Avi Eyal: Making $2.3BN on Monday, Stripe & PillPack | E1173

Intro (0s)

• Avi Eyal invested $15 million on Monday and made a $15 billion distribution.
• Successful investments don't always equate to big gains.
• Winning enough good deals is more important than winning every deal.

Impactful Childhood Hardship (51s)

• Avi Eyal's mother and Belia shaped who he is today.
• He was born in Israel during a tough time and grew up in a lower-middle-class family.
• At 5 and a half, he was whisked away to South Africa and left to figure out a new language, friends, and environment.
• This experience made him independent and resourceful.

Luck vs Skill in Achieving Success (1m51s)

• Many successful entrepreneurs moved in childhood, which forces them to assimilate to new environments and cultures.
• Avi Eyal believes that hard work increases luck.
• He gives 20-30% of his success to luck.
• His luckiest moment was having scuba diving skills that helped him survive the 2004 tsunami in Thailand.

The Speed of Conviction in Venture Capital (3m39s)

• At Entrée Capital, they use the "four T's" method to evaluate investment opportunities: technology, team, timing, and team again.
• Technology and team are the core product and the team that built it.
• Timing refers to when the product is coming to market.
• The team is the top priority, followed by timing, then technology.
• They take market timing risk, which is a function of patient capital.
• They build for the long term, not just for today.

Sustaining Companies Through Financial Droughts (5m22s)

• Companies can run out of money if the market doesn't come to fruition as expected.
• With conviction, salesmanship, and proper financial planning, companies can take different decisions to conserve or spend capital more quickly.
• Milestones along the way provide opportunities to make decisions and choose the right path.
• Luck is also a factor, as there are many investors and it's a challenge to get funding.
• Planning is important to approach the right founders, VCs, and strategic investors at the right time to secure funding and succeed.

Insiders vs. Outsiders To a Market (6m34s)

• Prefers founders with intimate knowledge of the industry they're tackling.
• Examples of successful founders with industry knowledge:
  • Roy Mann from Monday.com
  • Ido from Riskified
  • TJ Parker from PillPack
  • Ran Korba from BreezoMeter
• Doesn't need a large ownership in large outcomes when you have a small fund.
• Angel deals (smaller checks with optionality to increase ownership over time) can get significant returns and bring a 1x return on the fund.
• Big winners are the ones that hit out of the ballpark and provide extra multiples.
• Typically has 10 Angel deals and 10 core deals in a fund.
• Believes in adding value and working with the companies.
• Largest number of companies in a fund was 23-24.

Navigating VC Competition in Angel Deals (10m10s)

• Angel deals are done when the fund leading is good and can drive the business forward.
• Angel deals are generally deals that the firm wouldn't have won or led.
• They don't win every deal, but they participate in enough good deals to get their fair share.
• Sometimes they start with an angel check and increase their ownership as the company proves itself.
• An example of this is Breel Meter, where they started with a small check, then led the seed, and continued to invest in the A and B rounds. They eventually sold the business with the largest ownership, returning $30 million.

Concentrating Capital in Successful Startups (12m29s)

• The idea that you can't concentrate capital into winners is not entirely incorrect.
• Today, it's important to get the next round done by a fund that can also do the round after that.
• If a tier-one fund does the seed round and then doesn't do the A round, it can signal risk or challenges for the startup.
• The institutionalization of VC has made it easier for large funds to write early checks, as they are a small fraction of their fund.
• Startups need to think about these things when considering funding options.

Navigating Price Sensitivity & Valuation Discipline (15m15s)

• Price sensitivity is crucial in valuation, as expensive early deals can lead to poor decisions and limit future fundraising options.
• In Israel, top deals typically range from $6-12 million on a 15-30x ARR, potentially resulting in excessive dilution.
• For asset-light businesses with low MVP costs, $8 million seed rounds are unnecessary and can introduce unnecessary risk and dilution.
• The decision of when to pay a higher price depends on the specific deal and the fund's investment strategy.
• The fund's own capital represents a significant portion of its funds, leading to shared risk and alignment with limited partners (LPs).
• The fund focuses on the businesses it invests in and intentionally limits the number of companies it supports simultaneously, believing that deeper involvement leads to better outcomes.
• Market size (TAM) can be misleading, as great markets often start small. Finding exceptional founders is more important than solely relying on market size.
• The fund targets smaller markets where there's an opportunity to be among the top one or two in terms of revenue and profit.
• Smaller markets reduce options and require less capital to fund, making it easier to achieve reasonable returns.
• A fund can be successfully built by achieving reasonable returns in multiple smaller markets.

