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Investors That Pass: An Open Dialogue on Investment Mandates and Definitions of Success | LSI Europe '24
Investors That Pass: An Open Dialogue on Investment Mandates and Definitions of Success | LSI Europe '24
LSI Europe '24
The panelists discuss the difficulties in balancing risk vs. reward when building portfolios. An emphasis is made on prioritizing strong relationships and maintaining a diverse portfolio to balance risk and maximize returns.
Diana Saraceni
Diana Saraceni
Co-Founder & General Partner, Panakes Partners
Irit Yaniv
Irit Yaniv
Founding Partner, Almeda Ventures
Alexei Mlodinow
Alexei Mlodinow
Former CEO & Co-Founder, SIA
Fernando Pacheco
Fernando Pacheco
Investment Director, Endeavour Vision
00:05
Fernando Pacheco
So hi everyone. Welcome to this panel. My name is Fernando Pacheco, and I'll be moderating it, I think, or trying to. The topic that resonated with me when this came up is that we pass on opportunities all the time, right? Ninety-nine percent of the stuff you look at as an investor, you end up passing on. It's easy to put yourself on a high horse as an investor because of exactly that kind of dynamic. But I think it's a nice reminder that there's a lot of humility involved in this, right? There are many things that you pass on that end up being very successful, and you learn from that, right? So that's what I wanted this conversation to be about. I think we have an interesting story from Alexei here, which turns out all three of us have actually had a look at, in varying levels of depth. So, you know, we can take that and also see if we can expand it a little bit further as well. To kick things off, we'll just have kind of introductions from different members of the panel, and also talk a bit about your investment mandate and how that affects things as we go through.
01:14
Irit Yaniv
Should I start? Yes, thank you. So, Irit Yaniv, I'm an investor and CEO at Almeda Ventures. Almeda Ventures is an Israeli VC with a unique structure. We are public, so we are traded on the Tel Aviv Stock Exchange. We raise our money in the public market, and this is an evergreen fund, so we can raise more money when and if we want. We invest in medical devices and digital health, specifically late-stage medical devices and digital health, after the $1 million of
01:58
ARR from our organization. We invest in Israel and outside of Israel. Diana Saraceni
Yeah, thanks for having me here on this panel today. I'm Diana Saraceni, managing partner at Panakes Partners, based in Italy. At Panakes, we have about $300 million under management, and we invest across Europe, the U.S., and Israel. We invest at any stage, from seed to pre-IPO rounds. We're pretty stage-agnostic, and that is part of the scope we have and the impact it has on the specific topic of this panel. About myself, I have 25 years of venture capital experience. I co-founded Panakes, and before that, about 20 years ago, I co-founded another investment company, investing across multiple geographies and different sectors, not only in med tech but also in biotech and very different sectors with very different outcomes. As we touch on the point here, I passed on a number of deals over 25 years; some were good decisions, and some were more questionable.
03:18
Unknown Speaker
My name is Alexei Mlodinow. I was the co-founder and CEO of a company called SIA, which developed an absorbable surgical mesh for plastic and reconstructive surgery. That was our technology. I ran that from 2016 until 2022, at which time, after raising $21 million in equity and $2 million in NIH grants, we exited to Integra for a transaction value of $140 million in total. There's some structuring to that which we can get into as appropriate for this panel. But just to echo Fernando's point about humility, I mean, investors obviously pass on deals that, in retrospect, they may look back on and regret or say, "Damn, that would have been nice." But on the flip side, as well, you are humbled early and often when raising money from investors. It's a very healthy exercise in listening to the reasons they are rejecting you and thinking about whether that is a "them" problem or a "you" problem. If it's a "you" problem, how you can change based on that feedback and maybe improve the outcome for yourself and for them. So I can get into the SIA point by point fundraising, but...
04:42
Fernando Pacheco
Yeah, Endeavour too, and then, and then go back to what you said: it's you, not them. That's a really important dynamic, I think, that we'll touch on. So, Endeavour Vision is a growth-stage-focused med tech fund headquartered in Switzerland, with offices in the U.S. We are investing out of a $375 million fund where we do $10 to $20 million initial tickets in only later-stage companies within devices. So, yeah, now you have, you know, I think the spectrum here from an investment stage perspective and from a geography perspective. Alexei, maybe catch us up a little bit more on SIA, and then I think on the different interactions you had with some of the members of this panel. Yeah, and we'll go through it and add more context.
05:27
Unknown Speaker
Absolutely. So I'll try to keep this kind of lean and to the point. I think some relevant things are stage by stage. When I met these three, or didn't meet them in some cases, there's an email in our CRM, and I found just the fact that they were using a CRM at that time when we didn't even know what a CRM was, is pretty telling. So, call it 2016 to 2018, we were raising a seed round, which was only about $1.3 million. Around the time that we emailed Endeavour Vision, it was very early; we had a licensed patent but no product beyond a prototype and maybe at some point some early preclinical data. So we raised that seed round and developed the product, and actually moved it most of the way to 510(k) with just a couple million, which was pretty lean and fast, I would say, self-servingly. But then, kind of like, I'd say the next era, right? If the first thing was a seed round, call it a million and a half dollars at a $10 million cap, with product development and regulatory-related milestones, you kind of then shift. A couple of years later, we're raising a Series A where we have 510(k) and at that point CE mark, and we have very early clinical use, but it's not commercial at all. So we're now in a Series A timeframe when I think I met Diana right around that time, and we're raising maybe at a $16 million pre-money and trying to raise $4 to $6 million in a small Series A to accrue more clinical data and then eventually get our first dollar of revenue, as well as start a PMA study. So that was, kind of think about 2016 to 2018. Then you have 2018 to 2020, and then you sort of have 2020 to 2022 where we were then raising a Series B. I think that was the closest we got with Panakes at the time. We had a little bit of revenue; we commercialized in the midst of COVID. We had a little bit of revenue. We had, at that point, a year or more of dozens of patients of clinical data and surgeons willing to vouch for the product and stuff. So then we were raising about, call it $10 million; that number changed, but $10 million on a $32 million pre-money based on clinical data and first dollar revenue, let's say, in order to expand commercially and to complete our PMA in the U.S. for a specific indication. So that's sort of the three entrances, I'd say, of our lifecycle and when we each met.
08:15
Irit Yaniv
Actually, we met at the seed round as well. Did we?
08:21
Yeah. Unknown Speaker
No, two times, two times, seed round.
08:23
Fernando Pacheco
You would have known, yeah.
08:25
Irit Yaniv
That's our disorganization.
08:29
Unknown Speaker
And we probably only sent one email.
08:33
Irit Yaniv
It's two notes for me.
