Transcript: What Does a Venture Capital Investor Really Look For? | Yael Schiff (Bessemer Venture Partners)

Episode highlights

Eyal David: [00:00] What are the things you look for?

Yael Schiff: [00:02] I ask myself: would I work for this person? Salesforce is buying it for a little over three and a half billion dollars.

Eyal David: [00:09] Really? Nobody knows anything, especially now.

Yael Schiff: [00:12] My working assumption is that there will be some catastrophes. Being a bootstrapped company is also a great option. That doesn't happen in 20 months across 30 countries. We're looking for the outlier. Sometimes you have to disrupt yourself. It's not new, but it's on steroids. If Anthropic and OpenAI don't develop it, the Chinese models will. You can't stop the progress.

Eyal David: [00:37] Hi Yael, how's it going?

Intro: Yael Schiff and Bessemer

Yael Schiff: [00:39] Good, what's up?

Eyal David: [00:40] Great.

Yael Schiff: [00:41] So nice to be here.

Eyal David: [00:42] Right? Yes. So glad you came. Yael, introduce yourself in a few words.

Yael Schiff: [00:45] Okay, so very briefly, I'm Yael Schiff. Today I'm an investor at a venture capital fund called Bessemer, a large, international, multi-stage fund. My focus is early. I usually invest at Seed and A, sometimes later stages too, a lot of AI applications, infrastructure, cyber, but in general I'm a generalist, so there are lots of other areas as well. That's it.

Eyal David: [01:13] The fund itself is also generalist, right? By definition. I remember you as a very old fund, I remember you as very much in software, right?

Yael Schiff: [01:22] And now I'll say that Bessemer's origin is, I think, the oldest fund in existence. Originally, way back, its roots were in steel manufacturing and the technology around it. Over the years that obviously changed, and the focus is on tech. I'll say that in Israel we've been here for 20 years with a branch on the ground, and you actually said software, but we've also invested a lot in chips, in hardware, in technology around that. But the generalist approach is real, meaning historically we've invested in everything from consumer, companies like Fiverr and Wix, in fintech Melio, cyber, like we said, companies like Axonius, [unclear], and many others, to really everything else.

Eyal David: [02:13] It's funny, I spoke with a friend yesterday and he told me, "What is this, they invested in every company I've worked at." So I'll say, a second before we start, we'd really like to hear, if we don't usually say this, if you have any comments or things that come up during the episode, write to us and we'll read them and answer. So I want you to tell me for a second, oh, you know, also a second before, let's mention that you also worked before this as a GM at Via, right? No stranger to the startup world, and you were also abroad, right?

"I speak in question marks, not exclamation marks"

Yael Schiff: [02:44] Yes.

Eyal David: [02:45] And you were also at a consulting firm, McKinsey, right?

Yael Schiff: [02:47] Right. My background is pretty varied, more operational really. Right before Bessemer I lived in the US for seven years, worked, I was an operator, I mean I lived and worked at a startup, five years at Via. Before that I did an MBA in the US, worked at McKinsey in consulting, I was in 8200. Yes.

Eyal David: [03:10] I mention it because it also really connects for me, like when we talked in the prep call, or even over coffee, the idea of being a thought partner kept coming up, right? We looked for a Hebrew word for it for a second. Right, right. But do you want to take a minute to describe what it looks like to work with you?

Yael Schiff: [03:25] Yes, I think because my background really is an operational one, but I've also been investing for a good few years now, there's this movement between, on one hand, being very high-level and, on the other, being hands-on. And I think that often when you talk to VCs, we talked about this a bit, in general when people talk on podcasts, it's like there's one clear truth, a "this is how things should be done." People speak in a lot of exclamation marks. I think that I, as someone who works with startups, often speak in question marks. I'm basically a thought partner, or hope to be a partner in the thinking and in the process, and I try to give input where I can, based on experience, based on what I see in the market, based on my perspective, but it really is something that's much more of a partnership. I think the world is changing at such a fast pace that you have to keep reacting all the time and be very, very open to change, and so the question marks, that's what I mean. There's an evolution here. And I really like working closely with the companies I work with. There's a spectrum, but yes.

Eyal David: [04:46] Wow, expand on that a bit. But again, it reminded me, I remember we used to go to investment meetings in 2012, and very much what you said, that the world is changing, that was true back then too. Right, we'd really come in to listen. Our idea wasn't that great, but we'd come in to listen, and so on. But before that we'd do a prep of "nobody knows anything, nobody knows anything, nobody knows anything," to take it the way you say, because really nobody knows anything, especially now.

"Nobody knows anything": why she looks for a unique insight

Yael Schiff: [05:12] Right. Honestly, I really love it when I go into a conversation, when I meet founders for the first time, I really love hearing from them or getting from them some unique insight, something I didn't know before, where they basically have an interesting angle on the world and some understanding that maybe others don't have. And I think that's also what I'm looking for. You're looking for that uniqueness, and to really learn something, and that's also part of why I enjoy the work so much. And I think it can show up in all kinds of ways. Sometimes it's really a product vision: the world needs this and this is what we're going to build. I think that's the most common one. But that unique perspective can also show up in how I'm going to do hiring. Sometimes I hear founders who are really doing some kind of hacking, they have access to a very specific talent pool, or in how they think about running the organization, which really affects the company they end up building. Sometimes it's a go-to-market that's different, and where they're going to focus, in which markets, in which types of companies. Sometimes they simply have very unique access, say in defense, that's something very important, in data centers. So I think it's really fun when you manage to learn something new, and that's how you get into it.

