation,” he added. “It creates new horizons for capital raising and new markets for our portfolio companies to sell into.”

Name of fund/funds: Amdocs Ventures
Total sum of fund: $50 million
Partners: Moshe Friedman
Notable/select portfolio companies: Identiq, Team8, NeuralMagic, Juganu, Flow Security

Friedman joined CTech to share insights on the latest trends to expect in 2023 and beyond.

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 uniquely was defined by the re-emergence of “cost of capital”. Capital is no longer free and is no longer guaranteed and companies have had to adjust their plans accordingly.

Who are the big winners of 2022 and why?

Companies with quality and predictable revenue and earnings. Amdocs as an example outperformed the S&P by about 30% in 2022. We grew with predictability and the market values that. The same applies to startups.

The big winners in our view will be companies with real, deep, differentiated technology that have built trust with their target market. Not companies with a slightly better way of doing something everyone needs, but companies with deep technology that have an opportunity to redefine their chosen market. These companies have the luxury of not being required to get to market today to maintain their competitiveness and will be able to ride out the storm.

Who are the big losers of 2022 and why?

Capital-intensive businesses such as hardware-based solutions and companies that require significant working capital (like inventory) to grow will find it harder and more expensive to finance their growth. The pivot away from Russia and China in the tech sector is also hard to overstate. Companies with IP, manufacturing, or customer concentrations in those geographies will be penalized.

What do you expect in the VC sector in 2023?

I expect far fewer new VC funds in 2023 but established funds that have returned capital to investors in the past will be able to raise new capital.

VC Funds that have not returned capital to their LPs will allocate their remaining capital more slowly as they don’t know when (or if) they will be able to raise any more…

Corporate VCs are actually in a great position as we don’t have LPs to manage – we are full speed ahead. Valuations are more rational and technology is as important as ever to our growth.

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

The opening up of the Arab world via the Abraham Accords is probably the single most important development of our generation. It creates new horizons for capital raising and new markets for our portfolio companies to sell into.

How should different companies (large, medium, early-stage) prepare for the coming year?

When capital was free, companies built their budgets erring on the side of over-hiring to fuel growth. That has changed.

Every smart business is recalibrating toward growth that is self-sufficient and funded by capital on hand and revenues.

What will be of the dozens of unicorns born last year?

I agree with Bessemer on this point: we shouldn’t be paying attention to how much one investor is willing to pay for company stock. We should be focused on revenue. Companies selling will continue to sell. Companies that were based on a dream will have a hard time convincing investors to pay for their stock.

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

We invest in companies that are solving the problems that today’s solutions are creating. So we are paying a lot of attention to SaaS management, Data security, and AI edge deployment – all issues that are being created today in large enterprises.

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?

Israel is world-recognized for our entrepreneurial drive, risk-taking, hard work, and strong technical talent – so capital will continue to be available to teams building something special.

As long as our universities aren’t putting out enough qualified engineers to meet that demand, employment conditions will remain “above market”.

Lynx.MD, Community.com, and Flow Security – Amdocs Ventures’ notable portfolio companies

Lynx.MD
Data utilization and federated learning: Provides a secure, private, and decentralized data network connecting clinical data producers (like doctors and hospitals) to data consumers (like pharmaceutical companies) to accelerate research and development.

Founders: Omer Dror (CEO) and Ofir Farchy (CTO)
Founding Year: 2018
Number of Employees: 30

Explanation behind investment:
The need for safe secure private and controlled data sharing and data learning is clear, crosses verticals, and promises to unlock significant value in Healthcare and Enterprise.

Community.com
Brand engagement: Use SMS (and soon Whatsapp and Apple iMessage) to offer Personalized B2C communication that is engaging, intelligent and beautiful.

Founders: Matthew Peltier
Founding Year: 2018
Number of employees: 100

Explanation behind investment:
Strong modern and scalable technology stack matched with a management team with a keen understanding of brand engagement. Seamless, delightful customer experience well after purchase. Enable a world after Social Media that engages, interacts and builds brand loyalty, all personally and all at scale

Flow Security
Data Security: discovers, maps, and secures cloud-based dataflows. The company works without agents, sits in the kernel workspace in a k8s container, and can identify, map, and secure data at rest and in motion, encrypted and non-encrypted, system-wide.

Founders: Jonathan Roizin, Rom Ashkenazi
Founding Year: 2020
Number of employees: 25
Explanation behind investment: Data Security is a large enabler for cloud migration and will be a major problem in 2-5 years in the cloud. The underlying technology of eBPF is a significant new way to manage distributed hybrid systems.