WeTechBerlin 2020: Yifat Oron

You know that every year we have the Oscars and a group of very smart people decide what are the best movies or who are the best directors. Well, today in the next few minutes I want to talk about which are the most important trends that we at Leumi Tech think that we should look at in technology and in technology investing. I'm sure you all heard about this movie, and very interesting about this movie is it's a Korean movie and it's the first movie that is not American or originated that actually won Best Picture. It's the first of its kind. You probably think that I'm going to tell you that this may resemble what is happening to the technology world where Silicon Valley or California that also used to be the main originator of films is losing some of its competitive edge to Asia and Asian companies. But actually, no, that's not what I want to talk about. I want to talk about what does it mean to be a parasite or how do we stop being parasites. So for us at Leumi Tech, we think that unit economics is the most important trend for probably about ten years in the technology investing world. And we've heard this before from Insight, growth has been the most important thing for an investor looking at a company they want to invest in. So investors were willing to pump a lot of money to make sure their companies are exhibiting tremendous growth. In technology, which is a little different than real estate we heard before, technology gets evaluated as a matter of the future revenues but also the foreseeable growth rate. So the higher the growth rate, the higher the multiple you get for your company. And what has happened was that companies somehow forgot about being profitable. They were very busy or too busy or only busy at driving the top line. What has happened was that those companies that were buying growth at all costs were going public and were getting hit by the capital markets because capital markets are willing to digest an IPO of a losing business, but they want to see a roadmap to profitability. And I can tell you that amongst the investors that we work with and we know very closely, those things are being looked at even at a very early stage, even when a company doesn't yet have a product, that the investors want to see and understand the unit economics of the basic capsule of what the company is going to sell.

Let's move to the category of directing. We think that a good actor or good actress is going to make a good movie. Well, obviously we need directing. Directing is an important thing. How does that relate to technology investors? Let's talk about the last probably five years or so. What we've seen in the markets was that there were no alternative stuff to invest and interest rates are very low, and technology was regarded as the only haven where you can actually beat market returns and make money. So we've seen, by the way, across the world but very expressively in Israel, we've seen tremendous amounts of influx of money going into the Israeli ecosystem, not necessarily backed by enough companies that will be able to actually take the money and do something with the money. What has happened was that the roles were flipped. We used to have VCs choosing which investments they're going to make, which entrepreneurs they want to work with. Guess what? When you have a lot of money, sometimes more than the opportunities, you're getting a flipped relationship. So what is now going on, which is by the way a good thing, is that entrepreneurs are choosing who they want to invest with their company. What does that lead to? That leads to a little bit of a relaxed governance of the way companies work and the boards were a little less strict than what they used to be. This led, and I'm not going to mention names, but those things led to some kind of big or less big, whatever you want to call it, scandals and most importantly destruction of value of companies, some of them losing tens of billions of dollars because of lack of scrutiny of investors. And I think that the recent summer where we experienced all kinds of companies losing tens of billions of dollars in value has led the investors to resume back the way they operate the boards and the way they run companies.

Okay, now you're going to say, what is makeup related to tech, right? I mean, and it's a good question. Makeup has been, you know, we used to have very beautiful actresses back in the 40s, makeup wasn't as advanced. Now you can make anybody anything, so makeup is a big deal and that's what we have an Oscar for that. And how does that relate to tech? It's a lot about the makeup and the outfit. What I'm trying to say here is that we always have some kind of a very strong IP, technology, software, service, it doesn't matter. The way we sell it to the market is what I call makeup, is how do we actually provide it, in what manner, in what fashion, and what business model. And what I'm trying to say is that we're almost done completely selling one-time. It doesn't matter if it's hardware or software or service, the one-time is gone. The one-time is gone because apparently the investment in marketing is such that it doesn't make sense to do a one-time sell. We want to try to optimize revenues from our client for as many years as possible. And the fact of the matter is that companies that sell in a subscription model are worth about five to ten times their equivalent in those who sell one-time.

Next, by the way, all these movies were candidates. I don't know if any of you watch the Oscars. So let's talk about how we use support in the tech world. Bundling. I'm sure you all heard this name. It's actually not a new phenomenon. All of those of the people here that went to business school, we all learned about McDonald's Happy Meal and how do you attach a soda to the french fries to the burger. Well, this is not a new thing. However, in tech we've seen a very specific personalization of the product. So imagine Steve Jobs, the late Steve Jobs, actually walking on stage and telling about the new iPhone or the iPhone when it was first introduced and sticking to it another, whatever, take an iPad on the way or whatever. This was not really something that was happening. But what we're seeing now is we're seeing returning back to the bundling for different reasons than it used to be. So it's not only taking your cash cow product and trying to bring on top another product that sells less quickly, but this is actually a way to fight wars or tech wars. And I'll give you just one example because we don't have too much time today, but Google that is fiercely trying to fight the AWS, I want to say strong position in the market for a lack of a more politically correct word, is finding themselves utilizing other services that they're the leaders of, attaching it to what they're trying to do, which is the cloud, to compete Amazon and by that try to sell more cloud as opposed to the AWS that is very, very big.

