Personal blog of Yzmir Ramirez

YL Ventures, the Israel-focused cybersecurity seed fund, today announced that it has sold its stake in cybersecurity asset management startup Axonius, which only a week ago announced a $100 million Series D funding round that now values it at around $1.2 billion.

ICONIQ Growth, Alkeon Capital Management, DTCP and Harmony Partners acquired YL Venture’s stake for $270 million. This marks YL’s first return from its third $75 million fund, which it raised in 2017, and the largest return in the firm’s history.

With this sale, the company’s third fund still has six portfolio companies remaining. It closed its fourth fund with $120 million in committed capital in the middle of 2019.

Unlike YL, which focuses on early-stage companies — though it also tends to participate in some later-stage rounds — the investors that are buying its stake specialize in later-stage companies that are often on an IPO path. ICONIQ Growth has invested in the likes of Adyen, CrowdStrike, Datadog and Zoom, for example, and has also regularly partnered with YL Ventures on its later-stage investments.

“The transition from early-stage to late-stage investors just makes sense as we drive toward IPO, and it allows each investor to focus on what they do best,” said Dean Sysman, co-founder and CEO of Axonius. “We appreciate the guidance and support the YL Ventures team has provided during the early stages of our company and we congratulate them on this successful journey.”

To put this sale into perspective for the Silicon Valley and Tel Aviv-based YL Ventures, it’s worth noting that it currently manages about $300 million. Its current portfolio includes the likes of Orca Security, Hunters and Cycode. This sale is a huge win for the firm.

Its most headline-grabbing exit so far was Twistlock, which was acquired by Palo Alto Networks for $410 million in 2019, but it has also seen exits of its portfolio companies to Microsoft, Proofpoint, CA Technologies and Walmart, among others. The fund participated in Axonius’ $4 million seed round in 2017 up to its $58 million Series C round a year ago.

It seems like YL Ventures is taking a very pragmatic approach here. It doesn’t specialize in late-stage firms — and until recently, Israeli startups always tended to sell long before they got to a late-stage round anyway. And it can generate a nice — and guaranteed — return for its own investors, too.

“This exit netted $270 million in cash directly to our third fund, which had $75 million total in capital commitments, and this fund still has six outstanding portfolio companies remaining,” Yoav Leitersdorf, YL Ventures’ founder and managing partner, told me. “Returning multiple times that fund now with a single exit, with the rest of the portfolio companies still there for the upside is the most responsible — yet highly profitable path — we could have taken for our fund at this time. And all this while diverting our energies and means more towards our seed-stage companies (where our help is more impactful), and at the same time supporting Axonius by enabling it to bring aboard such excellent late-stage investors as ICONIQ and Alkeon — a true win-win-win situation for everyone involved!”

He also noted that this sale achieved a top-decile return for the firm’s limited partners and allows it to focus its resources and attention toward the younger companies in its portfolio.

Yesterday at TechCrunch’s Enterprise event in San Francisco, we sat down with three venture capitalists who spend a lot of their time thinking about enterprise startups. We wanted to ask what trends they are seeing, what concerns they might have about the state of the market and, of course, how startups might persuade them to write out a check.

We covered a lot of ground with the investors — Jason Green of Emergence Capital, Rebecca Lynn of Canvas Ventures and Maha Ibrahim of Canaan Partners — who told us, among other things, that startups shouldn’t expect a big M&A event right now, that there’s no first-mover advantage in the enterprise realm and why grit may be the quality that ends up keeping a startup afloat.

On the growth of enterprise startups:

Jason Green: When we started Emergence 15 years ago, we saw maybe a few hundred startups a year, and we funded about five or six. Today, we see over 1,000 a year; we probably do deep diligence on 25.

Away from the limelight of the press and the frenzy of fundraising, a tech startup in India has achieved a feat that few of its peers have managed: going public.

IndiaMART, the country’s largest online platform for selling products directly to businesses, raised nearly $70 million in a rare tech IPO for India this week.

The milestone for the 23-year-old firm is so uncommon for India’s otherwise burgeoning startup ecosystem that, beyond being over-subscribed 36 times, pent up demand for IndiaMART’s stock saw its share price pop 40% on its first day of trading on National Stock Exchange on Thursday — a momentum that it sustained on Friday.

The stock ended Friday at Rs 1326 ($19.3), compared to its issue price of Rs 973 ($14.2).