08:37
Fernando Pacheco
Maybe just kicking off, I think with both of you, right? Can you share your perspective on those interactions? And also, there's a lot of color about where your individual fund was at the point of it's not you, it's me, kind of situation. When we passed a lot of the time, it's that right color of where your fund was, what your strategy was, what kind of deals you were looking at, what exit you had by then, and so on and so forth. I think it's really helpful color that sometimes the entrepreneurs don't get.
09:05
Irit Yaniv
Do you want to start?
09:06
Okay. Diana Saraceni
Sure. Well, as Alexei said, we met for the first time during the Series A. The company had 510(k) with no data, if I'm correct, and there was no kind of clinical evidence to support also what the use case would be and what kind of market size would be addressable. So Alexei and I discussed a number of times on what the market size could be in the end, how many procedures, and how could you shift maybe a portion of the market into using the product to increase the market size? It was all unknown because there was no clinical evidence to support, so that was perceived as a big risk, even though the product was approved and ready to go on the market. So this was probably the main reason we passed at that point: the unknown on something that was perceived as high risk. And don't take me wrong, we do a lot of high-risk stuff, preclinical stage, even not approved products. But you also have to perceive the counterbalance, which is huge potential in terms of addressable market size. And this was the main unknown. So this was during the Series A. During the Series B, it was 2020.
10:38
Fernando Pacheco
And what happened?
10:42
Diana Saraceni
Then we found out, and that was really, I mean, for Europeans, we could not even go and visit the companies in the U.S. None of us was traveling, obviously, for obvious reasons, and the company was still kind of early stage, so you would not be able to travel there. You have no idea if you went and you could finally go, and we have an in-person meeting; it was all unclear. So that was probably the main reason. We had another two main things. One was a bit of the comparable for the exit. I think we discussed that too, right? There was one comparable transaction, Bios, or in the space, that was the most comparable exit we could think of that wasn't too exciting because it was coming late into revenues for multiple that was not extraordinary. That made it overall difficult to think of a big step in the multiple, and that is about it. But I mean, frankly, there is some regret of not having identified that, yes, this was not the billion-dollar exit opportunity that is confirmed, but it was also not the riskiest of the stories we hear around. It was really the kind of balanced risk-reward. And so I was very focused on this is high risk, so I need to find out the big market size to balance. And actually, it wasn't that much of a high risk because your own expertise as a user yourself was a big asset that probably was underestimated.
12:35
Fernando Pacheco
And I think just from one of the things that I learned then in hindsight, of course, more about the story, you had a rare opportunity to fund an IDE-approved product. You had the IDE in hand, right? So to fund an ongoing IDE trial on a product that was already in the market.
12:54
Diana Saraceni
Unusual, strange, yeah. Strange, something we're not used to; it made perfect sense. It's a little bit different than what we're used to.
13:02
Fernando Pacheco
Yes. I mean, which has good, you know, positive implications around the risk. It has also some, how do you market that in the meantime, until you have a formal label, right? I mean, it's part of the sausage-making. That is this. But I think that's, yeah, that's...
13:18
Irit Yaniv
Part of it, yes. So we met when you really raised the seed. At that time, I was in Axel Med, and we did venture creation. So this was not far away from what we were doing. But you asked it before, if this is you or them, and I think that at that time it was us because we were concerned about doing venture creation for someone in the U.S., an Israeli company, with an Israeli venture arm, doing very close to home and not doing venture creation outside, over the ocean, outside of Israel. And this was our concern at that point, I think, and that's why we kept in touch because I really liked the proposal, the proposition. I liked you as a person and as a manager, and we kept it. No, really. I mean, I think that's important. I spoke this morning with some people, and they say, you know, we meet so many venture funds that don't have money at the moment. And I said, relationships are more important than money sometimes because with relationships, you keep going. And that's why we met when you did the round A, but at that time, again, on our side, we didn't have a fund; we didn't have the cash to fund SIA. And if I regret, I would say yes because it's kind of rare, and this is why we are saying yes. So, a level to find a good manager, a good product, and the real balance, or good balance, between risk and reward. And I think SIA, at the end of the day, this is what you presented. So, yep, I would say some regret.
15:20
Unknown Speaker
Oh, that's very kind of you to say; I appreciate it. This panel was not meant to be me saying, "Like, Nana," you know, so that's not at all the intention. But I think that issue that you guys articulated was a common one that we found at every stage. It was like, "Well, okay, like you're getting a 510(k), but then you're talking about this huge market which requires a PMA." Then we get the 510(k), and we have revenue. And then people say, "Okay, you're raising growth equity, and you expect a growth equity valuation, but you are also running this IDE study to get a PMA." So we're not going to, we're going to throw out your revenue, and basically in this discussion, and we're going to focus on what you should be priced at based on the PMA pathway. It was always hard talking to people to define the business in terms of what kind of investment this is. Are you hedged with a commercial strategy and you're a lower risk and maybe lower reward, or are you going for a big PMA class three indication in your high risk, high reward?
16:28
Fernando Pacheco
I think there's an element too, of kind of a lot of things are unknown, right? And when something is unknown, you grasp at whatever it kind of looks like this archetype or kind of looks like this archetype. And there isn't an archetype here for what you guys are doing, right?
16:47
Irit Yaniv
Yeah, we are guessing all the time, yeah, and, you know, at the end of the day, it's always guessing better than the other. And that's why I do believe relationships are the key for everything. At the end of the day, there are so many uncertainties. So if we build up a good relationship between the investors and the management team, between the investors and the company, we can overcome many of the uncertainties and the difficulties, or the challenges that we are going to face. And I don't think there is even one company that will not face something towards the desired legacy.
17:29
Fernando Pacheco
Maybe just kind of opening up a little broader, right? We talked a little bit about regrets. I'd be curious to have kind of one example beyond SIA, right, where for each of you—and I can share one as well—that where the reason you passed perhaps was a bit not necessarily unusual, but it would be good to have one where it's the reason why you passed because of your own dynamics and the reason why you passed because of the actual file itself.
17:59
Diana Saraceni
We need to give examples, or you're on your call, whether you want to mention them or not. Yeah, you can more on a company road and the company, yeah, no. I mean, it has to be considered that we, obviously, we build up portfolios, and in a portfolio, like, for example, at Panakes, we really sold to our LPs that we would have a portfolio that would be composite. This is why we are stage-agnostic, because it will be a well-balanced and a composite of a number of companies that will be lower risk, lower upside, and a number of companies that are the opposite. Somehow the return in the end will be balanced. And this is exactly what we do over time. We keep monitoring where we stand in terms of total risk in the portfolio and total return expectation. Sometimes it's just a snowball effect, and sometimes we pass because we are too exposed on something. But sometimes it happens a lot; we're too exposed on seed capital with very, very high risk. Yes, we have all these companies that could prove to be, if they prove to what they claim for, they're going to be huge value, but it's...
19:14
Fernando Pacheco
But you're going to have to support them for much longer.