Eyal David: [06:45] Tell me, how does that connect, tell me, when founders come to you for the first time, and I understand that your very big value is really being the thought partner, and there's also execution, we can talk about that, but what are the things you look for to know there's chemistry in that area? Because if I come in and say, "Hey, I know everything," then you'll probably have less room as an investor to be a pro partner.

The first test: "Would I work for this person?"

Yael Schiff: [07:12] Look, I think that at early stage you can define a few frameworks here, but it's often a bit, there's some art versus science here. But I think the first framework I look at: I walk out of a meeting and very often I ask myself, would I work for this person? And it's something I often come back to, because I think it's an indicator where historically I've seen a very, very high correlation. If the answer is an unequivocal yes, I'd want to join this team, and maybe that's my thinking as an operator, there's a very high correlation with their ability to recruit top talent, their ability to bring in a strong team that will help them build this thing, their ability to raise investment. If I, sort of, I sometimes say, fall in love with it, meaning fall in love with the idea, fall in love with the team, it's something I really want to be part of, that means other investors will probably feel something similar too, or there's some correlation, it's hard to predict completely. And in the end those are super important parameters in your ability to build a successful company, raise money, recruit talent, build. So that's the first thing. But we talked earlier about that unique insight. I think that when someone comes in and tells me, and they have some clarity of thought about how they want to build something, that's something that really makes you, makes me at least, want to listen more and want to think together about whether it makes sense. I think you do want to see a desire or a willingness to listen and take feedback, not necessarily from me as an investor, but from customers, from employees, from people, from industry experts. I think that feedback and the ability to change are very, very critical.

Eyal David: [09:05] Good point. I even think, tell me, do you think only about whether you'd work there or not, or even whether you'd work there for more than a year? Like, it's maybe some mental framework that could take you to bigger risk reduction.

Wonderful and Koi: why investors look for those who don't follow the book

Yael Schiff: [09:20] Good question. I think it's fairly deterministic, in the end it's a gut feeling that's hard to quantify. And yes, I agree, I think the whole question of starting to reduce risk factors is very relevant, but it already comes in at the stage where, okay, I answered the first question with a yes, now let's start breaking it down more analytically and see, like, what the risks are, how it's supposed to look in the long run and so on. I will say something about the long term, because I think it's a good point. Sometimes, I remember for example, after we made the investment in Wonderful, when we invested there at Seed, I spoke with a colleague, not from Bessemer, who asked me, basically it really bothered him that there was no precedent. In the beginning, part of the pitch was the fact that they focus on markets, they initially started in voice, and in the early stages they focused on markets that are non-English, meaning a lot of countries with other languages. And then that colleague said to me, wait, what precedent is there for huge companies that grew like that, and that actually started maybe in Europe, maybe in other places? And I remember that for a moment, you know, I thought about it, but I do believe that sometimes going off the beaten path, and going for something unprecedented, can produce results that are also unprecedented, hopefully. And always trying to repeat the same playbook, it's important to know the playbook, but it will take you to very, very specific places. So it's important to know how to do both. And yes, I think that today, in the world of AI, some of the truths that were very valid in the past, about which markets you target, if in the past the US adopted software very, very fast, AI changed that a bit. There are other places that adopt software. Again, it's not the only playbook, but it's just an example of how sometimes that risk reduction needs to happen up to a point.

Eyal David: [11:40] I think that's already a risk you can maybe explain more. Maybe, I think, first, while you were talking a lot of companies came to mind that actually succeeded slowly, but I'd love to hear a couple of words, for anyone who might not know, what they do, what the company does, and was there really some factor, I'm just curious, was there a factor that really knew how to take it into those markets, which suddenly speak a different language, sell in a different language?

Yael Schiff: [12:06] Yes, so today, look, you can say that part of what makes a company successful today is their ability to evolve over time, and I talked about a very, very specific point in time. Today what they do is more about helping enterprises, I think in English, accelerate their AI adoption, and being those partners, the trusted partners who implement AI and help them become companies that adopt AI really well. I think what was unique there, in the go-to-market model, really was different too. Meaning, they had this ability to launch markets. The company was founded about 20 months ago, and today they're in 30-plus markets. So there's a mechanism there for what launching a new market looks like, and how I do the hiring for it and so on. I think that's part of the secret sauce. But yes, like we said earlier about the unique insight, I think that's totally part of it.

Eyal David: [13:15] I immediately just thought about Via when you were talking about that, like how hard it was for you back then to open a new location, and that was mostly outside Israel, basically in English-speaking countries, right? Other countries.

Yael Schiff: [13:28] Yes, I think Via back then operated both in the US and outside the US. I don't know if it was hard to launch new markets. In the end it has to be a strategy that's a very conscious choice, I think, back then.

Eyal David: [13:39] Let me correct myself, sorry, I don't know if it's hard, but it doesn't happen in twenty months across thirty countries, right?

