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BGV Founder Eric Benhamou will speak at the SuperReturn US West conference in San Francisco, February 12-14 2018. Panels hosted are “Raise and repeat: common challenges of raising the second and third fund” (February 12th, 2:15pm)  and “Succession planning in private equity” (February 14th, 12pm). Eric Benhamou will also discuss opportunity funds at SuperReturn West’s “Opportunity funds in the spotlight” fireside chat (February 13th, 3:45pm). Register to attend SuperReturn US West 2018 to hear Eric Benhamou and other industry leaders share their insights. Event details located here.
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True Global Ventures has held 17 highly praised Disruption in Financial Services events in New York (3 times), San Francisco, Singapore (3 times), Beijing, Hong Kong (twice), Shanghai, Mumbai, Stockholm (twice), London (twice) and Paris. We are stringing together fintech trends and what Financial Institutions in the future might look like. We showcase growth stage fintech startups, identify future Blockchain and Initial Coin Offering (ICO) trends and help bring the industry together. We do not allow this to become a PR & Marketing event, media and journalists are not allowed and Chatham rules apply. We are aggressively challenging the POC Artificial Intelligence Machine as well as the ongoing hype around ICOs. We dig into real user cases of AI and Blockchain applications to solve real problems and define what should go into production or ICOs. Look forward to an engaging discussion with top industry leaders (corporates, investors, entrepreneurs) in Fintech! We are industry-focused and understand trends and approaches to innovation throughout our 9 cities in 3 continents globally.

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TGV San Francisco Event 2017

13 September 2017
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Eric Benhamou, the venture investor who ran 3Com and Palm before they were sold to Hewlett-Packard, is eyeing opportunities in China and the end of the “unicorn bubble” as he closes his third investment fund at Palo Alto-based Benhamou Global Ventures.

This TechFlash Q&A came shortly after a Menlo Park e-commerce company he was involved in, Grid Dynamics, was sold to China-based Teamsum. It has been edited for length and clarity.

In addition to being on the board at Grid Dynamics and investing through his firm, Benhamou is on the board at Cypress Semiconductor, Silicon Valley Bank and Finjan Holdings.

You’ve been involved — both operationally and as an investor — for four decades. You’ve seen the ups and downs of the cycles that we’ve gone through for several decades. Lately, the description that I keep hearing is that in the last three to five quarters, the startup world has seen a return to normal. Would you agree?

Yes, I would. But with the caveat our firm has never really deviated from the normal. There was a short period of time in which valuations seemed to become unreasonable.

Most of that phenomenon tended to pertain to consumer-facing businesses and it was labeled appropriately as “unicorn hunting.” We never played in that environment. We focus on the different parts of the markets where we never really deviated much from normal. As an example, our average valuation today for Series A companies today is basically the same as it was three years ago.

So you have been staying the course and watching the unicorn hunters go by?

That’s right. Some of them crashed and burned and others have continued. That’s OK. It’s a different sector of the industry that we focus on. We believe that the trend that we’re riding has long legs.The digitalization of industry that we’re witnessing right now is still in the first couple of innings and it’s affecting all the sectors of the industry. So we’re not as exposed to fad or to consumer tastes, one way or the other.

Basically we’re focused on technologies which help enterprises be more productive and more customer-centric and more resilient.

You were involved with Grid Dynamics, a Menlo Park e-commerce company that was recently bought by a Chinese company. Tell us more about them.

Grid did extremely well in terms of its business trajectory. It had major U.S. customers — large enterprise customers mostly — in the retail and financial sector, particularly over the last few months. That attracted the attention of many suitors.

I was on their board and I was very actively engaged with the management team, Leonard and Victoria Livschitz, who are cofounders. I worked very closely with them, particularly in the process leading up to the sale to Teamsum.

Eventually we decided that, rather than being opportunistic, we should follow a structured process with an adviser. I helped Leonard work through this process and we eventually narrowed down the groups of qualified suitors to a very small number.