19:17
Diana Saraceni
Longer, and it's far too risky for the portfolio. So we then, I mean, for one year or more, we all look and then look for that there will come those companies that can balance that. And the other way around, sometimes too, I have to say it's more often the case that we are too excited when we take big, risky things at Panakes. We go very early, and we have that tendency to do that. So most of the time we try to rebalance with later-stage, less risky, etc., this kind of companies. That's one item. The other item, unfortunately, is also a lot about partner capacity. For example, at Panakes, each one of us follows only some sub-sectors, and if a partner is completely booked into board meetings with companies because he or she has seven, eight, or nine companies to follow, the capacity on those specific sectors for new deals will be much less. So we also pass for reasons that have very little to do with the portfolio construction. And one last, especially in Europe, is geography. There are times when we are much more open to go beyond the European border and look a lot also at U.S. companies or Israeli companies. Sometimes Israel is in the definition of Europe, but because our own LPs do expect us to work focused on some geographies, especially in Europe, the big investor, one of the biggest investors being the European Investment Bank. Of course, the expectations are that at least a portion of the capital should then be invested in European companies, and that all of a sudden we have to pass on anything that’s outside. Again, we may have regrets; it has very little to do with how good the company is, that’s to be said.
21:31
Irit Yaniv
So, Diana mentioned portfolio from the perspective of different stages. I would discuss portfolio from the perspective of fields because this is another question that we are negotiating within ourselves. On one hand, you would like to be in a specific field because you know the players, you know the market, you know to appreciate different devices. On the other hand, you want to be versatile enough and have different fields in your portfolio. And this is always the question, okay, I have another cardiology company. I already have three. Shall I do an investment in the fourth one, or shall I look for something else that will make my portfolio a little bit less risky in a way on the field? This is a good example of something that I would say we can regret in our portfolio. A cardiology company, we invested in one structural heart company. We placed quite a lot of cash into this company. And when another company came in, we said, okay, we have one; we have a solution. We are not going to invest in another solution. Unfortunately or fortunately for the company that we said no to, they got an exit, and we didn't. So, yeah, from time to time you do take a decision that you may regret, but I think as an investor, you shouldn't regret anything. I mean, you should walk out on the portfolio that you have and make the best from what you have decided.
23:19
Fernando Pacheco
No, I think I could talk about a field in dental as an example. Very similar situation, right? You make one investment and you say, okay, I'm not going to add another company in this field because of portfolio concentration, but at the end of the day, you can diligence that second deal way better because of your investment. And yeah, there's an aspect of that. I mean, on our side, you know, we're focusing on growth stage investment, right? So generally, if you think of a portfolio of 10 companies, we're not going to have many 8x or 9x in that, right? Given when we invest in terms of the risk appetite we have, the objective is 3x to 5x in three to five years, you know, per individual deal, but then as a whole, the portfolio will do, let's say, a 2.5 to 3. But that means you can't have zeros, right? So, you can't have too many zeros that then take the average down tremendously, right? And that's why there are different, you know, you have completely three different archetypes here of how to look at things. I mean, 80% of the things we end up passing on is on stage, right? But then at the same time, when we say pass, we mean see you later, more often than not, right? I mean, on average, we meet a company, we did the statistics the other day, three to four years before we make an investment, right? To your point of relationships, that's things like this, right? It's that same conversation, what's the update? And so on and so forth. Sometimes it's hard to call it okay, this is the right time. Sometimes someone else calls it for you, and that's a competitive situation, and you have to move, right?
24:49
Irit Yaniv
But I think this is something, and I don't know who is sitting in the audience, but if they are CEOs, you should know that we are looking at what you are saying in the past, and this is something that creates a lot of credibility for us. So if you come and meet us, let's say today, and we say, as you said, too early, let's meet in two years. We keep the presentation, we keep our notes, and when you come in two years, we will compare what you told us. The best thing, of course, is to fulfill the milestone. If you did it, at least explain it, or try to explain it in such a way that this will become an appealing proposition at this stage or at the current time. This is very important because sometimes people forget that they said something two years ago and now, yeah, we promise you a PMA, or we promise you FDA approval, but we didn't meet it.
25:50
Diana Saraceni
Can I add to that? It's also the reason why we pass. We keep track, and that is, at least what we do, is the first question that we ask when we're back. It's even more than delays. I mean, delays, I'm unsympathetic. A bit of delays after so many years are understandable, but if there was a reason to pass, how has this been addressed? Is going to be the key question because we don't redo the work we had done, right? So if we had passed again, sometimes it's the market size; sometimes it's the reimbursement.
26:44
This is tracked. Irit Yaniv
You're absolutely right. And this is another tip that we should give: ask why we are passing. Yeah, because you will learn much more from those that passed than from any others. So if we pass because of reimbursement, go and find out how you can change the reimbursement landscape in such a way that next time you approach us, you have a good answer for that.
27:12
So always ask why. Unknown Speaker
I always offer it. No, not that I offer that. I ask if you want to know; I definitely...
27:23
Diana Saraceni
At the end of the meeting of the so-called first meeting, there's a key decision that Panakes we take. You might remember that it's either you get the due diligence questions, the three key points we wanted to diligence on to start, or you get the reason why we passed. So in a first meeting, that's like... and I mean, not because we think this is the reason, etc., but because that's the way we work, and we keep track, and we take it from there next time.
27:57
Fernando Pacheco
Yeah. And I think a comment on that too is, as an entrepreneur, I think it's part of the game. It's your right to ask for that type of feedback, and you should. Honestly, as an investor, when someone asks us for the feedback and for the concrete feedback, my respect for the entrepreneur grows, right? I think it's more interesting because they're... but it's, again, it's about how you ask. If you're asking because you're trying to convince, you know you want... Again, like when I give feedback, or when one of us gives feedback, it's feedback that either we've developed our own, but more often than not, it's feedback from our investment committees, right? So it's very hard for us to go back and be convinced with just, "Oh, by the way, there's also this fact." So do it in a way where you sincerely want to learn, and then you can come back a year or two later in the next financing, and if you've done your homework right, this is what you said last time. This is how it's changed, versus in that last meeting trying to, you know, "But we're actually revenue. We have revenue in this country," but it's not going to help your case, right?
29:00
Irit Yaniv
Situations try to learn, yeah.
29:05
Unknown Speaker
It was always super valuable when people provided it up front without solicitation. But yeah, we would ask for it, and our sad, technically unsavvy lack of a CRM notwithstanding, we did have... The one thing we had was like a big Excel spreadsheet with investors, with some of the, you know, last time we contacted them. But more importantly, round by round, you could look back and say, "Oh, Series A, here's the 150 conversations we had," and we did have a reason to pass for all of them. Some of you never know. You know, a lot of the time, I'll say people are for, I'm sure, positive reasons, just related to not wanting to hurt your feelings or whatever. They will fall back on something about this being maybe outside their mandate or being the wrong timing or whatever. But I would say, to lose... You know, the majority of the time if you push a little bit for, like, "What, okay, that's cool. But like, if this was a cure for cancer, you would have invested," right? And you'll get some reason for, like, "Yeah, this is why we would deprioritize it in our decision-making."