Yael Schiff: [13:47] Yes, it's an exceptional company. But we talked about this, we're looking for the outliers, and for the ones who specifically don't go by the playbook, and I think that's where interesting things happen. I'll give you another example, actually a company that's not from our portfolio, that I met back then, a cyber company, Koi, a cyber company that was sold to Palo Alto. Great founders, I really like them personally, and I think they're amazing. And I will say something I really liked there. A lot of cyber founders, when they come in at Seed, it's like a few, two, three, four guys with some idea, a very impressive track record, and there's a playbook you follow: you talk to CISOs, you do validation. That's very important, and that really is how amazing companies get built, some of them in our portfolio. What was interesting there is that they identified, they had an idea about some vulnerability, and then they built some initial free product, and they already saw people downloading it, and only then did they actually come to the table, when it was already very clear to them who the customers were going to be, or at least what the pain was, and that it really, really hurts. And I think it was very cool to see that they simply came with a somewhat different mindset, like there was a twist in the plot, and it really went very, very fast for them. They also built a very nice product, a nice company, and sold very fast. So that's an example of how sometimes not going the way everyone goes. [unclear], I tried not in English, but yes.

Eyal David: [15:29] I'm even comparing and bringing up. Ran from Harmonic was here, he said, he gave the example that in the end you all talk to the same CISOs from Israel, you all really go down the same path. So, like you say, getting out of that place and bringing validation, one way or another, from somewhere else. So I'll take that for a second, and since we said compare and bring up, what other things do you see that are different today in teams that succeed compared to ones that less so? You gave the example of uniqueness, you gave the example of basically also listening, right? Knowing where you're going.

Yael Schiff: [16:06] Totally. Look, today people talk a lot, it's no longer new or a secret, about execution as a moat, right? Like, move fast, deliver fast. I do think you can break it down a little, or say a bit more specifically, that first of all it's really true. I think that when the barriers dropped, or the threshold of what does it take dropped, I'll keep doing this, what you need to actually develop a product, build something, get to market, the barriers really dropped, and then execution really becomes critical. But where do I see companies that really succeed, where do they do something very unique? I think there's the topic of product velocity, as we call it, the speed at which you ship features, you get a product to market. Now, it's not just "go build much faster," it's not just "move fast." I think the part of "and bring it to market, put it in customers' hands, let them use it, see how they use it, and respond again to what else they want, what you can build that will create value for them," is super, super critical. And I think that really becomes the essence: whoever gets to customers and meets them where they need it, solves a real pain for them, fast. It's not new, but it's on steroids. And I do think that in the past, the topic of focus, my partner Adam just talked about this recently, the topic of focus was very critical. It's still critical, but you do simply need to work at higher volumes, and the focus is on getting something to the customer.

Speed "on steroids": ship, listen, fix

Eyal David: [17:58] So if we put it for a second into two pillars, I'm guilty of this too, so basically it's around GTM and discovery I'd say, and maybe also your Rolodex, of who you can reach as fast as possible, becomes the essence.

Yael Schiff: [18:11] Yes, look, access has always been something that helps, but I think you really have to be able to listen and understand what the customer needs. Meaning, you can come from above and try to push as much as you want, but it'll work up to a certain level. You have to listen to customers, understand where, and even try to understand from what they don't say where it hurts them, and what the things are, what features they need, what the product is, in which areas of the organization, what the processes are, and do that mapping on an ongoing basis. And I'll say one more thing. I think product velocity is one area, but in general the ability to make a decision and move decisively and fast has also always been critical, and now even more so. Meaning, the distance between a CEO saying "I need to bring in someone to do X" and the moment they've brought them in has to move much faster. The distance between "we need to take some direction" and when you actually try it and put it in your customers' hands has to shrink. And yes, that means that even when you make a decision that isn't exactly right, or you realize you need to change a bit, the ability to recover also has to be fast. Meaning, there are of course both things here, but it's also a very, very strong predictor of success, the ability to move forward decisively.

Eyal David: [19:47] Decisiveness. In the end we're talking about risk management. Like, the way I think about it: you can move forward, but have a plan, like, for how to go back as fast as possible, basically.

Yael Schiff: [20:02] Yes, I think that, I often say plan for success. Like, planning the fallback is important, but really, when you work at a company that's VC-backed, it's different for different types of companies, but yes, you need a fallback plan, but I think that's not the main thing. You have to plan.

Eyal David: [20:24] No, absolutely. But I say fallback plan, we're talking about product here, you spoke specifically, so a fallback plan today is a very cheap thing. Like, what's the big deal? If it once required me to maintain two versions, that was a whole thing, today it's much easier.

Yael Schiff: [20:39] True, but I think that a lot of times you say "I want to go in a certain direction with the product," you try, it doesn't work, try to understand for a moment why it doesn't work, and then keep moving forward. It doesn't mean that I then go back. It's like, okay, let's shift maybe 30 degrees to the right, it doesn't matter, but it lets me test things.

Eyal David: [20:56] Right, right, much faster, and show all kinds of versions. Okay, totally, totally. What other tips do you have for teams today, in an era when it's very hard to raise a Seed or a follow-on round? We'll talk about what rounds even are, but what tips do you have for teams that are really stuck today?

Yael Schiff: [21:12] Really stuck before they raise?

Eyal David: [21:14] Yes, they're in the middle, usually. Now we see a lot of companies that find it very hard to close their next round. Okay, it can come from all kinds of places, so what, what tips can you give around that?

How to raise a Seed when raising is hard

Yael Schiff: [21:27] You've given a few, by the way. Yes, yes, yes. We talked earlier about, I think, two types, when you come to raise a Seed: about the consensus, and about the other things. I think you have to keep sharpening, basically, if you fall into the bucket of "let's build something a bit different," I think you really have to sharpen it and understand very, very well where you're going, the market, and start developing. You can simply start moving forward. Yes, I think when you raise a Seed is a flexible thing, and the more fully baked you come into it, whether it's an understanding of the customers you've talked to, an understanding of what my team is going to look like, a good understanding of the technology, what exists. I think when I meet a founder, I said earlier, I want to learn, to learn from the founder. I think they really need to know their market better than I do. That kind of goes without saying, but yes, it's really, really important today too.