Okay, let's talk about actors and what makes essentially the movie, you know, what it really is. And I want to talk about a very important characteristic of what companies realized that can take them from being in this level to a very much higher level, and this is what is called the platform economy or open platforms. This is by the way something that transcends beyond technology. We're seeing it in FinTech, banks, the new banks of the world. Companies understood that having one product, for example a software product, is great, but if they can actually build a digital community around their product and have a full ecosystem connecting to the product, their potential reach to the market and revenue stream would be a lot higher. And what we're seeing is a good example, Monday.com, which by the way was on the board this morning because it's an Insight portfolio, started with a workplace software for a very specific application and just recently, two weeks ago, they announced that they're going to open their software to become a platform and they're engaging developers to come and work on their platform.

Okay, let's talk about documentary. We've touched, it's funny because throughout the whole day until now the issue of ESG has been a common denominator. I think everybody touched upon this. This is a huge trend. Nobody really knows what it means, nobody knows how much money it's going to move and shake, but I want to give you just few issues that if I were you I would consider. First of all, investors have already stated that they're going to work according to ESG directives. If somebody like BlackRock CEO says that this is going to impact their investments and they're running six trillion dollars of public investments, you can imagine that this is going to move and shake investments in companies, meaning some will get more and some are going to be delisted from their portfolio. It's a big impact. We spoke about the Millennials, the change in recruiting. I think this is huge. So we're seeing the beginning of that. We're seeing Millennials switching jobs very quickly. Most of the companies that we speak to, our clients, tech companies, have about 25 percent of their workforce change over a course of a year. This is huge. It's huge because these men and women, they don't come to work and start working in day one. It takes time to have them actually learn the business. And so this is a very costly trend. But not only that, we used to have to fight between the tech companies, you know, who's putting a ping-pong table, who's putting an ice cream refrigerator. That's no longer relevant. It's moving into who is a vegetarian company, but even more aggressive, this is companies that are not complying to being servicing sustainability or are doing things that are not regarded a good thing by Millennials are not going to be able to employ people. And this is obviously a big impact. I think that the last one, the name was kind enough in the introduction to speak about women. I'll give you very snippy information. Israeli startup nation has been a big story and we're very proud, but we have a lot of issues related to the glass ceiling or the lack of employees that we have locally. We have completely exhausted the talent that we have. There are all kinds of surveys about how many employees are missing, somewhere around 18,000, which sounds not a big deal but for the Israeli ecosystem it's a big deal. What this is going to do is this is going to actually force a lot of new groups in society to be part of the business in order for investors to invest. So the investors are going to look at representation of women and other minority groups in companies before they invest.

Well, I need to rush it. Okay, visual effects. Why visual effects relate to tech? Because to do visual effects we need deep technology. Very quickly, deep tech has been out of flavor for many years now. Many companies in Israel that used to be all around the semiconductor have completely dropped it and moved into software because this is what investors wanted to make quick money. The nice thing about it is because it was a scarce thing and because there is a dire straits for a lot of technology, those who actually maintained their discipline in semiconductor companies were very happy because now they're worth a lot of money. There is a scarcity in the market, but I can tell you that this is changing very quickly and many companies are launching deep tech. 1917. What this means to me, this means to me a very big impact. In one and a half minutes, this is a huge impact on how the world looked like before and after 1917. The analogy for us is AI. AI is rumored or thought to be the next biggest revolution after the steam engine. I'm not going to start even talking about this because this needs half a day, but I'll tell you that everything we touch is going to be managed by AI. People spoke about it today. It's going to touch every single sector and I think there's going to be a new wave of companies that are going to try to solve the problems that we're actually going to have because of the adoption of AI. What is the best trend? Goes to, I left it open. I had no idea what's going to happen in the world in the last week and I thought about putting Corona, but that's not interesting. I actually think that number one, you know, prize should go to Zoom. It was mentioned earlier today. Zoom is the company that brought back something that has been around for a long time, which is video conferencing. It is actually the first time for many, many years that people actually move to do video conferencing and avoid travel. So I think I'll give it to Zoom and you can give it to whoever you want. Thank you very much.