30:20
Fernando Pacheco
And I think it goes on to that forms a rapport and forms a relationship, right? It forms an honest conversation. Likewise, this is the way I think entrepreneurs can ask for feedback. They can also ask for help, right? Like, you know, look, this might not be a fit for you. What we do, I mean, what we do for a living is not working, right? Because most of us are syndicating deals at any point in time, right? So we all have other investors in our network, and I think you should feel free to ask, "Okay, for what I'm doing, who are the kind of people I should talk to? Can you put me in touch with them, or can I share a deck with you and a teaser that you can send with them and say, if they want to talk?" That helps continue that relationship, right?
30:59
Diana Saraceni
And also, maybe sometimes it's just that there was a mismatch in understanding or communication. So that helps for next time or next investors to be clear on something specific. Like if you think you were completely wrong on the outcome of our assessment, there are two reasons. One, we're wrong, and that happens a lot. Well, the second one, it's our fault for lack of knowledge or lack of expertise, or the second one is it's not been communicated well enough, and that can be fixed. So that's a very important lesson to bring home after.
31:50
Irit Yaniv
On the communication side, I think that's another point. Try to involve more than one person in the discussion because sometimes there is no fit between, you know, the investor and the CEO or the business development person that came and asked for investment. So being open and involving more of your team in the discussion may create this match or the right communication because sometimes there is a problem, and, you know, we are human; sometimes something doesn't work between two people. So try to bring more than one person to the discussion, maybe not to the first one, but try to involve more of your management team. Someone will build up this relationship and open the communication in such a way that if this is going to be a no for now, at least you build up a relationship for the yes next time.
32:55
Fernando Pacheco
I think one other aspect I wanted to touch on is, Alexei, you were still able to finance the company, right, through three successful financings, right? And then a successful exit too, right? There's a lot of tenacity involved in resilience as well. And, you know, you were told no hundreds, maybe more, for sure, hundreds, yeah, right? Could you maybe in the last five, six minutes just give us some examples of how to navigate and dribble some of those situations and what led you to the outcome that you managed to find the support and backing?
33:37
Unknown Speaker
I think it's hard to tie that all together on the...
33:45
Sorry. Fernando Pacheco
You see, he asks really complex, long questions that actually have three...
33:49
Unknown Speaker
Questions, notorious for that. So, yeah, you'll get, I mean, you for sure will get hundreds of no's, I think, almost no matter what you're doing unless you're able to self-fund. I know a couple of people that have the privilege of self-funding their thing until they have enough credibility that they can just get fewer no's. But for most people, yeah, you get a lot of no's. Some of the no's are because, you know, you send a one-line stupid email as like a student to someone who's a professional investor in a very different sector, and you don't even follow up after that because you don't remember that you sent it. That's one category of implicit no, which is well-deserved. There's, I mean, you've heard the other two categories. There's a timing-related no, which I think are depending on when you're talking about fundraising can be the most frequent, which is encouraging because then it's not you, it's the market, or it's the fund. Then there's more strategic no's, and those are the hardest and also the most, I guess, rewarding, right? Because if you listen to them and you understand the why and you think about is this a mismatch of their strategy and our strategy, or is this a thing that we should actually just fix? You can learn a lot. So how I got it was, it was like a three-part, yeah, I think there's hundreds of no's; how do you do it? How do you navigate that?
35:14
Unknown Speaker
It's a numbers game, right? I mean, it's like, I think it's a numbers game that is a little bit informed by what's the word I'm looking for? Lead qualification. So at first, especially in my ignorant shoes at the time, you're just, it's like, there's people who are investors and people who are not investors. So you're just like, yeah. Like firing emails out there, like getting no's at an extremely high rate, but also putting in work at an extremely high level that is not very targeted. And then you learn, you understand, you listen to these people and what they're looking for, and you start to, at least you still have, you know, hundreds of no's to get, but at least those hundreds of no's are from people who are at least relevant. Like you're not just asking the wrong people. And so you start to work more efficiently in that way by qualifying your leads and understanding. And then, as we talked about at length, right, with regard to relationship building and stuff, you then not only work more efficiently, but you carry those conversations a year or two later into even more efficiency because you're able to not only qualify your leads but also know what the problems were in the past. Hopefully, in two years, you fix some of those problems, and then your efficiency rate just gets higher and higher. Ours was never objectively high. It was just a numbers game. But if you're drawing numbers from a pool of more and more reasonable investors for your stage, then at least it becomes a little bit painfully high rejection rate instead of an overwhelmingly high rejection rate, right? That's where you're to me. I mean, I'm not the best at fundraising, but that is your band. It's either very, very painful, or it's like, ah, you know, like a finished sauna that I was in a few weeks ago. It's quite painful and uncomfortable. But you know that you'll live as many other people did before you, and you get better the longer you...
37:26
Unknown Speaker
Yeah, and the more you come back in, right?
37:29
It's... Fernando Pacheco
Exactly, yeah. I think it's important to try and learn, not just to pitch, yeah, right?
37:34
And then you build up... Diana Saraceni
Long-term relationships. I mean, we can think we compare notes on deals because you're also acting as a business angel now, and a number of times afterwards. Every time I have a look at a, I run a division, something in your sector, I reach out to you. Portfolio company of ours is working with you because of that, because we knew each other. So I think over... It's a frustrating process, but also rewarding.
38:08
Somehow you build that relationship and network which is useful. Unknown Speaker
Yeah, if you persevere in that way, yeah, you come out with much more rewarding things than a Series A investment, right? You come out with long-term relationships and a lot of knowledge that you can carry to the next thing, and then that will make the next thing easier and more fun. So, because...
38:29
Fernando Pacheco
We're all kind of, we in a way, and learning as we go along, right?
38:34
Irit Yaniv
Yeah. And I think one of the important things is to share these no's with your peers, that self, right? Because it's not only you; everyone is getting no's most of the time.
38:46
Fernando Pacheco
Yeah, no. I mean, I've seen some of these kind of CEO support networks. It sounds like an alcoholic's anonymous thing, but do you know what I mean? Like, do you see more and more of these where you can share some of this knowledge?
38:57
Irit Yaniv
Yeah, yeah. And they can, they can cheat on us exactly.
39:01
Fernando Pacheco
Exactly, exactly, good. I think we're more or less up on time. But thank you very much to the three of you. And thank you, Alexei, and congratulations. And now on to the next big thing, I guess, or the next several big things, ready for...
39:13
Unknown Speaker
A one-year period of unemployment or sabbatical, as
39:18
I've been encouraged to call it. Unknown Speaker
Thank you. Okay, good.