IndiaMART is the first business-to-business e-commerce firm to go public in India. Its IPO also marks the first listing for a firm following the May reelection of Narendra Modi as the nation’s Prime Minister and the months-long drought that led to it.

Accounting firm EY said it expects more companies from India to follow suit and file for IPO in the coming months.

“Now that national elections are over and favorable results secured, IPO activity is expected to gain momentum in H2 2019 (second half of the year). Companies that had filed their offer documents with the Indian stock markets regulator during H2 2018 and Q1 2019 may finally come to market in the months ahead,” it said in a statement (PDF).

IndiaMART’s origin

The fireworks of the IPO are just as impressive as IndiaMART’s journey.

The startup was founded in 1996 and for the first 13 years, it focused on exports to customers abroad, but it has since modernized its business following the wave of the internet.

“The thesis was, in 1996, there were no computers or internet in India. The information about India’s market to the West was very limited,” Dinesh Agarwal, co-founder and CEO of IndiaMART, told TechCrunch in an interview.

Until 2008, IndiaMART was fully bootstrapped and profitable with $10 million in revenue, Agarwal said. But things started to dramatically change in that year.

“The Indian rupee became very strong against the dollar, which dwindled the exports business. This is also when the stock market was collapsing in the West, which further hurt the exports demand,” he explained.

By this time, millions of people in India were on the internet and, with tens of millions of people owning a feature phone, the conditions of the market had begun to shift towards digital.

“This is when we decided to pursue a completely different path. We started to focus on the domestic market,” Agarwal said.

Over the last 10 years, IndiaMART has become the largest e-commerce platform for businesses with about 60% market share, according to research firm KPMG. It handles 97,000 product categories — ranging from machine parts, medical equipment and textile products to cranes — and has amassed 83 million buyers and 5.5 million suppliers from thousands of towns and cities of India.

According to the most recent data published by the Indian government, there are about 50 to 60 million small and medium-sized businesses in India, but only around 10 million of them have any presence on the web. Some 97% of the top 50 companies listed on National Stock Exchange use IndiaMART’s services, Agarwal said.

That’s not to say that the transition to the current day was a straightforward process for the company. IndiaMART tried to capitalize on its early mover advantage with a stream of new services which ultimately didn’t reap the desired rewards.

In 2002, it launched a travel portal for businesses. A year later, it launched a business verification service. It also unveiled a payments platform called ABCPayments. None of these services worked and the firm quickly moved on.

Part of IndiaMART’s success story is its firm leadership and how cautiously it has raised and spent its money, Rajesh Sawhney, a serial angel investor who sits on IndiaMART’s board, told TechCrunch in an interview.

IndiaMART, which employs about 4,000 people, is operationally profitable as of the financial year that ended in March this year. It clocked some $82 million in revenue in the year. It has raised about $32 million to date from Intel Capital, Amadeus Capital Partners and Quona Capital. (Notably, Agarwal said that he rejected offers from VCs for a very long time.)

The firm makes most of its revenue from subscriptions it sells to sellers. A subscription gives a seller a range of benefits including getting featured on storefronts.

4/4. So many Indian small businesses have so much to thank @DineshAgarwal for. And after the iconic IPO, so many Indian entreprenuers will have so much to thank him for – forever unlocking the Indian public markets to current & future generation of Indian internet companies

— Kunal Bahl (@1kunalbahl) July 4, 2019

Where the industry stands

There are only a handful of internet companies in India that have gone public in the last decade. Online travel service MakeMyTrip went public in 2010. Software firm Intellect Design Arena and e-commerce store Koovs listed in 2014, then travel portal Yatra and e-commerce firm Infibeam followed two years later.

India has consistently attracted billions of dollars in funding in recent years and produced many unicorns. Those include Flipkart, which was acquired by Walmart last year for $16 billion, Paytm, which has raised more than $2 billion to date, Swiggy, which has bagged $1.5 billion to date, Zomato, which has raised $750 million, and relatively new entrant Byju’s — but few of them are nearing profitability and most likely do not see an IPO in their immediate future.

In that context, IndiaMART may set a benchmark for others to follow.

“The fact that we have a homegrown digital commerce business, serving both the urban and smaller cities, and having struggled and been around for so long building a very difficult business and finally going public in the local exchange is a phenomenal story,” Ganesh Rengaswamy, a partner at Quona Capital, told TechCrunch in an interview. “It keeps the story of India tech, to the Western world, going.”