Eyal David: [22:37] I agree with you. Tell me, where do you see the biggest impact of AI on startups right now? And, like, I'm trying for a second to step outside of just development, obviously. Where else do you see it?

Yael Schiff: [22:47] Look, companies being born, that were born in the last few years, in the end it shows up in everything they do. If you think about, we talked about hiring earlier for example, how I do hiring, AI is part of it, because otherwise it'll just take more resources, more time. And to be competitive, also for employees, you have to, you have to use the tools, which really keep changing all the time, and the processes, and think about how I bring this into the process. It's simply, it's really being a company that's AI native. So hiring, or bringing in people, is one part. I think that when you look at distribution and go-to-market, of course, it helps you move much faster than what you used to see with teams of SDRs.

Where AI is already changing hiring, sales and customer relationships

Eyal David: [23:42] Which still happens, right? Do you have examples from companies that you, like?

Yael Schiff: [23:47] I think that in the end, even if you have an SDR, I mean, in many cases, both in development and in go-to-market, there are very specific things you hand over entirely to AI or to your agents, and you let them run, and you do want someone who steers that ship. That's shrinking. SDRs still exist in many cases, but their output is supposed to be much higher, and you do see that. I mean, your ability to simply be a bit more sophisticated is happening. I will say that in this world, the implications, we talked about this earlier, I think the personal connection suddenly has a different meaning. Meaning, you have to assume everyone is doing this, and so you have to keep thinking about how you're hacking the system, and how you measure.

Eyal David: [24:47] I very much agree with you. But if we still need to pin it down, I'm really curious to pin down where, in your view, today, in which areas AI is the most interesting today. So you say around hiring, you talked basically about how to reach customers. Yes, what I meant is when I'm a startup, like where I must embed AI, just to sharpen it. Yes, is there another area you're thinking of?

Yael Schiff: [25:10] Where startups adopt AI? It's really, I think, simply woven into everything they do. Meaning, in the end, if I think, you know, people talked a lot about [unclear tool name] in the last few days, but in general, every time there's another tool coming out. I think in the end it has to be integrated into everything you do, into how you order Coke for the office, how you do hiring, how you do go-to-market. It's really woven into everything. Meaning, maybe how you deepen the relationship with the customer, how you deepen your understanding of the customer's need. Look, in the relationship with the customer for example, when you walk into a meeting, I think your level of preparedness, and your ability to arrive very well prepared, is different from what it used to be. The ability to do very fast research, on short notice, and simply show up knowing what they want, what they talked about, that's totally part of it, and it makes it so much better.

Eyal David: [26:05] Right. So let's go back for a second to moats. We talked about it a bit, it comes up in every episode here, but we said that software is no longer a moat. In which cases is the technology itself still a moat?

When technology can still be a moat

Yael Schiff: [26:20] Yes, I think you really can develop much faster today. In the end, when you look, say, at the model companies, we invest in Anthropic, in the end you're building, what's it called? Yes, thanks. In the end there's depth to the development, and there's also meaning to the amount of... to how much you've developed, which I think does give it some substance. A lot of it in the end comes down to your ability to bring in very, very exceptional talent that does have research experience, deep research, and then I think that's meaningful. Also the more you, I think that a lot of times when people say that with AI it's hard for software to be the moat, the further down the stack you go, meaning when you go down to the lower layers, say we invest in DriveNets, which is in networking, I think there there's certainly a moat, not everyone can come and build that. And of course it's always combined with your distribution, with how you reach customers. It has to come together.

Eyal David: [27:32] I'm asking because we also talked about Fiverr, and we also talked about Wix, examples of Israeli companies, basically, that now, when software really is no longer the moat, they're trying, not specifically those two companies, but companies in Israel in general, from many areas, that I follow, I see that they're obviously making this transformation, this flip, becoming AI first, right? Everyone.

Yael Schiff: [27:59] Yes, it's happening all over the world, I think, not just in Israel. Companies that were born more than four years ago, say, basically went through some technological shift, where you have to think how, how do I get into this, and how do I adopt it and harness it to my advantage. It's not always easy, but I will say it's possible. And personally, I mean, I see examples where when it works, it works amazingly. For example, we have a portfolio company in the US, actually, you said Israel, but in the US, Intercom, which was founded 15 years ago, changed its name in recent years. Really, shortly after ChatGPT came out, they understood what was happening and said: we're going to take this thing and use everything we've built so far. And this was a SaaS company that in its golden years, really in 2020, was a very, very successful company, and they said: let's take this thing. They understood the scale of it, and we'll harness it and start developing, basically change the product a bit, make some adjustments. I say a bit, but honestly it was pretty aggressive. They really changed the name and built a new product line that suddenly grew very, very fast. And this is a company where they just announced over the summer that Salesforce is buying it for a little over three and a half billion dollars, which is a great outcome. And wow, it's a very, very old company. And what they did, I think they also used, I mean, they knew how to harness the technology very fast and adopt it, and understand how they take it and what they know so far, and build something new, even at the cost of, sometimes, cannibalizing the existing business, at the cost of understanding that we're really shifting focus, and that has a price, and it takes a lot of courage. But when it works, it works amazingly. And I do see companies of ours that look at the trend of, okay, what does AI let me build, or what new problems does it create, or new challenges, and what opportunities does it create, and think about what assets I have today, and take that ship and try to ride some wave. And when it works, it's amazing. But it's not easy.