39:20
Fernando Pacheco
Thank you. Thank you. Thank you.

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Investors That Pass: An Open Dialogue on Investment Mandates and Definitions of Success | LSI Europe '24

The panelists discuss the difficulties in balancing risk vs. reward when building portfolios. An emphasis is made on prioritizing strong relationships and maintaining a diverse portfolio to balance risk and maximize returns.
Diana Saraceni
Diana Saraceni
Co-Founder & General Partner, Panakes Partners
Irit Yaniv
Irit Yaniv
Founding Partner, Almeda Ventures
Alexei Mlodinow
Alexei Mlodinow
Former CEO & Co-Founder, SIA
Fernando Pacheco
Fernando Pacheco
Investment Director, Endeavour Vision
00:05
Fernando Pacheco
So hi everyone. Welcome to this panel. My name is Fernando Pacheco, and I'll be moderating it, I think, or trying to. The topic that resonated with me when this came up is that we pass on opportunities all the time, right? Ninety-nine percent of the stuff you look at as an investor, you end up passing on. It's easy to put yourself on a high horse as an investor because of exactly that kind of dynamic. But I think it's a nice reminder that there's a lot of humility involved in this, right? There are many things that you pass on that end up being very successful, and you learn from that, right? So that's what I wanted this conversation to be about. I think we have an interesting story from Alexei here, which turns out all three of us have actually had a look at, in varying levels of depth. So, you know, we can take that and also see if we can expand it a little bit further as well. To kick things off, we'll just have kind of introductions from different members of the panel, and also talk a bit about your investment mandate and how that affects things as we go through.
01:14
Irit Yaniv
Should I start? Yes, thank you. So, Irit Yaniv, I'm an investor and CEO at Almeda Ventures. Almeda Ventures is an Israeli VC with a unique structure. We are public, so we are traded on the Tel Aviv Stock Exchange. We raise our money in the public market, and this is an evergreen fund, so we can raise more money when and if we want. We invest in medical devices and digital health, specifically late-stage medical devices and digital health, after the $1 million of
01:58
ARR from our organization. We invest in Israel and outside of Israel. Diana Saraceni
Yeah, thanks for having me here on this panel today. I'm Diana Saraceni, managing partner at Panakes Partners, based in Italy. At Panakes, we have about $300 million under management, and we invest across Europe, the U.S., and Israel. We invest at any stage, from seed to pre-IPO rounds. We're pretty stage-agnostic, and that is part of the scope we have and the impact it has on the specific topic of this panel. About myself, I have 25 years of venture capital experience. I co-founded Panakes, and before that, about 20 years ago, I co-founded another investment company, investing across multiple geographies and different sectors, not only in med tech but also in biotech and very different sectors with very different outcomes. As we touch on the point here, I passed on a number of deals over 25 years; some were good decisions, and some were more questionable.
03:18
Unknown Speaker
My name is Alexei Mlodinow. I was the co-founder and CEO of a company called SIA, which developed an absorbable surgical mesh for plastic and reconstructive surgery. That was our technology. I ran that from 2016 until 2022, at which time, after raising $21 million in equity and $2 million in NIH grants, we exited to Integra for a transaction value of $140 million in total. There's some structuring to that which we can get into as appropriate for this panel. But just to echo Fernando's point about humility, I mean, investors obviously pass on deals that, in retrospect, they may look back on and regret or say, "Damn, that would have been nice." But on the flip side, as well, you are humbled early and often when raising money from investors. It's a very healthy exercise in listening to the reasons they are rejecting you and thinking about whether that is a "them" problem or a "you" problem. If it's a "you" problem, how you can change based on that feedback and maybe improve the outcome for yourself and for them. So I can get into the SIA point by point fundraising, but...
04:42
Fernando Pacheco
Yeah, Endeavour too, and then, and then go back to what you said: it's you, not them. That's a really important dynamic, I think, that we'll touch on. So, Endeavour Vision is a growth-stage-focused med tech fund headquartered in Switzerland, with offices in the U.S. We are investing out of a $375 million fund where we do $10 to $20 million initial tickets in only later-stage companies within devices. So, yeah, now you have, you know, I think the spectrum here from an investment stage perspective and from a geography perspective. Alexei, maybe catch us up a little bit more on SIA, and then I think on the different interactions you had with some of the members of this panel. Yeah, and we'll go through it and add more context.
05:27
Unknown Speaker
Absolutely. So I'll try to keep this kind of lean and to the point. I think some relevant things are stage by stage. When I met these three, or didn't meet them in some cases, there's an email in our CRM, and I found just the fact that they were using a CRM at that time when we didn't even know what a CRM was, is pretty telling. So, call it 2016 to 2018, we were raising a seed round, which was only about $1.3 million. Around the time that we emailed Endeavour Vision, it was very early; we had a licensed patent but no product beyond a prototype and maybe at some point some early preclinical data. So we raised that seed round and developed the product, and actually moved it most of the way to 510(k) with just a couple million, which was pretty lean and fast, I would say, self-servingly. But then, kind of like, I'd say the next era, right? If the first thing was a seed round, call it a million and a half dollars at a $10 million cap, with product development and regulatory-related milestones, you kind of then shift. A couple of years later, we're raising a Series A where we have 510(k) and at that point CE mark, and we have very early clinical use, but it's not commercial at all. So we're now in a Series A timeframe when I think I met Diana right around that time, and we're raising maybe at a $16 million pre-money and trying to raise $4 to $6 million in a small Series A to accrue more clinical data and then eventually get our first dollar of revenue, as well as start a PMA study. So that was, kind of think about 2016 to 2018. Then you have 2018 to 2020, and then you sort of have 2020 to 2022 where we were then raising a Series B. I think that was the closest we got with Panakes at the time. We had a little bit of revenue; we commercialized in the midst of COVID. We had a little bit of revenue. We had, at that point, a year or more of dozens of patients of clinical data and surgeons willing to vouch for the product and stuff. So then we were raising about, call it $10 million; that number changed, but $10 million on a $32 million pre-money based on clinical data and first dollar revenue, let's say, in order to expand commercially and to complete our PMA in the U.S. for a specific indication. So that's sort of the three entrances, I'd say, of our lifecycle and when we each met.
08:15
Irit Yaniv
Actually, we met at the seed round as well. Did we?
08:21
Yeah. Unknown Speaker
No, two times, two times, seed round.
08:23
Fernando Pacheco
You would have known, yeah.
08:25
Irit Yaniv
That's our disorganization.
08:29
Unknown Speaker
And we probably only sent one email.
08:33
Irit Yaniv
It's two notes for me.
08:37
Fernando Pacheco
Maybe just kicking off, I think with both of you, right? Can you share your perspective on those interactions? And also, there's a lot of color about where your individual fund was at the point of it's not you, it's me, kind of situation. When we passed a lot of the time, it's that right color of where your fund was, what your strategy was, what kind of deals you were looking at, what exit you had by then, and so on and so forth. I think it's really helpful color that sometimes the entrepreneurs don't get.
