The American investment firm Ibex Investors has been operating in Israel for over a decade, but it is a different player in the landscape. Similar to regular venture capital funds, Avex invests in private Israeli start-ups, starting from the early seed stage, but unlike them, it also puts its money in Israeli public companies traded on the Tel Aviv and New York stock exchanges.
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So it turns out that besides technology, IVEX also invests in ‘old economy’ companies such as Rami Levy and Max Stock. The fund believes that this diversity has helped the firm succeed in recent years.
The founder and CEO of Avex, Justin Boros, explains in an exclusive interview with Globes that “We know that the sexiest and most interesting investments in Israel are in private and public technology growth companies, but it was simply impossible to invest in them at the high values that have been in recent years. So we invested instead in boring private companies like banks and grocery chains.
“We like to move between the sackFrom private to public,” he adds. “If you are a fund that invests in start-ups in the cyber field only, no matter how crazy they are in the market, there is an incentive for you to invest. This is why you saw a lot of money chasing companies with too high a value in recent years – because the investors had to invest to raise the next fund.”
The story behind Avex is also unusual. Burros, a former professional cartoonist, founded the fund in 2003 in Denver, Colorado, to trade shares of small public companies (Micro-Cap). Following a four-day visit to Israel in 2011, inspired by the book “Startup Nation”, he changed his focus and a year later replaced the small public companies with investments in Israel, where most of IVEX’s money is channeled. “In Israel there was everything I liked about the small companies – fewer interested investors and the potential for greater profit,” explains Boros. “In addition, while the start-ups in Silicon Valley were developing apps that take pictures of cats, in Israel the companies solved significant problems.”
The interview with Boros took place during his visit to Israel to celebrate a decade of investments in Israel. During this period, Avex invested about a billion dollars in Israeli companies – half of it in start-ups and the other half in public companies, according to him. The investors behind Avex are family offices, wealthy individuals and entrepreneurial companies. Among the major exits registered by the fund is the company Cyber Dome9, which was purchased by Check Point for $175 million; the Israeli-American cyber startup Zimperium, which was sold this year for half a billion dollars; and the advertising technology company invid which entered Wall Street last year in a merger with Spak at a value of 1.3 billion dollars. The Israeli office of Avex is led by partners Nicole Friel and Gal Gitter.
“We no longer give an open check without any consideration”
Only this year, after a hiatus, IVEX returned to investing in public Israeli technology companies, following the sharp declines in their shares. “We believe that in the coming years it will be possible to achieve returns at the level achieved by venture capital funds, also from investing in technology companies traded on the stock exchange,” says Boros. “Look at the numbers: half of the Israeli stocks fell by more than 50%, so there was ‘general annihilation’ here. The Monday company, for example, rose to $450 per share during the euphoria and has since fallen to around $100, even though the company continues to grow at an annual rate of 65% So maybe at $450 it wasn’t attractive, because it was hard to see how the company grew to such a value, but after losing 80% of its peak, the stock is interesting.”
However, as far as investments in start-ups are concerned, Avex is cautious and is still waiting for a more significant correction. “We don’t stop looking because there are always great companies that raise funding. Right now we are closing an investment in a company that another fund withdrew the memorandum of understanding with in May. Since then, the revenue rate of this startup has grown by 400%, and we still receive it at a discount of 30 % on the price,” Buros reveals. “But we will return to investing in start-ups with all our might when there is ‘blood in the streets’ (a cut in values and a downturn in the market), which will probably take another 12-18 months, when the private investment market has dropped to a low and there will be great opportunities. There are still entrepreneurs in start-ups who do not accept reality the new and come with unrealistic expectations.”
In recent years, the Israeli start-up market has been discovered by giant foreign funds, which have poured billions into Israeli companies and skyrocketed their valuations. Thus Israel distanced itself from the characteristics of the micro-cap companies that Buros liked to invest in in the past. But he is convinced that the current slowdown will soon create great opportunities. “Foreign investors who went out to invest in India, Brazil and Israel in recent years, but did not develop a commitment to these markets and did not establish offices in them, are now returning to investing in their home countries. At the same time, Israeli venture capital funds are much busier today in managing their existing portfolio companies, after the last two or three years They were quite enthusiastic about new investments.
“The combination of these two factors will leave much less capital available for investment in new startups that are being established these days,” he explains. “I always mention that money is made during a bear market and not a bull market. That’s also when the best companies are created.”
Among start-up entrepreneurs, there has recently been quite a bit of criticism of the investment funds, which they believe are taking advantage of the current downturn to demand exorbitant terms in investment negotiations, and for example priority in receiving payment in the event the company is sold (Liquidation Preference). Boros sees this as a healthy balance.
“I think the strong companies are still in a good bargaining position, but today there are no longer investors who are willing to give an open check without receiving anything in return. For the first time in many years, investors can receive priority in payment distribution and a place on the board of directors in exchange for an investment. That’s why I think the next few years will be interesting.” .
“Funds will soon have difficulty raising money”
In one respect, credit goes to Avex. Most of the venture capital funds continue to record in their books the investments in start-ups according to the value given to the companies during the euphoric period of the last two years, which creates a false representation. The approach of those funds is that as long as the company has not actually raised financing of a lower value, there is no need to update the numbers – even if it is clear that these no longer represent the reality of 2022.
On the other hand, Ivex admits that they have already written off $100 million from the value of their holdings in private startups, a double-digit decrease, and this as part of a proactive review conducted for them by an external company every month. “Many traditional venture capital funds continue to hold companies at the value of the last round, which, if we are honest with ourselves, is something that is difficult to justify at a time when the shares have fallen by 50-75%. Some of these startups should not have received investment at all under normal conditions, because They don’t have a sustainable business,” says Boros. “At some point the funds will have to write off some of these investments. Then it will be difficult for them to raise additional money, and we will see funds closing down,” he estimates.
Justin Burruss
personal: 46 years old, married and lives in Denver, Colorado.
professional: He founded the investment firm IVEX in 2003 and has been its head ever since. From 2011, he moved the center of activity to Israel.
education: Graduated in economics from Williams College, Massachusetts
Something else: In the past, Boros was a professional cartoonist for a decade, and his works appeared in over 300 newspapers around the world