Silicon Valley Boot Camp: Fusion LA accelerator marched out 49 startups in 3 years

With 13 seed-stage investments since March of this year, Fusion LA - a venture-backed accelerator for Israeli startups in the U.S. - is certainly not allowing the Covid-19 pandemic to slow it down.

"Despite Covid-19 there is still a lot of competition for deals and a large appetite to find new investments," Guy Katsovich, co-founder and partner at Fusion LA told CTech. "Everyone remembers from the 2008 crisis that many big companies were founded at that time and there is an understanding that after the dust settles the companies in which you invest in will be the ones left standing."

After six years in the IDF's Unit 8200, often referred to as Israel's version of the NSA, Katsovich began working in journalism of all professions, as an editor and writer at an Israeli business outlet. After a couple of years, he realized his aspirations lay elsewhere and in 2014 he joined 8200 EISP, an accelerator managed by veterans of Unit 8200, as a managing director.

Katsovich is also the co-founder and host of the popular "Od Podcast for Startups" (which translates to "Yet Another Podcast for Startups") and is the founder of several non-profit organizations, including Wize, Hybrid and P.I.E Challenge.

"I really enjoyed myself at 8200 EISP and that was the first place in which I found myself loving what I'm so doing and also feeling like I can make a nice living out of it," he explained. "So I wanted to set up something of my own and that led me to Fusion LA. We wanted to build something in our spirit that will have our DNA and we wanted to do things slightly differently."

When Katsovich says 'we' he is referring to himself and co-founder Yair Vardi. The two met during their army service, after which Vardi moved to Los Angeles. He served as the Director of Academic Affairs and Advisor for Innovation for the Ministry of Foreign Affairs before teaming up with Katsovich to set up Fusion LA.

They initially only invested $20,000 in early-stage companies, but earlier this year they partnered with Menlo Park, California-based venture capital firm GoAhead Ventures and upgraded their model and deal. Fusion LA currently invests $110,000 for 8% and have to date supported 49 companies. Their portfolio companies raised more than $100 million and employ around 300 people. Significant post-program funding rounds include: Uniper ($7 million), Arcusteam ($6 million), IKON ($5 million) and hoopo ($5 million).

"In our first year, we raised money from private investors and basically made every mistake possible for young entrepreneurs. Then we were fortunate to meet an Israeli family office which gave us $2 million to invest with, which we've been working with for the last two and a half years," said Katsovich. "This year we partnered with a venture capital fund from Silicon Valley with whom we are making our new investments.

"Our model is to enter at an early stage so by definition many of the companies in which we invest in will fail," noted Katsovich. "That is the game and this is how the industry works and that is also why we invest in a relatively large number of companies from varied backgrounds and sectors in order to reduce the risk. We also hope that we do a good job and know how to choose companies while also helping them to reach clients, partners and investors in the U.S. to raise their next round and thus improve their chances of succeeding."

The accelerator generally accepts 6-9 teams every six months to go through its intensive 10-week go-to-market and mentorship-driven program. Other than the investment, Fusion LA also provides free office space in Santa Monica, and access to a network of investors and executives in Silicon Valley and Los Angeles. The recent cohort, launched in September, was held over Zoom due to Covid-19 circumstances. The first two weeks already included sessions with leading Israeli investors such as StageOne, Lightspeed, NFX, Janvest, Vertex & TAU Ventures, as well as workshops around storytelling, B2B sales and product management. The following weeks were followed by over 100 Zoom sessions with US-based investors, executives and mentors.

"The idea was to set up something that would be slightly different to what we see in the local ecosystem," explained Katsovich. "There are amazing players in the local funding scene and there is a lot of competition. There are really many good actors who are doing great things and making a lot of money for their investors. But when you look at it from a 10, 20 and 30-year perspective we think that making money is just one play. You need to know how to do that well, but the second play is to build an accelerator that allows us to provide added value to our entrepreneurs from the first moment they come to us. That is the reason we wanted to build Fusion LA as an accelerator that has an investment fund above it rather than the other way round. Our interests are aligned with those of the entrepreneurs from the start and we aim to help them raise their next significant round, which is usually for several millions of dollars."

According to data collected by Pitchbook, over the last 10 years seed funding in Israel has become stagnant at around $150 million a year. However, the average seed round has doubled between 2010 and 2020, meaning there are less rounds taking place, and creating a funding gap for first-time founders.

"Fewer seed rounds every year led to a pre-seed stage in which the investors are accelerators, incubators and angel investors who give what are usually first-time entrepreneurs the initial fuel they need to get off the ground," said Katsovich. "This is the category in which we are competing. There isn't the same kind of competition you see in the seed round but there is still plenty of competition because many entrepreneurs have recognized this opportunity."

Fusion LA launched during the pandemic its new process in which entrepreneurs receive a term sheet for investment within just three weeks of their approach, assuming of course the response is positive. "That is the way we did it with all 13 of our investments so far this year," said Katsovich.

"We have been running for three years and have invested in 49 companies. Over 30 of them have raised a significant seed round averaging $2.5-3 million, with the 13 we invested in this year obviously not yet at that stage," added Katsovich. "At the early stages in which we invest you never really know if the startup will be a success. You are betting on the team and the opportunity. We usually invest in very strong teams and in entrepreneurs in which we really believe in and want to work with.

"There is a lot of intuition involved in the pre-seed and seed stages. Many investors operate according to their gut instinct and first impression. It is a little like a first date in which you already decide after a few minutes if you want to continue and spend time with this person and work with them. Of course, all the rest of the parameters need to be aligned, they need to be solving a valid problem, display a potential product and more, but ultimately the interpersonal parameter is very significant."