09:05
Irit Yaniv
Do you want to start?
09:06
Okay. Diana Saraceni
Sure. Well, as Alexei said, we met for the first time during the Series A. The company had 510(k) with no data, if I'm correct, and there was no kind of clinical evidence to support also what the use case would be and what kind of market size would be addressable. So Alexei and I discussed a number of times on what the market size could be in the end, how many procedures, and how could you shift maybe a portion of the market into using the product to increase the market size? It was all unknown because there was no clinical evidence to support, so that was perceived as a big risk, even though the product was approved and ready to go on the market. So this was probably the main reason we passed at that point: the unknown on something that was perceived as high risk. And don't take me wrong, we do a lot of high-risk stuff, preclinical stage, even not approved products. But you also have to perceive the counterbalance, which is huge potential in terms of addressable market size. And this was the main unknown. So this was during the Series A. During the Series B, it was 2020.
10:38
Fernando Pacheco
And what happened?
10:42
Diana Saraceni
Then we found out, and that was really, I mean, for Europeans, we could not even go and visit the companies in the U.S. None of us was traveling, obviously, for obvious reasons, and the company was still kind of early stage, so you would not be able to travel there. You have no idea if you went and you could finally go, and we have an in-person meeting; it was all unclear. So that was probably the main reason. We had another two main things. One was a bit of the comparable for the exit. I think we discussed that too, right? There was one comparable transaction, Bios, or in the space, that was the most comparable exit we could think of that wasn't too exciting because it was coming late into revenues for multiple that was not extraordinary. That made it overall difficult to think of a big step in the multiple, and that is about it. But I mean, frankly, there is some regret of not having identified that, yes, this was not the billion-dollar exit opportunity that is confirmed, but it was also not the riskiest of the stories we hear around. It was really the kind of balanced risk-reward. And so I was very focused on this is high risk, so I need to find out the big market size to balance. And actually, it wasn't that much of a high risk because your own expertise as a user yourself was a big asset that probably was underestimated.
12:35
Fernando Pacheco
And I think just from one of the things that I learned then in hindsight, of course, more about the story, you had a rare opportunity to fund an IDE-approved product. You had the IDE in hand, right? So to fund an ongoing IDE trial on a product that was already in the market.
12:54
Diana Saraceni
Unusual, strange, yeah. Strange, something we're not used to; it made perfect sense. It's a little bit different than what we're used to.
13:02
Fernando Pacheco
Yes. I mean, which has good, you know, positive implications around the risk. It has also some, how do you market that in the meantime, until you have a formal label, right? I mean, it's part of the sausage-making. That is this. But I think that's, yeah, that's...
13:18
Irit Yaniv
Part of it, yes. So we met when you really raised the seed. At that time, I was in Axel Med, and we did venture creation. So this was not far away from what we were doing. But you asked it before, if this is you or them, and I think that at that time it was us because we were concerned about doing venture creation for someone in the U.S., an Israeli company, with an Israeli venture arm, doing very close to home and not doing venture creation outside, over the ocean, outside of Israel. And this was our concern at that point, I think, and that's why we kept in touch because I really liked the proposal, the proposition. I liked you as a person and as a manager, and we kept it. No, really. I mean, I think that's important. I spoke this morning with some people, and they say, you know, we meet so many venture funds that don't have money at the moment. And I said, relationships are more important than money sometimes because with relationships, you keep going. And that's why we met when you did the round A, but at that time, again, on our side, we didn't have a fund; we didn't have the cash to fund SIA. And if I regret, I would say yes because it's kind of rare, and this is why we are saying yes. So, a level to find a good manager, a good product, and the real balance, or good balance, between risk and reward. And I think SIA, at the end of the day, this is what you presented. So, yep, I would say some regret.
15:20
Unknown Speaker
Oh, that's very kind of you to say; I appreciate it. This panel was not meant to be me saying, "Like, Nana," you know, so that's not at all the intention. But I think that issue that you guys articulated was a common one that we found at every stage. It was like, "Well, okay, like you're getting a 510(k), but then you're talking about this huge market which requires a PMA." Then we get the 510(k), and we have revenue. And then people say, "Okay, you're raising growth equity, and you expect a growth equity valuation, but you are also running this IDE study to get a PMA." So we're not going to, we're going to throw out your revenue, and basically in this discussion, and we're going to focus on what you should be priced at based on the PMA pathway. It was always hard talking to people to define the business in terms of what kind of investment this is. Are you hedged with a commercial strategy and you're a lower risk and maybe lower reward, or are you going for a big PMA class three indication in your high risk, high reward?
16:28
Fernando Pacheco
I think there's an element too, of kind of a lot of things are unknown, right? And when something is unknown, you grasp at whatever it kind of looks like this archetype or kind of looks like this archetype. And there isn't an archetype here for what you guys are doing, right?
16:47
Irit Yaniv
Yeah, we are guessing all the time, yeah, and, you know, at the end of the day, it's always guessing better than the other. And that's why I do believe relationships are the key for everything. At the end of the day, there are so many uncertainties. So if we build up a good relationship between the investors and the management team, between the investors and the company, we can overcome many of the uncertainties and the difficulties, or the challenges that we are going to face. And I don't think there is even one company that will not face something towards the desired legacy.
17:29
Fernando Pacheco
Maybe just kind of opening up a little broader, right? We talked a little bit about regrets. I'd be curious to have kind of one example beyond SIA, right, where for each of you—and I can share one as well—that where the reason you passed perhaps was a bit not necessarily unusual, but it would be good to have one where it's the reason why you passed because of your own dynamics and the reason why you passed because of the actual file itself.
17:59
Diana Saraceni
We need to give examples, or you're on your call, whether you want to mention them or not. Yeah, you can more on a company road and the company, yeah, no. I mean, it has to be considered that we, obviously, we build up portfolios, and in a portfolio, like, for example, at Panakes, we really sold to our LPs that we would have a portfolio that would be composite. This is why we are stage-agnostic, because it will be a well-balanced and a composite of a number of companies that will be lower risk, lower upside, and a number of companies that are the opposite. Somehow the return in the end will be balanced. And this is exactly what we do over time. We keep monitoring where we stand in terms of total risk in the portfolio and total return expectation. Sometimes it's just a snowball effect, and sometimes we pass because we are too exposed on something. But sometimes it happens a lot; we're too exposed on seed capital with very, very high risk. Yes, we have all these companies that could prove to be, if they prove to what they claim for, they're going to be huge value, but it's...
19:14
Fernando Pacheco
But you're going to have to support them for much longer.