Strategic Approaches to Competitive Markets (21m27s)

• Competitive markets are challenging due to limited pricing power, high customer service costs, lower retention rates, and difficulties in product marketing.
• However, competition can be beneficial when a company is in a dominant position.
• Investors often prioritize vanity over sanity when investing in competitive markets.
• Success in competitive markets requires careful cost management and a clear path to victory.
• SeatGeek operates in a highly competitive market with thin margins but has found success by offering a vertical ticketing solution that goes beyond just selling tickets.
• They control ticket generation, pricing optimization, and other aspects of the ticketing process, which gives them an edge over competitors like StubHub.
• Monday.com also operates in a competitive market but has found success by identifying and exploiting a wedge in the market.
• They offer specific solutions such as Monday Dev and Monday CRM, which compete with established players like Jira, Salesforce, and Pipedrive.

The Monday.com Success: Defying Market Skepticism (23m58s)

• Avi Eyal, a venture capitalist, invested in Monday.com, a project management software company, despite skepticism from others about the CRM market.
• Monday.com initially struggled but eventually achieved a breakthrough and gained traction due to its versatility and lack of limitations.
• Eyal and his firm remained committed to Monday.com, leading several funding rounds despite the lack of interest from larger venture capital firms.
• Monday.com became a successful public company, and Eyal's initial investment of approximately $15 million resulted in a distribution of over $1.5 billion.

Lessons on Settling Down: Timing & Approach (30m24s)

• Avi Eyal discusses his approach to selling down investments.
• He emphasizes the importance of not falling in love with the value of an investment on paper.
• Eyal suggests selling a third of an investment when the price per share reaches six or eight times the initial investment price.
• He also recommends selling a third when the company reaches the pre-IPO round or IPO, and then distributing the remaining shares when the lockup expires after the IPO.
• Eyal explains that venture capitalists are private investors and their expertise lies in getting businesses to a point of liquidity and success, after which it becomes someone else's opportunity.
• Eyal provides the example of Kazoo, where they sold a portion of their investment when the valuation reached £2.2 billion, two rounds before the pre-IPO.
• They were able to sell some shares when the company went public, but faced challenges due to restrictions on the amount they could sell.
• Despite not being able to sell a third of their investment at the IPO, they still managed to sell 10% and later distributed the remaining shares when the lockup expired.
• Even though the share price had dropped from $450 to $5, Kazoo was still a $25 billion business, resulting in a successful return on investment for Eyal.

Avi's Strategy for Selling Stripe Positions (33m26s)

• Sold close to 50% of Stripe holdings.
• Public stocks are subject to market manipulation and unpredictable price movements.
• Missing quarterly targets as a public company can lead to significant stock price drops.
• Venture capital's purpose is to take companies to an exit or public, not to hold long-term positions.
• Andreessen Horowitz and Sequoia have become more institutionalized due to the large size of assets they manage.
• It's challenging to manage small investments with the same attention as larger positions.
• This creates opportunities for smaller VCs to provide more personalized attention to founders.
• Founders can benefit from the advice and mentorship of experienced investors, especially in the early stages of building a business.
• Successful founders may still need occasional course correction, mentorship, or alternative advice.

VCs' Pre-Product-Market-Fit Role (38m48s)

• VCs can be helpful pre-product market fit by providing guidance on:
  • Tightening the ideal customer profile (ICP).
  • Refining product marketing.
  • Focusing channel acquisition.
• Founders may have weaknesses, such as difficulty in understanding how to raise money or hiring for sales channels.
• VCs can provide support in these areas, such as:
  • Providing organizational development specialists to help with recruitment.
  • Offering guidance on how to raise funds, including which VCs to approach and when.
• The best CEOs are not necessarily the best fundraisers.
• Fundraising is a necessary evil that needs to happen every few years, but it is not the primary day-to-day job of a CEO.
• The primary day-to-day job of a CEO is building a product, closing customers, and raising money.