Intercom: hurting your own business to become an AI company

Eyal David: [30:33] Right. Wow, that's a great story. I wanted to ask something else, but you already went to that story, and it's a great story. Excellent. If I remember correctly, the CEO also basically took, he started it as a side product, he gave them resources and they ran in parallel. Obviously it was a crazy business at that time, and then in the end they flipped the sleeve and moved there. So it was like there was a moment where it was a very big risk.

Yael Schiff: [30:56] Yes, I think that from the moment they started building a product, look, I didn't work with them super closely, but from the moment they decided to build a product that in some way cannibalizes the existing product, obviously there's a huge risk in that. But I think that sometimes, you know, there's a concept for this, the Innovator's Dilemma, like sometimes you have to disrupt yourself in order, in order to succeed. By the way, part of the advantage of newer startups is that they don't have to be in that dilemma. They can move faster, and they don't have all those constraints, and that's often where they really can win. But when a company manages to make that shift, it's amazing. Sometimes, by the way, it happens through acquisitions. Sometimes there are ways to bring technology in from the outside too.

Eyal David: [31:47] Yes, yes. But I think what they did is really amazing. I say "yes" like that because there are a lot of examples where it doesn't work, and a lot of examples where it does. So, but what I actually wanted to ask, you told me, I think it was on the phone when we talked, that at some conference they asked you about SaaS companies, in Israel specifically, I don't know if in Israel, but specifically, like, where this model is going, and how you see it as a fund, right? You kind of started answering me already.

Yael Schiff: [32:19] Right, yes. I think, you know, a few months ago everyone was asking "is SaaS dead," that was the question. So I think this is some version of that. And it really connects to the point I talked about. I think that when you're an organization today, a lot of times it's called an AI application, right? Not SaaS anymore. But when you're an organization that builds B2B and has existed much longer, you have to try to understand what trend I can ride and use, and how I use what I have to move forward. It really isn't easy, but you see quite a few examples where it works. I think there are companies that really do the... In the end, yes, you need to understand what your advantages are as an existing company, as a large company: you already have an organization that works, you already have customers, you already have a distribution engine, those things, you have a brand, you have a brand, people know you. Also not every field has to be, not in every field does AI completely change the picture. So you need to understand where you are. It really varies between... which period, by field.

Eyal David: [33:33] Partner, that. Okay, so I think the logical thing to do now is to start talking about how AI's impact is hitting you, the VCs, right? I'll mention something I noticed, and we also talked about it a bit before, about basically what rounds mean today, right?

Mega-rounds and a longer road to IPO

Yael Schiff: [33:50] Yes. So I'll answer two points. I think that in a world with AI, also as a VC, of course you have to adopt different tools for your work, like any organization that wants to keep moving forward. That goes without saying, in all of the organization's processes. But I think that really, in a world where agents are suddenly the ones who can do a lot of things, the importance of the personal connection is very, very significant. Both as a VC and as a company, you have customers. I think your ability to sometimes meet face to face, to really talk and give that human touch, I think that carries a lot of meaning. As for rounds, look, I think, I don't know how to tie it directly to AI, but no doubt we're in a period of rounds that are, some of them, very big raises, a lot of concentration, and capital going into fewer companies. That's true in the early stages too, by the way, and it's true in the later stages as well. Meaning, what you see is that the time a company spends in the market until it reaches an IPO, for instance, is going to get longer. If in the past you'd reach a certain size of a few billion and go out, do an IPO hopefully, today that time is longer, you reach a bigger scale. And I think companies are also staying private for longer, and that also creates very interesting opportunities at later stages. We're really seeing crazy IPOs from the last year or the last few years, and there's still a way to go.

Eyal David: [35:48] Do you think that's also connected to the fact that you understand the giants also want to renew themselves, like we said, and maybe the way to basically get out, or to get your return, will be to aim to sell to one of the giants, and maybe that's why you don't aim for an IPO? Like, maybe a lot of CEOs think that way?

Yael Schiff: [36:10] Look, the M&A option for VC-backed companies has always existed, and in the end, for many of the companies, that's basically the exit strategy, that's basically where they end up, and that's really great. It's a great way to reach scale, because I think when you join a larger body, and that... I don't know if that's everything. So it could be that if getting to an IPO takes longer, there are more opportunities along the way for these mergers, these acquisitions, sometimes at very high valuations too, like we said, very fast and very high. It's both. I think that in some cases, say in cyber, you often see these acquisitions happening at earlier stages too, in terms of how big the company is, how many customers it has and so on, but also in many cases at very large scale. Like, in many cases these are companies with hundreds of millions of dollars, and yes, the acquisition is already happening.

Eyal David: [37:18] You know, the Intercom example a moment ago, I don't know how it gets redefined. So tell me, does the whole system of VC milestones need to be redefined in your eyes? Just because it used to be very tailored, like we said, to the company's stage and where it's aiming, right?

