In a sea of negativity, here's why we're bullish on 2023 for VC
In their 2022 year-end reflections, many commentators proclaimed that the venture capital industry is fundamentally broken. In the tailwinds of the most free-flowing period for startup capital in recent memory, investors gleaned difficult-to-swallow insights from failures in the due diligence process.
They were taught — yet again — that having a bold and daring founder should not be the only criteria for investment. They were exposed to the dangers of adopting groupthink in an industry pioneered by those who bucked convention and trends. LPs, for their part, hopefully deduced that established funds are not immune to massive losses, and especially not the perils of overconfidence.
In response, there has been an over-correction in some VCs’ investment approaches. Managers pulled back from their overly-risky investments and instead turned towards what seemed the safest and least disruptive investments at hand. Late last year, reports arose that some fund managers even went as far as funneling LP investments into the stock market. While it may have been more than reasonable for investors to re-evaluate their approach after a period characterized by what Alan Greenspan might have called “irrational exuberance” in tech, such a conservative strategy is antithetical to the mission and purpose of venture capital.
Although many VCs indeed saw their mistakes get exposed — in some cases, on the global financial stage — the industry itself is not inherently broken. Instead, it appears that venture capital is primed to experience its own innovation and optimization.
At Erez Capital, we’re not aiming to simply ride the wave of this change in our field, but to step in and lead it. We’re a young team with great accomplishments and experience, yet we will not pretend to have “seen it all.” We back confident founders with whom we share the belief that their company will transform or even create an industry, but we don’t abandon the fundamentals. We are quick to share and evaluate deals with and from those we trust, but external pressure or a fear of missing out will never drive our investment thesis or decisions.
We hope that as the venture capital industry changes, fund managers will be more accountable to their stakeholders and their portfolio companies. VCs should trust their gut, yet should also being willing to seek a second (and third) opinion and welcome disagreement. These are core tenets of our firm, and a large part of the value we provide to investors.
Erez has the benefit of deriving insights not only through our own data collection and network of experts, but also through the experiences of other funds. As emerging managers, we have the luxury of adopting key points of wisdom, without the baggage of heavy losses. We are a youthful, energetic, future-focused fund that aims to achieve the original purpose of venture capital itself — beating the returns generated by the public equities market — in a non-traditional manner.
In a time where there seems to be no clear “safe” destination for investment, it is worthwhile to keep an eye towards the future. Just as the economic highs of the last few years ultimately came to an end, this downturn too shall pass.
Despite a turbulent economy and questions about how long we’ll be stuck in a tailspin, there are still founders hard at work to build businesses that will bring exciting products to the market, create jobs and generate returns for investors. We have been impressed with the successes of early stage startups we have worked with to generate user/customer growth, form strategic partnerships, pilot proof-of-concept programs, and operate efficiently despite the many difficult external factors they face.
Though established firms are either sitting on their stockpiles or doubling down on their existing portfolio companies, Erez Capital has continued to seek out new investment opportunities and capitalize on the prime deal flow we have garnered in the few months since our launch. In the new year, our firm will look to take full advantage of the value that is ever-present in the innovation economy and lead VC, by example, in a better, more optimistic direction.