Teamsum became the most attractive one for a number of reasons. One is that they happened to be one of our investors in Fund III. We had a preexisting relationship with them and we knew that it would be an extremely good fit strategically. There was basically a foundation of trust since we knew each other. So that actually went quite well.

It looked like they hadn’t raised all that much money over the years. Is that right?

Yes. Grid Dynamics is an engineering services company as opposed to a product company. So it is less capital intensive than some other investments we make. There was only one other firm that was invested in them, called DTV.

Grid did not go through multiple rounds of financing because their base of customers provided sufficient cash flow to help the company finance itself. There was no need to go through growth investments. That was fine because we’re able to maintain our position through that.

What do you think of the concerns that are being raised about China becoming so prominent a player in U.S. technology company M&A and investments?

China has a very strong economy and they weigh in a lot more in the global scene than they did just a decade ago. So it’s inevitable that we’re going to have more and more M&A transactions that are cross-border. There may be some M&A transactions that are more sensitive than others and require a close look by regulatory authorities like the Committee on Foreign Investment in the United States CFIUA. But in the case of a company like Grid Dynamics that does not really sell a product, it sells services, the concern would not be really well-focused.

Keep in mind that Grid, while being a U.S. company, has about 600 engineers in Eastern Europe. That is a great source of its service talents — excellent engineers with great math backgrounds. So there was really not much that was worthy of a deep consideration or concerns when it comes to U.S. assets. That is actually why it went quite smoothly.

Are any of the investments that you’ve made in some of the more sensitive areas? I know you’re on the board at Cypress Semiconductor and that is one of the areas people have been looking at. Another that it seems everybody is involved these days is artificial intelligence — or at least they say they are. Where do you think the line should be drawn?

Well, it is really up to government officials to spell out the policy on what rises to the level of a significant concern and what doesn’t. I can tell you that the M&A momentum flows in both directions. So, for example, at the same time as we were negotiating the sale of Grid to Teamsum, we were also negotiating a Series C investment into one of our portfolio companies by some Chinese investors and some U.S. investors. It’s a Palo Alto company called IndentityMind Global and the expectation is that it will expand into China. It is a cybersecurity company that focuses on fraud detection on electronic transactions.

We’re dealing not only with companies like Teamsum who are expanding their operations into the U.S. but also with the exact opposite — U.S. companies going into China. We have been developing important relationships in China to help secure partnerships for our U.S. portfolio companies as they expand there.

People talk about great opportunity in China but they also talk about a lot of copycat type of businesses that show up there, sometimes before they can even get there. How do you weigh the opportunity versus the risk in deciding when is the right time to go there and what founders should be thinking about?

The opportunity is now. That’s because China has an economy that is vastly expanding. From an IT perspective, it is not saddled with earlier generations of products and infrastructures. They have an opportunity to basically skip a generation or two and really advance.

We focus on enterprise IT exclusively. There are a number of large enterprise companies there who need to buy IT products and services. And they need that today. They may not find suitable Chinese manufacturers for these products and services and therefore they will turn elsewhere. We want to make sure that we’re there for these opportunities.

Give me an update on your funds. When we last spoke, you had raised just part of the money that you intended to and you were also talking of perhaps doing a growth fund. Any news on either of those fronts?

Our Fund III is at the very tail end of its fundraising process. In fact, we’re no longer soliciting interest from any limited partners. We’re just finishing the legal negotiation with the last batch of LPs who wanted to come in. We expect to complete this in a matter of a few weeks. Fund III is basically done. We fully expect to continue to raise some capital and be active in the market for a slightly different orientation for the next fund.

Both Fund II and Fund III were early-stage oriented. We would expect our next fund to have a broader scope and be suitable for larger opportunities and for more mature opportunities. You could call this growth, but sometimes growth is a bit of misnomer because it covers too broad of a spectrum of opportunities. It may be easier to think in terms of an equity series.

Typically, Fund II and III would invest in seed and Series A and B. Beyond that, the investment opportunity would typically be considered out of scope. We want to have a fund that enable us to continue to plow capital into really strong companies as they get to the next stage. And fund IV will meet that requirement.

