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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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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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