Milestones without a template, and bootstrapping as an option

Yael Schiff: [37:36] I think that all of us, as human beings and also as VCs, live in some kind of buckets, or we really, really love templates. To get to a Series A you need to be at X ARR, Y customers, and then you can raise a round of between, in some range. Companies look for that because it gives certainty, and it helps VCs too, because you have some benchmark. I do think that what, we call it traction, what does it say? Sometimes it shows up in already having customers, sometimes it's that you see some pipeline and customers about to come in. There's much more variety in what the milestone should be for the next raise. I think there's always a step up to a certain degree, but it really varies. Meaning, we do like to think in templates, but there are so many exceptions that sometimes when people ask me, it's hard to say exactly what that milestone is and how it should look. I think in the end you want to see that a company is on the path to growing very, very fast. You made some hockey-stick motions here, exactly. Sometimes it's called an inflection point, where you'll really keep seeing very, very significant growth, and that they've hit on something.

Eyal David: [39:02] Like, what this simply brings me back to is that if we go back to those founders who are currently stuck, unable to raise, or finding it very hard, then this whole meaning of stages, obviously, like you say, it's very convenient to think that way, yes, but it's not necessarily what you're aiming for, like, really following a template that the other side sees the same way too.

Yael Schiff: [39:24] I'll say, you mentioned founders who are struggling to raise, you need to think, like, it really depends on the case, but being a bootstrapped company is also a great option. I think people aren't always aware of that, but you can build amazing companies that simply grow organically, without any outside funding. And today you can really do a lot on your own and without, I mean, you can get very, very far, and fairly fast, and you see examples of that too.

Eyal David: [39:58] Yes, exactly. If we talked for a minute about doing things differently, if we really talked about how the fundraising world is changing, then this really connects. Yes, one more thing, you've basically started bringing in a lot of deep tech investments. I don't know if it's a lot, but a lot of deep tech, right? When I peeked at your website I saw it. And that's very different from a software company, which is what we've talked about so far. In your eyes, how can you check relatively quickly, say, whether there's usage and retention and revenue, all the good things you just mentioned. So how in deep tech, basically, it hasn't been proven, right? It hasn't been proven that it reaches [production], and certainly not at scale. Yes, so what are you actually looking at? I want to say "betting on," but what are you actually looking at?

Yael Schiff: [40:38] Look, deep tech, the truth is that our roots, and we invested, we talked about DriveNets earlier, and Habana Labs, a company that was sold to Intel back then, but we also invested in it quite a few years ago, and maybe in some way it was ahead of its time. So I think our roots do go there, and those are areas we've looked at and invested in in the past. In the end, in deep tech, you do understand that things will often take more time, and you want to believe that there really is some unique technology here. We talked about a moat. A team that knows what it's doing. I think here experience is very significant: someone who's done it before, who understands the field very well, who has some expertise on one hand, some domain knowledge, and on the other hand also understands what it takes to turn this thing into a business, and to then take it to the next stage. So those things, that technical expertise, but also an understanding of what it takes to eventually get to market, is significant. Yes, it's not easy.

How to invest in deep tech

Eyal David: [41:58] There's also the aspect of more time, but also more money, right?

Yael Schiff: [42:01] Right. I think earlier we talked about your ability to raise money. Again, because these things take more time, I as an investor also want to believe that the team will be able to raise money, because it's clear that in many cases it's a journey that will require quite a lot.

Eyal David: [42:20] So how has that changed for you? Meaning, if I think for a second, if I think for a second about the investment process in deep tech versus software, in my head I think of all the Batman movies, where Bruce Wayne funds all kinds of science projects. You don't want to get into a science project.

Yael Schiff: [42:36] Yes. Look, I think in cases like these you have to lean on, uh, or at least we lean on experts too. I mean, on our own experience, but also on experts and people who ultimately come from the field, some inside Bessemer, some outside. And you do dive in, you have to dive into the technology, understand what the plan is and how it's going to look. The difference isn't only between deep tech and software. Even within software there are all kinds, when you evaluate a company, you always need to look at somewhat different parameters. So for me it's simply another type of investment where you need to get help, within the process, within your due diligence, when you're trying to evaluate a company, to understand very well both the founders' background and the technology, and get a pretty good feel for where it's going. I think here the giants' game is very significant, because in the end they're also very, very relevant and will have a big influence. Precisely because the timeline here gets longer, you want to understand where they're going to stand in all this, and whether I basically have a product that's complementary, a product that's competing, and where they enter the game. And the view really is more long-term, it really is a long horizon, and how I take it from technology to market, because that takes time.

Eyal David: [44:05] Wow, that makes me think about how you do the... how do you not get sucked into a super long due diligence process and super long research?

Yael Schiff: [44:14] Yes. You do have to do a more comprehensive due diligence process too. You can still do it within short timeframes, but right, in the end, we're in a field where there's always some uncertainty. You're always taking a risk, you need to feel comfortable enough.

Eyal David: [44:35] And I can't not get into, basically, I was actually thinking about asking you this: it sounds like now AI is, so to speak, bringing you, the VCs, much more into what you described Bessemer did at the beginning, much more, heavy, physical businesses, which maybe have that kind of moat, for instance. So do you want to play there?

Yael Schiff: [44:56] We do both. As a generalist fund, I think one of the advantages is that it's somewhat up to each investor's decision, where they spend their time and where they see the opportunities. And where I invested my time a year ago, it could be that today it'll change a bit.

Eyal David: [45:17] Yes, that's true, you need to know how to change yourself too. And to dive in: what are the areas that interest you most today? As of now, September 2026, we said these things don't age well, but.