That’s the current thinking. We’re not actively marketing fund IV right now. This is just the current thoughts of the partners on this, but we will be in active marketing mode on it as soon as Fund III reaches final closing in the next two to four weeks.

Source: http://www.bizjournals.com/sanjose/news/2017/04/17/ex-palm-3com-ceo-on-venture-return-to-normal-china.html

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Grid Dynamics, backed by the former CEO of 3com and Palm, was acquired on Friday by Teamsun, China’s leading IT service provider.

The terms of the deal were not disclosed. Grid Dynamics had raised only $1.8 million since its founding in 2006, growing the business without needing more.


Palo Alto-based Benhamou Global Ventures, led by former 3com and Palm CEO Eric Benhamou, was the only investor disclosed. Financial details of the acquisition were not announced.

Grid Dynamics is now wholly owned by Teamsun subsidiary Automated Systems Holdings Limited. Grid Dynamics will continue to operate independently under its own name.

CEO Leonard Livschitz heads up the Menlo Park-based Grid Dynamics, which provides e-commerce technology to customers in the retail, finance, media and technology sectors.

“This acquisition is a tremendous milestone” Livschitz said in a press release. “As a part of the ASL/Teamsun family, we gain access to new markets — such as China, Hong Kong and other Asia Pacific countries, as well as Europe.”

Livschitz also hopes to pursue emerging opportunities, such as connected cars and IoT in the manufacturing and automotive sectors.

ASL is a Hong Kong-based IT service and leader in system integration, hardware, software and support services. ASL is a subsidiary of Beijing-based Teamsun, which maintains more than 5,000 employees and more than 20 IT service holding subsidiaries in various verticals.

“Customers trust Grid Dynamics to develop their digital future,” ASL CEO Leon Wang said in a press release. “We are excited to join forces to go after more customers in more regions and industries.”

Source: http://www.bizjournals.com/sanjose/news/2017/04/07/e-commerce-tech-startup-backed-by-3com-palm-ex-ceo.html

