Not crash dummies: Investment crowd survives the 2020 test

Capital rode the pandemic roller coaster with one hand firmly on the safety bar, keeping viable companies afloat through the downturn and the digital transformation

2020 was a wild ride. What did we learn?

Our year began on a high. In February 2020 we hosted the OurCrowd Global Investor Summit in Jerusalem with 28,000 registrants from 183 countries, the biggest business gathering in the Middle East and the largest crowdfunding event in the world.

Fears about the novel Coronavirus were starting to ripple through the international community. We made contingency plans. A few participants cancelled. One day before, GSMA announced the cancellation of the Mobile World Congress in Barcelona 10 days later. But the Summit – our biggest ever – went ahead without a hitch. Within days, the crisis broke. The world’s major business gatherings were wiped off the calendar, nations went into lockdown and global stocks sank – the fastest drop in financial history and the deepest crash since 1929.

Like many other businesses, we began planning for the worst. In March, we called our troops together, placed people on furlough, and battened down the hatches to try and save our investment platform and our portfolio companies from the ravages of the gathering storm.

But as the pandemic swept around the globe, killing hundreds of thousands, wrecking families and businesses, and devastating health systems, the investment picture began to rise from the bleak backdrop.

While 2020 was a terrible year suffused with suffering, death and grieving, the financial picture was very different. Stocks plummeted, but the global markets came roaring back, setting new records as Jeff Bezos and Elon Musk competed for the crown of the wealthiest individual in the history of the world.

In the real world, a year of unprecedented digital transformation transformed the way we work, rest and play. Capital rode the roller coaster with one hand firmly on the safety bar. In May, Airbnb CEO Brian Chersky laid off 25 percent of his 7,500 employees and reduced investment in several core activities. The outlook seemed bleak. But this was not the company’s first setback. In 2008, Chesky and his co-founder Joe Gebbla paid off $40,000 in credit card debt by selling their now legendary Obama O’s and Cap’n McCain’s breakfast cereals. After Paul Graham was presented with a box, he accepted them to Y Combinator – and the rest is history.

As remote working and learning became the norm, and cities became petrie dishes for the plague, families realized they could be anywhere and still stay connected. Thousands returned to Airbnb to book getaways within safe driving distance where they could enjoy clean air, a change of scenery and stable wifi. In December, the company went public with a monster IPO and a market cap north of $100 billion.

Via Zoom

Like Airbnb, we also feared for the worst. Some 90 percent of the investments that sustain Israel’s Startup Nation come from abroad. Traditionally, we have raised those funds for our portfolio companies through personal contacts at meetings, conferences and our own Global Investment Summit. Would the same investors turn up if we only met them via Zoom? They did – and then some.

Israeli high-tech investment in 2020 soared to a record-breaking $9.9 billion, a staggering 27 percent increase from 2019. Companies raised an additional $7.8 billion through M&As and another $6.5 billion via IPOs on the capital markets.

What’s the lesson here?

Startup companies consistently need money. When crises happen – and they do – you must be pro-active or the company fails and you get wiped out. In venture capital investing, when a company gets knocked around, that’s when the creditors show up. To stay alive, a company needs additional investment. The people who stick with it are usually the ones who will eventually benefit.

This year, we had several such companies in the OurCrowd portfolio that came close to running out of gas. We stepped in and funded them – often with other far-sighted co-investors – and it looks like in most cases we made the right decision. But how do you know which bets to back, and when to walk away? How do you avoid throwing good money after bad?

Constantly vigilant

Investors needed to be constantly vigilant and ready to respond. 2020 was the ultimate test for venture capitalists.

In 2000, I was at Israel Seed Partners. One of our startups, Shopping.com, hit a rough patch and most investors walked away. We stayed with it and sold it a couple of years later for $640 million. Another company, Mobile Access, also came close to failing. We did the same. It was eventually acquired for $200 million.

In the storms of 2020, venture capital once again laid a steadying hand on the tiller, keeping viable companies afloat through the downturn and the digital transformation. Bizzabo, a thriving in-person conference and events platform, faced the death of an entire industry back in March. Within three weeks, the company reinvented itself, pivoting to virtual events. By year’s end, its revenues had doubled and the number of events on its platform grew by 65 percent. In December, we doubled down and invested heavily as Bizzabo raised $138 million in a round led by Insight Partners.

2020 was the year when people got a taste of what it’s like to be a venture capitalist. But OurCrowd is not a traditional VC. We depend on our global community of investors to back each individual deal. An experienced venture capitalist might risk standing by a company under pressure, or even invest in a down round, but would the crowd show up when public markets are wobbling? Would they be prepared to protect portfolio companies when the storm is howling?

Long-term returns

2020 was the ultimate crash test for the crowd – and they proved they were no crash dummies. Like the Israeli ecosystem where we reside, OurCrowd has enjoyed a record year. Our fundraising for investments via SPVs and funds rose by 60 percent in 2020 compared to 2019, and we saw a 200 percent year-on-year increase in new active investors. It seems the crowd may indeed act maturely, like seasoned venture fund managers, and are able to look beyond a current crisis to the likelihood of long-term returns.

Among the startups in our portfolio benefiting from this long-term approach are many directly addressing the issues raised by the pandemic and developing solutions that will enable those whose lives have been ravaged to bounce back. They range from medical companies developing cheaper, effective anti-Covid vaccines and treatments, to digital health startups addressing the new medical normal of distance diagnosing and remote treatment, to enterprise and security software that can help small businesses grow in an era of remote working and offsite computing.

The dawn of 2021 and the rapid rollout of the vaccines brings new hope that the virus can be controlled, but we are still left with the challenges of climate change, food and water security, pollution, cyber attacks and much more. Just as the coronavirus vaccine came from startups like BioNTech and Moderna, and research institutions like Oxford University, nimble startups and innovators are also creating solutions to these broader challenges, and venture investors are providing them with the resources they need to succeed.

This was a year that tested everyone’s mettle, including venture investors. I have lived through several down markets including the crises of 1987, 2000 and 2008 and I thought I had seen it all. But no-one alive has experienced anything quite like the crash of 2020. It was steep and scary and intertwined with a deadly global plague. It was easy to panic. But we managed to stay alert and respond correctly. The crowd proved itself to be both wise and resilient, helping to put many of the horrors of 2020 behind us.