19:17
Diana Saraceni
Longer, and it's far too risky for the portfolio. So we then, I mean, for one year or more, we all look and then look for that there will come those companies that can balance that. And the other way around, sometimes too, I have to say it's more often the case that we are too excited when we take big, risky things at Panakes. We go very early, and we have that tendency to do that. So most of the time we try to rebalance with later-stage, less risky, etc., this kind of companies. That's one item. The other item, unfortunately, is also a lot about partner capacity. For example, at Panakes, each one of us follows only some sub-sectors, and if a partner is completely booked into board meetings with companies because he or she has seven, eight, or nine companies to follow, the capacity on those specific sectors for new deals will be much less. So we also pass for reasons that have very little to do with the portfolio construction. And one last, especially in Europe, is geography. There are times when we are much more open to go beyond the European border and look a lot also at U.S. companies or Israeli companies. Sometimes Israel is in the definition of Europe, but because our own LPs do expect us to work focused on some geographies, especially in Europe, the big investor, one of the biggest investors being the European Investment Bank. Of course, the expectations are that at least a portion of the capital should then be invested in European companies, and that all of a sudden we have to pass on anything that’s outside. Again, we may have regrets; it has very little to do with how good the company is, that’s to be said.
21:31
Irit Yaniv
So, Diana mentioned portfolio from the perspective of different stages. I would discuss portfolio from the perspective of fields because this is another question that we are negotiating within ourselves. On one hand, you would like to be in a specific field because you know the players, you know the market, you know to appreciate different devices. On the other hand, you want to be versatile enough and have different fields in your portfolio. And this is always the question, okay, I have another cardiology company. I already have three. Shall I do an investment in the fourth one, or shall I look for something else that will make my portfolio a little bit less risky in a way on the field? This is a good example of something that I would say we can regret in our portfolio. A cardiology company, we invested in one structural heart company. We placed quite a lot of cash into this company. And when another company came in, we said, okay, we have one; we have a solution. We are not going to invest in another solution. Unfortunately or fortunately for the company that we said no to, they got an exit, and we didn't. So, yeah, from time to time you do take a decision that you may regret, but I think as an investor, you shouldn't regret anything. I mean, you should walk out on the portfolio that you have and make the best from what you have decided.
23:19
Fernando Pacheco
No, I think I could talk about a field in dental as an example. Very similar situation, right? You make one investment and you say, okay, I'm not going to add another company in this field because of portfolio concentration, but at the end of the day, you can diligence that second deal way better because of your investment. And yeah, there's an aspect of that. I mean, on our side, you know, we're focusing on growth stage investment, right? So generally, if you think of a portfolio of 10 companies, we're not going to have many 8x or 9x in that, right? Given when we invest in terms of the risk appetite we have, the objective is 3x to 5x in three to five years, you know, per individual deal, but then as a whole, the portfolio will do, let's say, a 2.5 to 3. But that means you can't have zeros, right? So, you can't have too many zeros that then take the average down tremendously, right? And that's why there are different, you know, you have completely three different archetypes here of how to look at things. I mean, 80% of the things we end up passing on is on stage, right? But then at the same time, when we say pass, we mean see you later, more often than not, right? I mean, on average, we meet a company, we did the statistics the other day, three to four years before we make an investment, right? To your point of relationships, that's things like this, right? It's that same conversation, what's the update? And so on and so forth. Sometimes it's hard to call it okay, this is the right time. Sometimes someone else calls it for you, and that's a competitive situation, and you have to move, right?
24:49
Irit Yaniv
But I think this is something, and I don't know who is sitting in the audience, but if they are CEOs, you should know that we are looking at what you are saying in the past, and this is something that creates a lot of credibility for us. So if you come and meet us, let's say today, and we say, as you said, too early, let's meet in two years. We keep the presentation, we keep our notes, and when you come in two years, we will compare what you told us. The best thing, of course, is to fulfill the milestone. If you did it, at least explain it, or try to explain it in such a way that this will become an appealing proposition at this stage or at the current time. This is very important because sometimes people forget that they said something two years ago and now, yeah, we promise you a PMA, or we promise you FDA approval, but we didn't meet it.
25:50
Diana Saraceni
Can I add to that? It's also the reason why we pass. We keep track, and that is, at least what we do, is the first question that we ask when we're back. It's even more than delays. I mean, delays, I'm unsympathetic. A bit of delays after so many years are understandable, but if there was a reason to pass, how has this been addressed? Is going to be the key question because we don't redo the work we had done, right? So if we had passed again, sometimes it's the market size; sometimes it's the reimbursement.
26:44
This is tracked. Irit Yaniv
You're absolutely right. And this is another tip that we should give: ask why we are passing. Yeah, because you will learn much more from those that passed than from any others. So if we pass because of reimbursement, go and find out how you can change the reimbursement landscape in such a way that next time you approach us, you have a good answer for that.
27:12
So always ask why. Unknown Speaker
I always offer it. No, not that I offer that. I ask if you want to know; I definitely...
27:23
Diana Saraceni
At the end of the meeting of the so-called first meeting, there's a key decision that Panakes we take. You might remember that it's either you get the due diligence questions, the three key points we wanted to diligence on to start, or you get the reason why we passed. So in a first meeting, that's like... and I mean, not because we think this is the reason, etc., but because that's the way we work, and we keep track, and we take it from there next time.
27:57
Fernando Pacheco
Yeah. And I think a comment on that too is, as an entrepreneur, I think it's part of the game. It's your right to ask for that type of feedback, and you should. Honestly, as an investor, when someone asks us for the feedback and for the concrete feedback, my respect for the entrepreneur grows, right? I think it's more interesting because they're... but it's, again, it's about how you ask. If you're asking because you're trying to convince, you know you want... Again, like when I give feedback, or when one of us gives feedback, it's feedback that either we've developed our own, but more often than not, it's feedback from our investment committees, right? So it's very hard for us to go back and be convinced with just, "Oh, by the way, there's also this fact." So do it in a way where you sincerely want to learn, and then you can come back a year or two later in the next financing, and if you've done your homework right, this is what you said last time. This is how it's changed, versus in that last meeting trying to, you know, "But we're actually revenue. We have revenue in this country," but it's not going to help your case, right?
29:00
Irit Yaniv
Situations try to learn, yeah.
29:05
Unknown Speaker
It was always super valuable when people provided it up front without solicitation. But yeah, we would ask for it, and our sad, technically unsavvy lack of a CRM notwithstanding, we did have... The one thing we had was like a big Excel spreadsheet with investors, with some of the, you know, last time we contacted them. But more importantly, round by round, you could look back and say, "Oh, Series A, here's the 150 conversations we had," and we did have a reason to pass for all of them. Some of you never know. You know, a lot of the time, I'll say people are for, I'm sure, positive reasons, just related to not wanting to hurt your feelings or whatever. They will fall back on something about this being maybe outside their mandate or being the wrong timing or whatever. But I would say, to lose... You know, the majority of the time if you push a little bit for, like, "What, okay, that's cool. But like, if this was a cure for cancer, you would have invested," right? And you'll get some reason for, like, "Yeah, this is why we would deprioritize it in our decision-making."