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Firm’s Global Enterprise Operating Expertise Bolsters Early-Stage Tech Entrepreneurs Palo Alto, CA –  April 4, 2017 – Benhamou Global Ventures (BGV), an early-stage venture capital firm with deep Silicon Valley roots and an exclusive focus on enterprise information technology opportunities in global markets, announced two more exits from BGV II – which first invested in 2014. Zentri, a BGV II seed investment, was acquired by Silicon Labs and Grid Dynamics, another early BGV II investment was acquired by Teamsun through their Hong Kong subsidiary Automated Systems Limited. “These two exits showcase our fund’s investment strategy when investing in early stage enterprise IT,” said Anik Bose, General Partner at Benhamou Global Ventures. “BGV’s cross border innovation combined with the partnership’s deep company building experience and ecosystem relationships continue to deliver favorable outcomes for each portfolio company, the technology, the management team and our investors.” While smaller VC funds, also known as Micro VC, are relatively new phenomena, a Cambridge Associates 2014 report found that funds with less than $500 million account for over half of value creation in venture capital most years. These two exits place BGV II at the top decile of historical average performance in the VC industry for vintage 2014 fund results. And, the unique no-management fee structure of BGV II has kept Benhamou Global Ventures well-aligned with its portfolio and its limited partners. Grid Dynamics Acquired by Teamsun Grid Dynamics, an engineering solutions company known for transformative, mission-critical cloud solutions for retail, finance and technology sectors was acquired by Teamsun (through their Hong Kong subsidiary ASL), one of the top 5 systems integrator in China. Teamsun acquired Grid Dynamics for it’s blue chip customer base, it’s world-class competency and industry specific blue prints in big data analytics, scalable omni-channel services, DevOps and cloud enablement. Grid Dynamics built a global profitable business with 700 + engineers in Eastern Europe. Teamsun, one of the top 5 systems integrator, in China is publicly traded on the Shanghai stock exchange (SHSE stock code: 600410). “Eric Benhamou and his team at BGV were instrumental in our successful growth and preparing us for the growth path we will continue now that we’ve joined Teamsun,” said Leonard Livschitz. “BGV understood our technology, our customers and the global marketplace in a way that helped ensure we maximized value and had the most significant impact possible.” “The success of our work with Leonard Livschitz, while CEO of Grid Dynamics, and with Victoria Livschitz, founder and CTO, is a testament to not only their entire team’s work ethics and technical skills, but also to their drive to create the best possible outcomes for Global 1000 customers,” said Eric Benhamou, founder of Benhamou Global Ventures and a director of Grid Dynamics. “Now as a driving force with Teamsun, I’m confident Leonard will continue to drive innovation and success for customers worldwide. Zentri Acquired by Silicon Labs Zentri, an innovator in low-power, cloud-connected Wi-Fi technologies for the Internet of Things was acquired by Silicon Labs which was announced by the companies in January 2017. Silicon Labs is a leading supplier of silicon, software, and solutions acquired Zentri for its unique combination of modules, embedded and cloud software, APIs and tools that enables rapid development of secure IoT end node products in a matter of weeks. By eliminating the need for wireless design expertise and providing a library of cloud-connected applications, Zentri allows IoT device makers to focus on differentiating their products and speeding time to market. About Benhamou Global Ventures BGV, is an early-stage venture capital firm with deep Silicon Valley roots, with an exclusive focus on enterprise information technology opportunities in global markets. BGV currently has 20 active investments across its fund II and fund III portfolios.  The BGV team has successfully built and implemented a cross-border venture investing model with companies from Israel, Europe and Asia. The fund was founded by Eric Benhamou, former chairman and CEO of 3Com, Palm and co-founder of Bridge Communications. Comprised of an experienced partnership team of global operating executives and investors, BGV is often the first and most active institutional investor in a company and has a powerful network of technical advisors, executives and functional experts who actively engage with its portfolio companies. The company has offices in Palo Alto, California and Tel Aviv, Israel. Website: www.benhamouglobalventures.com Twitter: @BenhamouGlobalV Email: marketing@BGV.vc LinkedIn: https://www.linkedin.com/company/benhamou-global-ventures Media Contact: Laura Cruz, laura@tenorcom.com, 917.406.7517