Avi’s Biggest Investing Mistake (41m14s)

• Avi Eyal made a significant investment mistake by investing $4.5 million in Harvest Automation, a Boston-based company that ultimately failed.
• Eyal stresses the importance of thoroughly understanding the market and the capabilities of the founders before investing.
• He advocates for open and honest conversations with founders when he loses confidence in their abilities, allowing for a reset in expectations and a more transparent relationship.
• Eyal compares successful investments to a chef's exceptional dish amidst many mediocre ones, highlighting their outlier nature.
• Despite achieving top-fifth percentile VC returns, Eyal's fund's losses are comparable to private equity losses, raising questions about his risk-taking approach.
• Eyal expresses concern about the sustainability of businesses after a successful quarter and emphasizes the need for continuous growth and success, especially for pre-seed businesses.
• His best-performing fund has a DPI (Distribution to Paid-In Capital) of 38x, while two other $80 million funds have a DPI of around 5x.
• Eyal criticizes the younger generation's focus on short-term returns and emphasizes the importance of long-term performance, particularly after eight to ten years.

Sourcing, Selecting, & Servicing (48m2s)

• Avi Eyal believes in the importance of three core talents: sourcing, selecting, and servicing.
• He acknowledges that he could improve in the area of sourcing.
• Eyal strives for constant improvement and believes that he is never good enough.
• His strict upbringing and high expectations from his parents have influenced his drive for improvement.
• Eyal tries to take the good from his upbringing and avoid the bad while parenting his own children.
• He hopes that his children will acknowledge his parenting efforts when they are older.
• Eyal believes that success as a parent is when adult children actively choose to spend time with their parents.
• As children grow older, they seek wisdom from their parents.
• Eyal cautions against inadvertently controlling children under the guise of giving advice or sharing wisdom.
• It is important to trust that children have been instilled with the right values and to offer wisdom gained from experience.

Learning from Misses (50m13s)

• Avi Eyal believes that misses are valuable experiences that help shape mindsets and provide learning opportunities.
• He shares an example of missing an investment opportunity at Lemonade due to forgetting to follow up after an initial conversation.
• Eyal emphasizes the importance of being action-oriented and having a clear "who, what, when" plan to avoid such misses in the future.
• Eyal suggests sending emails to oneself as reminders for important tasks or actions.
• He reflects on his journey and acknowledges that while he may have made mistakes along the way, he is at peace with what he and his team have accomplished.

Advocating for Israel & Countering Anti-Semitism (53m37s)

• Avi Eyal discusses the current state of Israeli society and the need for a new generation of leaders, with the older generation providing wisdom and management skills while the younger generation makes decisions for the future.
• Eyal addresses anti-Semitism, which he believes has always existed and is not limited to the US collegiate system.
• Anti-Semitism stems from the fact that minority groups are often disliked when they become too prominent, and it is prevalent due to the existence of Israel and the concept of Jewish self-determination.
• Rabbi Sacks observed that hatred often begins with Jews but does not end with them, and Israel and the issue of anti-Semitism serve as a warning signal for Western society.
• Eyal emphasizes the importance of taking a stand against anti-Semitism.

Prospect on Long-term Palestinian-Israeli Relations (1h0m37s)

• Israel needs fixed borders to operate legitimately as a nation state.
• Palestinians need real leadership.
• The world needs to stop using Palestinians as a scapegoat.
• All parties need to come to agreements that promote peace.
• Anti-Semitism is a complex issue that requires real leadership and vision on both sides.

Quick-Fire Round (1h2m57s)

• What have you changed your mind on most in the last 12 months?
  • The world has become a far more dangerous place.
• What's the biggest misconception of the Israeli startup ecosystem?
  • That it won't bounce back.
• What's the best investment advice you've ever received?
  • It's only your psychology and complacency is the ultimate killer.
• What are your views on some of David Sax's views?
  • He doesn't understand that America needs to look after its own interests while also understanding that the world is connected.
• What's the biggest piece of BS advice that you hear given most often?
  • Contracted ARR is the sum total of all users, it's just another Community adjusted epidor.
• What's the biggest mistake the you see first-time Founders make?
  • Underestimating burn and overestimating their capabilities.
• Biggest sin of the Zar era?
  • Zero interest rates, Venture debt, and capital raising with no thought about how money gets returned.
• Where will you be in 10 years? What do you want for Entre what do you want for yourself?
  • He wants to be on the beach with his family and dogs, retired and bored.