Where the opportunities are: infrastructure, robotics, defense and B2C

Yael Schiff: [45:32] I think that in the end the worlds, I mean, AI, we talked about all the options it enables, there's a very deep stack here. Meaning, the application layer, and what AI enables at the edge, I mean for customers, to do, the services they receive, how to adopt AI. That can be horizontal, and also specific verticals. I think both areas still have opportunities. And also one layer below, meaning AI infrastructure, as we call it. You're laughing, I keep saying things in English.

Eyal David: [46:08] No, not specifically about that.

Yael Schiff: [46:10] Okay. So I think AI infrastructure too, there are still opportunities there as well. But look, in the end I also look at physical AI, the whole topic of robotics, or the things that will make it possible to reach those areas too, and also at defense, as we call it. So there really is a very, very wide range.

Eyal David: [46:37] Which makes so much sense. After all, the population is aging a lot in the US, so robots there are a no-brainer, and I can think of a million things. Tell me, what about B2C?

Yael Schiff: [46:50] That's a good question. B2C, we talked about it, that historically we used to do it. I think that as someone who invests most of her time in Israel, I don't see a lot of it. It is something that in the end, like, there's a willingness to do it when you see an opportunity, but I see less of it, that's the truth.

Eyal David: [47:14] Do you think it's an area that's going much more...? For example, I saw that YC is really steering toward it, it's one of the pillars they're steering toward, and when I saw that I thought, and this may be a bit related to our conversation, that it's an area that's going to be much more bootstrapped.

Yael Schiff: [47:27] Honestly, I don't know. I will say that in B2C, I'd even compare it to the world of developer tools, meaning worlds where you arrive, basically, the way you sell is often bottom-up. Meaning, you need lots and lots of users who love your product and use it. And those are areas that are easier to invest in, or at least for me, historically, when I look at it, when there's data. Because it's really, really hard to predict what will catch on. Sometimes you see a product that seems brilliant to you, or an idea someone tells you about that seems brilliant, and it doesn't catch on, and vice versa. It's really, really hard to know why suddenly something will work. And then, as a founder, if you come to raise the moment you show those first signs of oil, the data, the customers, the feedback, you can really see it. Meaning, when you see a person got a product and suddenly spends hours on it every day, or comes back to it, or sends it to friends, and how that momentum starts to roll, those are signals that are just very hard to argue with, and then it becomes interesting. So maybe up to that point it's easier, and really, because the barrier to entry for building something is lower, it makes sense to get to that stage of data and then raise. So maybe bootstrap up to a certain stage, and when it clicks...

Eyal David: [48:55] So exactly, I was actually thinking about it from another angle. Again, if I were wearing an investor's hat, looking at it this way I'd say to myself: hey, even if you bring data on, okay, the way to grow in B2C, it's organic, that's amazing, but most likely you'll spend money on it. And that can change in an instant. Even if something works well today, you could easily, like, in the end you're very dependent on Google, Meta, and so on, and TikTok, for instance. That can change in an instant, it's a big risk. Things where it's interesting whether funds will take them on.

Yael Schiff: [49:25] Yes, look, there are, there are, there are investors for whom this is really, really their focus, and I think you can raise. Like, in Israel too there are funds where these are really the areas they focus on. It really depends, depends on the investor, depends on the fund.

Eyal David: [49:37] So that's interesting, we'll see where it goes. And let's talk about the backlash against AI. We talked about it a bit, it's more of a discussion that also interests me personally.

The backlash against AI: authenticity, regulation and "there will be catastrophes"

Yael Schiff: [49:48] Okay.

Eyal David: [49:50] So first, we're seeing it. We've seen it on LinkedIn, we've seen it in the news, we've even seen it in a video that pops up on YouTube, and you see for a second, at least I see that it's AI, and even if it brings me value, the moment I realize it, I toss it for a second. Maybe that will change, but what's causing it, in your view, first of all? Is the backlash something more economic, more emotional? Because economic, let me expand, even people who feel that AI is now changing their job, taking their job, there's tons of research on it, right? So does it seem to you more economic or emotional?

Yael Schiff: [50:26] Look, people always find change hard, especially big changes, especially when it's a risk. And there are all the parallels to the industrial revolution, to previous revolutions, which is something natural, but in the end it's inevitable. I do think that when you adopt a new technology, and when the world in general shifts to a new technology, there's a kind of side effect, reactions you didn't anticipate, and then sometimes you need to make a correction, and in certain areas there may be room for a correction. We talked earlier about the personal connection. I think that sometimes you, a lot of content today is generated by AI, and sometimes you read it and you say: wow, that sounds sophisticated, but what did I just read? It's really a lot of slogans, slogans. And suddenly when someone really writes something authentic, something that's an original thought, it's refreshing. So I think, I just wrote something internal, and suddenly someone wrote to me: "Wow, how nice, you can see it's really you who wrote it, it feels like it's really you." And I think that's needed, so it's part of the picture. In the last few days we've been talking about somewhat bigger things than that, about the implications of AI and the development of the technology, up to loss of control. And here it's already, you know, a different side effect, or not a side effect. It's really advancing at very, very high speeds, and I think there are obviously, there are dangers, you can't deny it. There will probably be some regulation, but the assumption is, I don't know, my working assumption is that there will be some catastrophes, or mini-catastrophes, that will happen. You asked me earlier what I focus on, I don't remember if I said cyber, but obviously part of the work of cyber companies is to help in these areas. But yes, there will be things. I mean, what do you mean there will be things, it's already happening. You saw what happened with Hugging Face [as transcribed]. You see what agents can do when you give them objective functions that are too big, and how they go about solving them, and don't see anything else.