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Eric Benhamou BGV Founder and General Partner shares his perspective on how “optimal stopping” computer algorithms may inform venture capital investment decisions. What does “optimal stopping” have to do with venture capital investing? More than you may think at first blush. “Optimal stopping” refers to the classical computer science problem of deciding when to stop looking for the optimal thing you are searching for and take the leap to pick the next available one that comes along the way. We all experience this problem in everyday life choices, most typically when we look for a parking space as close as possible to our ultimate destination. Instinctively, we tend to not take the first one that presents itself. We wait a little until we feel we are close enough, then we take the plunge: the next one open is the one we choose. When do we cross that threshold? Most of us don’t even think about it. We simply act by instinct. The more conservative ones among us will pick the first one available from within the range of acceptable parking spots (i.e. within acceptable walking range from our destination). At the other extreme, the ones who seek the very best parking spot and aren’t afraid to pass on (and most likely forego) the ones that are far away may exhaust the entire search within the range of acceptable distance and may still find themselves without a spot. Most of us will exhibit a behavior between these two extremes. It turns out this problem has an optimal solution: the answer is 37% (see “The Secretary Problem and its Extensions: A Review”, by P.R. Freeman, published by International Statistical Institute (ISI) in 1983 – http://www.jstor.org/stable/1402748)). In other words, in our parking example, if we intend to consider 100 possible parking spots near our optimal destination, the threshold beyond which we should stop looking and decide to pick the next one available is after we have scanned the 37th spot. I came across a helpful refresher of this classical computer science problem as I was reading the very insightful book by Brian Christian and Tom Griffiths titled “Algorithms to Live By”. It occurred to me that the situation he was describing was very analogous to one that all venture capitalist investors know all too well: as they process their deal flow, they must identify the optimal deal within a given period (they must maintain a reasonable predictable investment pace based upon the commitments they made to their limited partners) and continually reassess whether or not the opportunity they are looking at in any given moment is worth the leap of an investment. Should they take the leap, or instead should they wait a bit more to come across a better one? In our firm (BGV – www.benhamouglobalventures.com), it would be fairly typical that we review about 100 opportunities per quarter. We operate on a pace of about 4 investments per year (i.e. 1 per quarter). Our task is therefore to pick the best possible investment out of 100 new possibilities in any given quarter. If we were to use the “optimal stopping” algorithm of the parking problem, we therefore should plan to review 37 opportunities without acting upon them, then wait for the next one that comes along and meets our investment criteria and leap upon it. While this may sound a bit overly programmatic, re-reading the theory that underlie the optimal stopping problem has the merit of reducing the effect of emotions such as fear and greed and the impact of other cognitive biases on our investment choices. To be sure, the analogy has its limits. The parking problem is one of the simplest form of “optimal stopping” problems in that all the parking spots are equivalent and are in one of two binary states: available or occupied. It is also assumed that your time has no value: taking another 5 minutes to explore the next block bears no cost and does not enter into the equation. It also assumes that if you pass on an available parking spot, it will be taken by another motorist and will no longer be available to you if you decide to take another go around the block. The reality of venture capital investing is far more complex and nuanced. Often times, investment opportunities remain open for longer. Pausing on a deal is not exactly the same as passing on it. Deals exist in more than two states (good or bad). Many firms define several more complex methods to classify deals as they engage in portfolio construction. Further, waiting another month to add an investment to a venture portfolio has a cost in partner bandwidth, and potentially a penalty in the time value of capital (assuming the investment capital is sitting idle on a deposit account). More refined versions of the optimal stopping computer algorithm have been derived that take into account some of the more complex variations I listed. They would tend to suggest that 37% is probably the upper limit of what one should wait before crossing the threshold and taking the investment leap. 30% may be a more practical rule of thumb. As much as we would like decision making to become more data driven and objective, part of it remains an art. However, understanding the “optimal stopping” class of algorithms helps us correct the behaviors of our investing partners who tend to fall in the love with the 1st deal they see in a quarter, and those who procrastinate in full ambiguity until the very end of the quarter. At BGV we believe that sound venture investment decision-making requires a combination of analysis, patience and discernment — competencies that are often a function of deep experience in company building.
