Naschitz Brandes Amir: Seeking the holy trinity of entrepreneurship

"My view of the most important parameters for a law firm when partnering with an entrepreneur is the holy trinity of a great team, an exciting product and a huge addressable market," explained the tech experts of Israeli law firm Naschitz Brandes Amir. "The founders need not have previous experience if compensated by their passion and willingness to learn. We also don’t turn down early stage startups even if at the pre-seed stage - some of our best known clients have reached to us at the “PowerPoint presentation” stage."

Naschitz Brandes Amir is one of the top Israeli law firms participating in CTech’s Most Important Gateways to Israeli Tech series. The heads of the firm's tech department answered a series of questions asked by CTech about their involvement in the Israeli ecosystem and what they look for in entrepreneurs.

Noga Devecseri Spira Naschitz

Name of firm: Naschitz Brandes Amir

Tech sectors of expertise: Life Science/Biotech/Digital Health, Fintech, Cybersecurity, SaaS, Adtech, Agritech, Foodtech, Big Data, Industry 4.0, Machine Learning.

Number of lawyers in the tech and VC departments: Partners approx. 24, other qualified lawyers: approx. 55

Heads of department: Partner, Gil Brandes

Notable clients (startups, growth companies, VCs, angels): Among our notable clients we can mention: Checkpoint, Wix, Healthy.io, Gong, Tastewise, IntSights, Fyber, Gloat, Cycognito, Curve, StoreDot, Pitango, Viola, iAngels, aMoon, Eight Roads.

Notable deals in 2020-2022:

As part of our extended relationship with our clients, we can mention several deals during these past years:

• Represented Fyber on the $600 million sale of the company to Digital Turbine a NASDAQ-listed US-based media and mobile marketing platform
• Advised Gong.io on its $200 million round D financing, It’s $250 million round E financing at an unprecedented valuation for an Israeli startup of $7 billion.
• Represented IntSights Cyber Intelligence in the company’s $350 million sale to NASDAQ –listed US-based Rapid7.
• Advised Gloat on its $57 million Round D investment by Accel and other internal investors. Also acting for Gloat on its ongoing activity, including general corporate work and negotiations of various commercial SaaS agreements with such powerhouse entities as Spotify, Pepsi, Unilever, Novartis, Schneider Electric, Walmart, Metlife, Mastercard, and Standard Chartered Bank.
• Represented CyCognito, a leading cybersecurity high growth startup in its $100 million Series C financing round led by The Westly Group with participation from new investors Thomvest Ventures and The Heritage Group and existing investors Accel, Lightspeed Venture Partners, Sorenson Ventures and UpWest.

Following the SPAC and IPO boom in 2021 - What trends are you expecting for the upcoming short and medium-term?

With the IPO and SPAC markets taking a breather after a long, busy run since Q3 2020, companies that were aiming originally to go public in 2022 are currently focusing now on 2023. However, since the process is lengthy and the companies want to be ready to move quickly when the IPO window of opportunities reopens broadly, we are seeing that most company candidates have elected not to suspend the public company preparation process but rather to continue with the prep process in a less intense and costly mode, while keeping an eye open on expenses and short and medium-term financing needs.

Will we continue to see funding rounds at the fantastic valuations we saw last year? Why?

My view is that while we can’t expect to continue seeing the 2021 valuations, great companies will still be able to raise at great valuations. The effect of the public market (which sets the expected level for an exit down the road), inflation and interest rate among others, are pushing the valuations down. However - the reference points remain high given 2021 valuations, the cash level to be deployed by the venture funds is high, and it is estimated that the impact of the decrease in valuations will be applied differently to early stage companies as compared to high growth companies.

Bottom line: We are occasionally seeing a drop in valuations, as well as a growing number of safe transactions (convertible funding) which avoid setting a valuation.

Quoting PitchBook report - “For US deals closed in Q1 this year, we've seen a near 30% drop in the average late-stage valuation from 2021's highs. This contrasts with early-stage and seed deals, which were priced around the same levels.”

What is the most important process Israeli high-tech has experienced over the past two years and where does it leave the industry?

A few processes jump to mind including among others the sales oriented approach and remote working operations. My pick would be the long term strategy which includes the focus on sales and the “hutzpa” - the nerve - to think as market leaders.

What are the business/cultural/economic differences between Israeli and foreign VC investors?

It is hard to put all non-Israeli investors in one category. While there is a broad denominator shared by all investors, the investment philosophy and process often vary in different geographies. Looking at Israel, the approach is much around a partnership and supporting the startups during the hard times, and taking cost reduction measures rather than an “all or nothing” approach. In parallel, there often is more of a hands-on approach, with more rather than less monitoring of the company’s business progress and operations.

What is the most important thing an entrepreneur should focus on when selecting a law firm?

I believe that the best fit between an entrepreneur and a lawyer exists when the same values are shared and the same business approach. For example - negotiation philosophy, or the balance sought between the startup and its stakeholders’ interests when considering the desired end-result.

What are some basic mistakes made by entrepreneurs?

Looking at common basic mistakes, we often run across unclear founder arrangements; promises of shares or options that are expressed as % in the startup and disagreements on what other promises should be taken into account when translating the promise into a number of shares; undocumented ownership of the intellectual property rights that was contributed by founders or consultants; and issuing shares and granting options before having a long term planning of the startup’s cap table. Last but not least, I would like to add taking the eyes off continuously exploring the product-market fit - it’s about talking early during this journey to potential clients, and the flexibility to pivot if needed.

What are the most important parameters for a law firm when deciding to represent an entrepreneur in a deal (product, paying customers, entrepreneur’s previous experience), and what would be a reason to turn down an entrepreneur (if any at all)?

My view of the most important parameters for a law firm when partnering with an entrepreneur is the holy trinity of a great team, an exciting product and a huge addressable market. The founders need not have previous experience if compensated by their passion and willingness to learn. We also don’t turn down early stage startups even if at the pre-seed stage - some of our best known clients have reached to us at the “PowerPoint presentation” stage.

What are the most crucial stages of a deal?

The most crucial stages of a deal to me are the pre-term sheet stage - getting the investor to buy-in into an investment. The next critical stage is the due diligence between the term sheet signing and the closing of the deal, which may include a deep dive into the business model and other due diligence aspects.

Can you share examples of an interesting deal from the past two years from which important lessons can be learned.

StoreDot has raised in Q4 2021 a Series D investment round of up to $70 million, led by Vietnamese electric vehicle manufacturer VinFast, plus follow-on investments by Volvo and other investors. The dance with strategic investors is a delicate act to be mastered by startups looking - especially now - to expand their investors’ reach out to include strategic investors and corporate venture capital.