Eyal David: [52:44] Yes. That, you have, where do I take this? I'll say, first of all I was thinking as you spoke: good luck writing texts when AGI arrives and becomes more of a commodity. The second thing, I was thinking about that CFO, right? At that company, where everyone on the call was an AI deepfake. So, like, risks like that, is that what you mean? Maybe even before Hugging Face, that sounds scarier to me. Yes. And the reason I'm asking about this is that there will be a backlash, that's clear, like you said, the pendulum has to swing. And I'm basically asking how you forecast, or specifically, how you forecast the strength of the reaction, its impact, if there's a backlash, or, I don't really know the Hebrew for it, some counter-effect that will strengthen significantly in the next two years. Who will benefit from it? Like, we didn't want a thesis, but it's a thesis that might be disconnected, so I'm kind of curious.

Yael Schiff: [53:44] No, it's very, very hard to say. Like, I think you really can't stop the progress. Meaning, people are now talking about "let's slow down a bit so we don't get to dangerous places." I'm not sure how possible that is. Meaning, you know, people say, if Anthropic or OpenAI don't develop it, the Chinese models will. I mean, it's very, very hard to stop this field. And I think we need to understand how the world adopts some control mechanisms. In some of the big companies it may be, I mean, there are all kinds of things that could happen, it's really, really hard to know. Say, today most companies use the cloud. There may be companies that move more to on-prem. There may be certain operations that you actually decide to do that aren't exposed to the world. There are all kinds of ways. But I think there will be so much of this, there's no single truth about where the world is heading, and every organization will need to understand which safety mechanisms it adopts, and from above there will probably be some regulation too.

Eyal David: [54:55] You look at it on that level. Like, you say the risk that it'll happen. I understand that basically the discussion happening at the big companies is somewhat agenda-driven, if I understand correctly.

Yael Schiff: [55:04] It's not even a risk, I think it's already happening.

Eyal David: [55:06] I said discussion, but yes. Like, this discussion basically around "put guardrails on us," and basically, like, you said it in that context.

Yael Schiff: [55:15] Yes. I mean, it's something that will happen.

Eyal David: [55:17] I don't really think so. What will happen if there's actually a backlash movement, and I don't know what.

Yael Schiff: [55:21] A backlash movement of what? Of let's not use AI?

Eyal David: [55:24] Let's stop, let's put regulation in place, let's stop.

Yael Schiff: [55:27] No, it's happening, it's happening. These are things that are totally, there's a call for it, and I'm sure we'll hear more of it.

Eyal David: [55:37] Like, sorry, as I see it, a movement is happening gently, at a very gentle level. It hasn't really reached many [programs] yet.

Yael Schiff: [55:44] I think some catastrophe needs to happen before you'll hear, see, a more significant backlash. Often in cyber too, the moment you see a few breaches, and a few organizations getting hurt by a risk that before that maybe wasn't a top priority, or wasn't on the list, suddenly more and more security teams start to worry and say: let's adopt solutions. So sometimes you understand it's coming and you try to prepare, and sometimes after that catastrophe happens, you also correct.

Eyal David: [56:22] It might also come, again, we're in this kind of discussion, so thought partners. So no, I think, like, it could also go into the areas you talked about, the personal connection. It doesn't have to happen only in social areas. We have a generation that, like, I see my daughters, who pull back much more than I do when they see AI content.

Yael Schiff: [56:40] Really?

Eyal David: [56:41] Really, yes. So, like, this whole thing of screens, and so on, maybe it'll go in those directions too.

Yael Schiff: [56:46] Yes, look, the whole topic of screens, social networks, I think there's something there.

Eyal David: [56:51] Okay, humanity has contained it, to some extent.

Yael Schiff: [56:53] No, humanity has contained it, and I think there was, you know, social networks, today there's a lot of talk about kids and their consumption of social networks, and you see, after a lot of research and understanding, and you see it in Europe, you see its effects on teenagers and kids who really consumed a lot of that content, and what it does to their mental health and so on. There's a backlash, in some places there's much more regulation. In Israel too, like, you see that in many schools they limit when you get a phone and so on, and I think that's going to escalate, the attempt to delay usage. So I think that's a good example of how in the end these mechanisms form naturally. Sometimes it's regulation, sometimes it's by the specific companies or people, but when it really becomes, when it crosses some threshold, it happens.

Eyal David: [57:52] Yes, well, that's really interesting, because I say humanity has contained it until now.

Yael Schiff: [57:57] Right.

Eyal David: [57:58] Now, when there's also [AI] on steroids on top of it, I'm not sure it'll stay that way. Like, good luck with the law, what's it called here, with the screens, it has a name, that from a certain grade...

Yael Schiff: [58:09] The Screens Covenant.

Eyal David: [58:11] Yes, exactly, exactly. So we'll probably [unclear]. Listen, so glad you came, it was really interesting.

Yael Schiff: [58:17] Thanks for the opportunity, so much fun.

Eyal David: [58:20] Really. So as we said, if you have questions or anything, then gladly, we'll enjoy it. And it was really great having you.

Yael Schiff: [58:26] Great, thank you very much as well.

Eyal David: [58:28] Alright, bye.

Yael Schiff: [58:29] Bye.