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Eric Benhamou BGV Founder and General Partner shares his impressions of the 2016 RSA conference and trade show This year, I dedicated almost 3 full days to attending the RSA cyber security trade show and conference. I was in good company: over 40,000 attendees and 400 exhibitors. My head is still spinning and my feet aching from the experience. I was reminded of Interop in the hey days of the 90’s, except in those days, you didn’t bump into other attendees texting on their smartphones while walking the show floor …. As I strolled through the aisles and listened in on the various pitches of the vendors and expert speakers, I was struck by several impressions: They all sound the same !!! Every pitch starts with the obligatory statistics recounting the spectacular growth in sensational hacks (Target, Sony, and the office of the US Government Personnel are the favorite poster children, but there are many others), and the mounting costs of these attacks. Once you have been sufficiently scared by the sheer catastrophes brought about by the bad guys, you are then exposed to the vendor’s supposedly unique technology (patent pending) which is usually described by a combination of buzzwords picked randomly from the following list: advanced machine learning, virtually no false positives, virtually no false negatives, deep threat intelligence, real time alert correlation, automated incident response, adaptive policy enforcement, intelligent on-demand sandboxing, next generation advanced persistent threat prevention, cloud-based containerized security. If your eyes are not totally glazed over by then, you may partake in a canned demo showing a tiled dashboard comprising colored rings, bar charts, and exploded pie charts. This would all look pretty similar to your Fitbit daily health and exercise dashboard, except there usually is at least one tile showing 1980’s Unix style time-stamped alerts on a black background, which is there to suggest there is serious computer science wizardry under the hood. It sure is tempting to read these clues as clear signs of commoditization of the cyber industry. While this would be partly true, it would be equally wrong to lose interest for it. Taken as a whole, the cyber security market is estimated to grow at a CAGR of 9.8% from 2015 to 2020, according to a report from Markets and Markets. It is a far cry from the 20% CAGR of the network infrastructure industry I remember from the 90’s, but it is nothing to sneeze at: it remains about 4 times the growth rate of the world GDP. Furthermore, sectors such as threat intelligence, end point security and cloud security are growing several times faster than the cyber security industry as a whole. If you are, like me, an investor in the world of cyber security startups, how are you supposed to place your bets? A sobering fact to keep in mind is that while the cyber security end markets are growing at this good (but not great) clip, the VC industry is pumping capital into it on a CAGR of close to 50%. This impedance mismatch portends a fair amount of capital waste and blood on the floor (i.e. funded startups who never reach take off velocity). Speaking of impedance mismatch, how can CISO’s possibly absorb the ever expanding plethora of new tools competing for their attention? Ultimately, their limited capacity to evaluate, conduct POCs, triage, integrate and deploy new technologies is the gating factor that will prevent at least 50% of these new aspiring young cyber startups from ever reaching critical mass. Whether they address a top 3 or top 5 CISO priority in a compelling enough way, and whether or not they can easily integrate into a cyber environment that precedes them will determine their fate. As I was debating these observations with my partners, we came to the following conclusions: Punting is not an option. Cyber security budgets are growing faster than most other budgets across all enterprises. The quality of the team is an important mitigation factor against the risks of commoditization due to intense competition and blurred differentiation. By quality, I do not mean IQ: I have rarely met a cyber entrepreneur whose IQ is below 150. In fact, when I visit Israel, a microcosm of the cyber industry, the cyber entrepreneurs I meet there seem to have all come out of the famous unit 8200, in many cases from its even more selective Talpyot program. By quality, I am refering to their intellectual and psychological ability to re-invent themselves and pivot multiple times before finding the product-market fit that really has traction. There is no substitute for the hard work required to gain a detailed understanding of the sector and for obtaining fine grain customer feedback. Market reports are misleadingly high level. Early customers can provide biased feedback (because they may be friendly with the entrepreneur or because they don’t pay full price). Demos are misleading, because by definition, they do not reproduce a realistic customer environment. In short, more work is needed than other sectors and the bar must be raised even higher. Finally, choose your co-investing partners carefully to cross the valley of death — the period of time during which the company experiments, acquires customers one at a time, and consumes cash. Embarking on this journey with insufficient capital is tantamount to crossing a desert with just enough water to reach the mid point, and hoping to find an oasis along the way …
