Camels versus unicorns: Investors wary of money-burning companies

A camel is able to survive for almost a week without food or drink. Although a camel loses 25% of its body mass during this period, its basic functions will not be impaired. A horse, on the other hand, is 60% water and therefore unable to survive without drinking for more than a day or two. In cold weather, a horse weighing half a ton will need 25 liters of water, and in hot weather even 75 liters.

So what do horses and camels have to do with the capital market? Translate those gallons of water into dollars, and the weight of the horse and camel into a company’s number of employees and rental costs, and you’ll find the unicorns that need a constant flow of cash, for opposed to camels, which are able to survive without a constant flow of external resources. In the reporting season that has already started on Wall Street and reached Israeli companies listed in New York this week, investors will actually be looking for camels and less for unicorns.

WalkMe, ironSource and on Wall Street. Photo: YouTube, OTD Global and Nasdaq

The first to report their findings will be veteran Israeli “camels”: Amdocs and Audiocodes, which reported on Tuesday, and Check Point, which will report on Thursday. The new companies will join next week, with JFrog and Taboola releasing reports on February 10. After the Nasdaq’s sharp fall over the past two months, the growth rate is of course still an important parameter, but investors will now want to dig a little deeper into the structure of corporate spending and the pace of cash consumption. Or in other words, to see if they have the traits of a camel, and not just the cash-hungry unicorn to grow up.

A volatile month requiring nerves of steel

More than ever, the forecasts for 2022 will carry enormous weight, which opened with a big challenge of a new wave of coronavirus, a new disruption of supply chains and high inflation hovering above everything. The Oppenheimer Investment Bank said earlier this week that, unlike regular reporting seasons, many Israeli tech companies have yet to announce financial results release dates, amid heightened external risks that increases the level of uncertainty. . Oppenheimer also notes that fourth-quarter financial reports and forecasts for 2022 will this time carry particularly heavy weight in determining the direction of trading for the Wall Street indices, which are enjoying another tumultuous and volatile week, providing a closing deal. a full month that required nerves of steel from investors. Israeli companies are expected to show growth in the fourth quarter, but a rapid pace as demanded by the market in 2021, of 100% and more, is only expected in the revenues of SentintelOne and Lemonade, and that of course with a significant loss.

The term “camel” was first coined by Alex Lazarov, a venture capitalist and academic who previously worked alongside Eileen Lee, a venture capital fund partner who coined the term “unicorn” in 2013. The article in which he conceived the concept was published by Lazarov in March 2020, initially as a disguised criticism of Silicon Valley, which supplies its startups with accessible funding, and does not challenge them as happens to startups in other parts of the world, where access to finance is more limited. Lazarov also argued, in a book on the subject he later published, that due to the availability of funding in Silicon Valley, entrepreneurs are developing products that venture capital funds seek out in companies. at the time, and not necessarily to solve an acute problem. . They also tell these funds in advance: in the next decade, we will have no more income and we will have to do a lot of fundraising. But due to the timing of the current global pandemic on the high-tech industry, the article received a different interpretation and won high praise. “The ‘growth at all costs’ methodology, at which Silicon Valley players excel, works only in the strongest bull markets and under the most optimal conditions,” Lazarov wrote in 2020. By the way , being called a camel these days isn’t an insult, with “camels” being among the giants of today, including major players from Amazon to Zoom.

“Investors are still looking for revenue, but things are starting to change in favor of companies that can live longer on the money raised,” said Avichai Michaeli, strategic adviser to high-tech companies and watchdog. investors in several startups. advice, says Calcalist. “Councils want to see new plans ready so that the marked roadmap is not spread over a year and a half or two years, but over three and even four years, so that the money lasts until then. There has a desire to grow more slowly, not developing new products, but focusing on selling the product that already exists and increasing revenue.We’re not talking about layoffs, because sales and marketing need to push the products that have already been developed, and no one wants to fire developers because it is very difficult to recruit them.

“The process of shifting them to additional feature development and condensing existing products at the expense of entirely new product development begins,” says Michaeli. “At the moment, everything is still in the contingency plans, and the situation can be compared to troops stationed at the front, but there is still no order to go into battle.” These words echo recent statements by senior members of the local ecosystem, high-level cyber industry figures Shlomo Kramer and Nir Zuk, who felt that 2022 will be very different in the markets and, therefore, in capabilities to raise capital in the public and private market from 2021, to Avi Eyal, co-founder of venture capital fund Entrance Capital, who in a tweet suggested that companies cut spending so that the money in their coffers lasts until 2024.

The falling multiplier levels that tech companies have suffered in the stock market over the past month, and the re-embracing of value companies and not just growth companies by investors, are actually not bad for Israeli companies. . These, just as Lazarov wrote in his original camel essay, were born into a more difficult and demanding reality compared to American startups or Israeli unicorns born in 2021. There are two reasons. The first is that all Israeli tech companies – with the exception of Lemonade, Hippo or WIX – operate in the B2B market and not B2C, which means that they are not sold to end consumers, but to organizations. The business models of B2B companies tend to be more stable and resilient to times of crisis.
Requirements for Venture Capital Funds in Israel

“When the local unicorn trend started, foreign funds began to ask me more and more how it was possible that there were so many of them in Israel, and the explanation lies in the demands of Israeli venture capital funds who demanded to see in the previous stages a working business model and significant revenues,” explained Michaeli. they sell a dollar at 80 cents – these are the camels that have the ability to weather tougher times in the market.”


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