30:20
Fernando Pacheco
And I think it goes on to that forms a rapport and forms a relationship, right? It forms an honest conversation. Likewise, this is the way I think entrepreneurs can ask for feedback. They can also ask for help, right? Like, you know, look, this might not be a fit for you. What we do, I mean, what we do for a living is not working, right? Because most of us are syndicating deals at any point in time, right? So we all have other investors in our network, and I think you should feel free to ask, "Okay, for what I'm doing, who are the kind of people I should talk to? Can you put me in touch with them, or can I share a deck with you and a teaser that you can send with them and say, if they want to talk?" That helps continue that relationship, right?
30:59
Diana Saraceni
And also, maybe sometimes it's just that there was a mismatch in understanding or communication. So that helps for next time or next investors to be clear on something specific. Like if you think you were completely wrong on the outcome of our assessment, there are two reasons. One, we're wrong, and that happens a lot. Well, the second one, it's our fault for lack of knowledge or lack of expertise, or the second one is it's not been communicated well enough, and that can be fixed. So that's a very important lesson to bring home after.
31:50
Irit Yaniv
On the communication side, I think that's another point. Try to involve more than one person in the discussion because sometimes there is no fit between, you know, the investor and the CEO or the business development person that came and asked for investment. So being open and involving more of your team in the discussion may create this match or the right communication because sometimes there is a problem, and, you know, we are human; sometimes something doesn't work between two people. So try to bring more than one person to the discussion, maybe not to the first one, but try to involve more of your management team. Someone will build up this relationship and open the communication in such a way that if this is going to be a no for now, at least you build up a relationship for the yes next time.
32:55
Fernando Pacheco
I think one other aspect I wanted to touch on is, Alexei, you were still able to finance the company, right, through three successful financings, right? And then a successful exit too, right? There's a lot of tenacity involved in resilience as well. And, you know, you were told no hundreds, maybe more, for sure, hundreds, yeah, right? Could you maybe in the last five, six minutes just give us some examples of how to navigate and dribble some of those situations and what led you to the outcome that you managed to find the support and backing?
33:37
Unknown Speaker
I think it's hard to tie that all together on the...
33:45
Sorry. Fernando Pacheco
You see, he asks really complex, long questions that actually have three...
33:49
Unknown Speaker
Questions, notorious for that. So, yeah, you'll get, I mean, you for sure will get hundreds of no's, I think, almost no matter what you're doing unless you're able to self-fund. I know a couple of people that have the privilege of self-funding their thing until they have enough credibility that they can just get fewer no's. But for most people, yeah, you get a lot of no's. Some of the no's are because, you know, you send a one-line stupid email as like a student to someone who's a professional investor in a very different sector, and you don't even follow up after that because you don't remember that you sent it. That's one category of implicit no, which is well-deserved. There's, I mean, you've heard the other two categories. There's a timing-related no, which I think are depending on when you're talking about fundraising can be the most frequent, which is encouraging because then it's not you, it's the market, or it's the fund. Then there's more strategic no's, and those are the hardest and also the most, I guess, rewarding, right? Because if you listen to them and you understand the why and you think about is this a mismatch of their strategy and our strategy, or is this a thing that we should actually just fix? You can learn a lot. So how I got it was, it was like a three-part, yeah, I think there's hundreds of no's; how do you do it? How do you navigate that?
35:14
Unknown Speaker
It's a numbers game, right? I mean, it's like, I think it's a numbers game that is a little bit informed by what's the word I'm looking for? Lead qualification. So at first, especially in my ignorant shoes at the time, you're just, it's like, there's people who are investors and people who are not investors. So you're just like, yeah. Like firing emails out there, like getting no's at an extremely high rate, but also putting in work at an extremely high level that is not very targeted. And then you learn, you understand, you listen to these people and what they're looking for, and you start to, at least you still have, you know, hundreds of no's to get, but at least those hundreds of no's are from people who are at least relevant. Like you're not just asking the wrong people. And so you start to work more efficiently in that way by qualifying your leads and understanding. And then, as we talked about at length, right, with regard to relationship building and stuff, you then not only work more efficiently, but you carry those conversations a year or two later into even more efficiency because you're able to not only qualify your leads but also know what the problems were in the past. Hopefully, in two years, you fix some of those problems, and then your efficiency rate just gets higher and higher. Ours was never objectively high. It was just a numbers game. But if you're drawing numbers from a pool of more and more reasonable investors for your stage, then at least it becomes a little bit painfully high rejection rate instead of an overwhelmingly high rejection rate, right? That's where you're to me. I mean, I'm not the best at fundraising, but that is your band. It's either very, very painful, or it's like, ah, you know, like a finished sauna that I was in a few weeks ago. It's quite painful and uncomfortable. But you know that you'll live as many other people did before you, and you get better the longer you...
37:26
Unknown Speaker
Yeah, and the more you come back in, right?
37:29
It's... Fernando Pacheco
Exactly, yeah. I think it's important to try and learn, not just to pitch, yeah, right?
37:34
And then you build up... Diana Saraceni
Long-term relationships. I mean, we can think we compare notes on deals because you're also acting as a business angel now, and a number of times afterwards. Every time I have a look at a, I run a division, something in your sector, I reach out to you. Portfolio company of ours is working with you because of that, because we knew each other. So I think over... It's a frustrating process, but also rewarding.
38:08
Somehow you build that relationship and network which is useful. Unknown Speaker
Yeah, if you persevere in that way, yeah, you come out with much more rewarding things than a Series A investment, right? You come out with long-term relationships and a lot of knowledge that you can carry to the next thing, and then that will make the next thing easier and more fun. So, because...
38:29
Fernando Pacheco
We're all kind of, we in a way, and learning as we go along, right?
38:34
Irit Yaniv
Yeah. And I think one of the important things is to share these no's with your peers, that self, right? Because it's not only you; everyone is getting no's most of the time.
38:46
Fernando Pacheco
Yeah, no. I mean, I've seen some of these kind of CEO support networks. It sounds like an alcoholic's anonymous thing, but do you know what I mean? Like, do you see more and more of these where you can share some of this knowledge?
38:57
Irit Yaniv
Yeah, yeah. And they can, they can cheat on us exactly.
39:01
Fernando Pacheco
Exactly, exactly, good. I think we're more or less up on time. But thank you very much to the three of you. And thank you, Alexei, and congratulations. And now on to the next big thing, I guess, or the next several big things, ready for...
39:13
Unknown Speaker
A one-year period of unemployment or sabbatical, as
39:18
I've been encouraged to call it. Unknown Speaker
Thank you. Okay, good.
39:20
Fernando Pacheco
Thank you. Thank you. Thank you.

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