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Eric Benhamou BGV Founder and General Partner shares his perspective on the fallacy of Unicorn hunting. These days, it is hard to escape the Unicorn fetish phenomenon in the world of Venture Capital. No self respecting VC blog would be complete without a few postings on the subject. This one captures the perspective shared by the partners in our firm, who sometimes obsess about their portfolio companies but hardly ever on Unicorn hunting. As a mental exercise, let us imagine that a venture firm, through a combination of skills, experience, relationships, “proprietary deal flow” sources, high quality brand and other attributes has developed a strategy for unicorn identification with a 95% accuracy rate. This would be a remarkable feat. Surely, this firm would qualify for top decile – or even “three sigma” – status. Now, let us suppose that this firm would invite you to co-invest in a deal alongside with them, and essentially ride along their term sheet. Would you take this offer? Most people would. The allure of capturing a mythical beast, combined with the greed to realize outsized capital returns would take the better of most of us. But then, think again, and remember the lessons of your undergrad statistics class. I know, this may have been a long time ago … In his August 13, 2015 post (https://www.linkedin.com/pulse/herd-unicorns-reid-hoffman?trk=vsrp_people_res_infl_post_title) , Reid Hoffman reminds us that just 39 out of approximately 60,000 U.S.-based technology companies that received venture funding from 2003 through 2013 attained public or private valuations of $1 billion or higher. Let’s call it 1 in 1000, to use round numbers. Give or take a few basis points, this is the natural unicorn sighting base rate. Now, our hypothetical three sigma venture firm, applying its 95% accurate unicorn identification algorithm, may evaluate 1000 companies in the course of a year or two of deal flow processing. 950 times, it would correctly conclude its deal analysis with a “non unicorn candidate verdict”. The other 50 times, its verdict would be the opposite: unicorn candidate. The problem is, 49 out of these 50 would be false positives, as the natural unicorn base rate is only 1 in 1000. So, if presented with an opportunity to co-invest in a unicorn candidate selected by this firm, your odds of hitting the jackpot would be … approximately 2 percent! You would be better off going to the roulette table in Las Vegas and placing your bet on any number. There, the odds on a single number would be 2.63%! The basic point of this parabole is to remind us that past the glamor of unicorn stories and the genuine qualities of the recent breed of unicorn companies such as Facebook, Twitter, Uber, AirBnb, and a few others, unicorn hunting is fundamentally a vane pursuit and potentially a distraction from the core business of venture capital investing. At BGV, we focus our attention on enterprise IT companies, a domain where unicorn sightings are even more rare than the domain of consumer oriented companies (who benefit from the acceleration potential of fashion, combined with network effects). Our deal selection is based upon fundamental criteria such as the emerging existence of a sizeable market with dynamics favorable to startups, differentiated technology innovation that deliver tangible economic benefits, a short time to value, and a team of smart of entrepreneurs that we enjoy working with through the thick and thin moments of building a business. We certainly hope to stumble upon a unicorn from time to time, but our business assumptions and portfolio construction assume that we won’t. Yet, we do expect that most of our companies will begin their existence in a valuation range of single digits to low double digits, and that thanks in part to our involvement, they will build themselves into businesses whose value expands into the $100 million range within a horizon of 3 to 5 years. What is the base rate for this value creation ramp? 5% to 10%. Tough handicap, but we like it better than 1 in 1000. And if we are only right half of the time, then statistics show that we will be a true three sigma firm.
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PALO ALTO, Calif. and TEL AVIV, Israel, Aug. 11, 2015 /PRNewswire/ — Ayehu, leading developer of powerful and innovative IT Process Automation solutions, announced today that it has appointed prominent industry players Eric Benhamou and Chris Keene to its Board of Directors. This news, coupled with the addition of several new customers, demonstrates the company’s growing momentum as the demand for IT Process Automation solutions in the expanding IT and Cyber Security Automation market. Logo – http://photos.prnewswire.com/prnh/20150811/257497LOGO Eric Benhamou currently serves as Chairman and CEO of Benhamou Global Ventures, a Silicon Valley based early-stage venture capital firm. Formerly, he was CEO and Chairman of the Board of 3Com Corporation. He also served as CEO of Palm, Inc. from October 2001 until October 2003 and Chairman until October 2007. Chris Keene is the Former President of Cloud & Automation Business Unit at BMC Software. “Ayehu is addressing a huge pain that’s increasingly capturing the attention of CIOs & CISOs of both medium and large enterprises,” said Benhamou. “With Ayehu’s strong management team, innovative technology and growing customer base, the company is well-positioned to become a strong market leader in the IT & Security Automation solutions.” “It is a great honor to welcome Eric and Chris to our Board of Directors,” comments Gabby Nizri, Co-Founder and CEO of Ayehu. “The strength and diversity of talent, experience and knowledge that both bring is invaluable to the company.” “Ayehu is filling a real gap in the automation market, making it easy to resolve security issues instantly by integrating event management, automation and help desk systems, all without a single line of programming,” said Keene. About Ayehu Ayehu provides IT Process Automation solutions for IT & Security professionals to identify and resolve critical incidents, simplify complex workflows, and maintain greater control over IT infrastructure through automation. Ayehu solutions have been deployed by major enterprises worldwide, and currently support thousands of IT processes across the globe. The company has offices in New York and Tel Aviv, Israel. For more information please visit www.ayehu.com
