A venture firm is rewarded for selling at the top of the market – TechCrunch

Previously, venture capitalists could not sell their stake in a portfolio company before it was sold or went public without raising doubts about the company’s prospects. As startups started to stay private longer, venture capitalists and management teams became more comfortable with selling some of their holdings to new investors, but it’s likely that many venture capitalists right now wish they had sold even more over the last year or so.

One company that is happy to have pulled the trigger on two of its own deals is YL Ventures, a now 14-year-old American-Israeli venture that specializes in early-stage cybersecurity investments and has just closed its largest fund. new and largest to date. with $400 million in capital commitments.

Just over a year ago, when Axonius, the now five-year-old cybersecurity asset management startup, was raising a $100 million round at a $1.2 billion valuation, YL Ventures, the early investor of the team, sold his stake for $270 million to ICONIQ Growth. , Alkeon Capital, DTCP and Harmony Partners.

The amount was three times the size of YL Ventures’ $75 million debut fund, which had backed the team and through which YL Ventures ended up investing $15 million in Axonius in total.

“The multiples were so high a year ago that we felt that, under normal conditions, we would need [more time] to get to the same result,” says YL Ventures founder Yoav Leitersdorf, based in Mill Valley, California. “There was a lot of demand for Axonius stock and looking back today, with this current market. . . He trails off with a laugh.

Similarly, YL Ventures sold much of its stake in four-year-old cloud security firm Orca Security to new buyers when Orca extended its Series C round last fall, a $550 million tranche that boosted the startup’s valuation by 50% in just seven months to $1.8 billion.

“We didn’t sell our entire position,” says Leitersdorf, but his firm got a whopping $250 million from the deal anyway.

In fact, 2021 was a good year made even better when another of YL Ventures’ portfolio companies, healthcare IoT security startup Mediagate, was sold to industrial cybersecurity provider Claroty in December as it was closing. a $400 million Series E round co-led by Banco Suave. Leitersdorf’s firm backed out of the deal with $100 million.

All are solid returns for a company that now has $800 million in assets under management and has seen previous exits, including the $100 million sale of Hexadite to Microsoft in 2017 and the sale of container security startup Twistlock, which sold to Palo Alto Networks in 2019 for $410 million. (YL Ventures was Twistlock’s largest shareholder, investing so early that it put just $12 million into the company over its four years as an independent company to build its position.)

So what is the secret ingredient of YL Ventures? It has been from the beginning, and still is, to invest as soon as possible in a very specific type of company. As we reported when we last covered the company several years ago, almost all of the founders in the YL Ventures portfolio have not only served in the Israel Defense Forces but specifically within its Unit 8200, an elite part of the organization that is has become the training ground. for some of the world’s most popular cybersecurity companies.

The unit reportedly accepts less than 1 in 100 high school graduates, so it’s no surprise that venture firms with a focus on cybersecurity then try to choose between these when their service is complete. YL Ventures appears to be particularly adept at succeeding in these endeavors.

Leitersdorf credits Ofer Schreiber, senior partner and head of the firm’s Israel office, for much of the heavy lifting on the recruiting front, boasting that YL Ventures has “first shot at every seed deal that comes out of Israel” largely because Schreiber is “so deeply interconnected there.”

He also says the company’s success to date depends heavily on the work of the company’s other senior partner, John Brennan, who oversees a large network of chief information security officers, 120 of them, Leitersdorf says, who receive collectively 5% of the company. interest in exchange for examining agreements and sharing what pain points are not being addressed in their own companies.

These CISOs aren’t limited partners in the fund, Leitersdorf says, but he says the team’s investors include very high-net-worth individuals from primarily the US, Europe and São Paulo, Brazil, and you can imagine there are at least some crossing.

Leitersdorf also tells us that YL Ventures promoted two colleagues as part of this new fundraising process. Sharon Seemann, who also served in Unit 8200, has been named a partner. She oversees the company’s marketing output. Michael Cortese, who focuses on business development and is “part of the group that is writing checks,” says Leitersdorf, has also been named a partner.

Meanwhile, Leitersdorf, who remains the firm’s sole general partner, says the collective plan for the team is to continue doing what it’s doing, which is specializing in Israeli cybersecurity startups of all kinds, at a much faster pace. leisurely than many of its rival companies. .

Almost surprisingly, the idea is to fund just three startups per year, or 10 startups in total.

On the other hand, YL Ventures has invested in only 30 companies in total since it was formed. Only one, Leitersdorf says, has been an “annihilation.”

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