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Eric Benhamou Founder and General Partner of BGV shares his perspective.  In her recent HBR post “Venture Capitalists Get Paid Well to Lose Money”, Diane Mulcahy offers a stinging indictment of the VC industry. In not so many words, she charges venture capitalists with the cardinal sins of gluttony by gulping fat fixed fees for a decade, and of sloth for delivering performance that fails to even match that of most public equity indices. While she does allow for the fact that a few firms demonstrate superior sustained performance, commensurate with the risks associated with the asset class, and while she does concede that the industry tends to churn out the weak players over time, her prognosis is ominous and tantamount to saying: “as it stands today, the VC industry does not deserve to exist!”. While I largely agree with Diane’s criticisms, my outlook is far more upbeat. I will start by a general observation from the very same report that Diane quotes from (2013 annual industry performance data from Cambridge Associates). It is true that the VC industry performance has been lackluster over the past 5 years as compared with public equities. But if we take any 10-­‐year period (approximately two full business cycles) starting from the inception of the venture capital industry, VC performance has outstripped public equity indices – in some cases by a factor of 2X to 3X. The crisis that started with the explosion of the dot com bubble in 2001 has taken a long time to recover from. This is somewhat understandable when one deals with entities that have a time constant of 10 years (the median life term of a VC fund). But the venture industry of today has little to do with the venture industry of 2001. While the numbers clearly support this fact as Diane correctly points out, the transformations do not stop with the raw numbers of VC funds, firms or professionals. To begin with, let us remember that many well-­‐known funds, which have always charged a 2% annual management fee, have also delivered spectacular results to their LPs, and these LPs did not mind one bit paying them. Others have used a transparent budget based approach to clearly explain the nature and magnitude of their operating expenses. But in an effort to be more specific and direct, let me offer my own venture fund BGV as an example, and take her four key arguments one at a time and explain how we deal with each. VCs aren’t paid to generate great returns. At BGV, our financial model is called NFSOP (a.k.a. No Fees, Share Of Proceeds). Correct, we do not charge any management fees to our investors. There is no way for us to make money unless our LP s make money. There is no way for us to coast, or get fat. We pay for our office, our computers, our administrative salaries, our travels, our conferences, our industry reports, etc.. ourselves. Because these expenses are out of our own pockets, we manage them tightly, much in the same way as the entrepreneurs of our portfolio companies manage their own expense budget. It would be hard for us to tell our entrepreneurs to pay themselves $100K per year until they are profitable (as apparently some VCs have done) unless we paid ourselves … $0K per year. Of course, we want to make money too. But we are comfortable waiting until our LP’s make money, and taking a quarter of their proceeds when they get realized.
VCs are paid very well when they underperform. At BGV, if we underperform, we have no fee income to rest upon. If our exits are long in coming, our cash flow suffers. We feel what our LP s feel. There is no buffer. VCs barely invest in their own funds. It is true that the common practice is for VCs to personally invest 1% into their funds. At BGV, we invest 20%. This is more than what our largest LP invests. With a commitment of this magnitude, we can stand up and tell our investors: it is not just that we don’t make money on fees. We have more at stakes than you do in this fund. If you lose money, we lose more. There is no way to escape. The alignment of interest is complete. The VC industry has failed to innovate. If the various points above aren’t enough proof that our financial model is a radical innovation and departure from the financial model that prevailed in the “lost decade” (2000-­‐2010), let me describe another BGV innovation: over the past couple of years, we realized that most corporate development organizations of large corporations have become far more sophisticated about venture capital. Often, they have their own corporate venture capital arm. Almost always, they engage in direct investments and commonly partner with institutional venture capitalists or angel investors. At BGV, we allow our corporate partners to make direct investments along side us in portfolio companies of their choice. This enables them to target their capital on those that have strategic value to them without having to invest in the full portfolio. This “a la carte” approach overcomes the drawbacks of the blind pool and offers our corporate partners ultimate flexibility of choice in their investments, all the while without having to incur a dime in management fees. In conclusion, I fully support Diane’s diagnosis and indictment of many venture capitalists. But unlike her, I have full confidence that our industry will not remain inert and oblivious to these glaring shortcomings, but instead will rise to the occasion and transform itself, just like our portfolio companies succeed by transforming the strategies and business models of their predecessors.
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