Generally, it is agreed that there are too few IPOs in India and the industry can benefit from momentum and encouragement of high profile and successful public listings.

“There is a firm consensus that in India, markets will prefer only the IPOs of companies that are profitable. And investors in India might not value those companies. Both of these issues are being addressed by IndiaMART,” said Sawhney.

“We need 30 to 40 more IPOs. This will also mean that the stock market here has matured and understands the tech stocks and how it is different from other consumer stocks they usually handle. More tech companies going public would also pave the way for many to explore stock exchanges outside of India.

“Indian market is ready for more tech stocks. We just need to get more companies to go out there,” Sawhney added, although he did predict that it will take a few years before the vast majority of leading startups are ready for the public market.

The Indian government, for its part, this week announced a number of incentives to uplift the “entrepreneurial spirit” in the nation.

Finance minister Nirmala Sitharaman said the government would ease foreign direct investment rules for certain sectors — including e-commerce, food delivery, grocery — and improve the digital payments ecosystem. Sitharaman, who is the first woman to hold this position in India, said the government would also launch a TV program to help startups connect with venture capitalists.

The path ahead for IndiaMART

IndiaMART has managed to build a sticky business that compels more than 55% of its customers to come back to the platform and make another transaction within 90 days, Agarwal — its CEO — said. With some 3,500 of its 4,000 employees classified as sales executives, the company is aggressive in its pursuit of new customers. Moving forward, that will remain one of its biggest focuses, according to Agarwal.

“Most of our time still goes into educating MSMEs on how to use the internet. That was a challenge 20 years ago and it remains a challenge today,” he told TechCrunch.

In recent years, IndiaMART has begun to expand its suite of offerings to its business customers in a bid to increase the value they get from its platform and thus increase their reliance on its service.

IndiaMART has built a customer relationship management (CRM) tool so that customers need not rely on spreadsheets or other third-party services.

“We will continue to explore more SaaS offerings and look into solving problems in accounting, invoice management and other areas,” said Agarwal.

The firm also recently started to offer payment facilitation between buyers and sellers through a PayPal -like escrow system.

“This will bridge the trust gap between the entities and improve an MSME’s ability to accept all kinds of payment options including the new age offerings.”

There’s an elephant in the room, however.

A bigger challenge that looms for IndiaMART is the growing interest of Amazon and Walmart in the business-to-business space. Several startups including Udaan — which has raised north of $280 million from DST Global and Lightspeed Venture Partners — have risen up in recent years and are increasingly expanding their operations. Agarwal did not seem much worried, however, telling TechCrunch that he believes that his prime competition is more focused on B2C and serving niche audiences. Besides he has $100 million in the bank himself.

Indeed, as Quona Capital’s Rengaswamy astutely noted, competition is not new for IndiaMART — the company has survived and thrived more than two decades of it.

“Alibaba came and gave up,” he noted.

An important — and unanswered question — that follows the successful IPO is how IndiaMART’s stock will fare over the coming months. A glance to the U.S. — where hyped companies like Uber, Lyft and others have seen prices taper off — shows clearly that early demand and sustained stock performance are not one and the same.

Nobody knows at this point, and the added complexity at play is that the concept of a tech IPO is so uncommon in India that there is no definitive answer to it… yet. But IndiaMART’s biggest achievement may be that it sets the pathway that many others will follow.

IBM announced its latest blockchain initiative today. This one is in partnership with KPMG, Merk and Walmart to build a drug supply chain blockchain pilot.

These four companies are coming together to help come up with a solution to track certain drugs as they move through a supply chain. IBM is acting as the technology partner, KPMG brings a deep understanding of the compliance issues, Merk is of course a drug company and Walmart would be a drug distributor through its pharmacies and care clinics.

The idea is to give each drug package a unique identifier that you can track through the supply chain from manufacturer to pharmacy to consumer. Seems simple enough, but the fact is that companies are loathe to share any data with one another. The blockchain would provide an irrefutable record of each transaction as the drug moved along the supply chain, giving authorities and participants an easy audit trail.

The pilot is part of a set of programs being conducted by various stakeholders at the request of the FDA. The end goal is to find solutions to help comply with the U.S. Drug Supply Chain Security Act. According to the FDA Pilot Program website, “FDA’s DSCSA Pilot Project Program is intended to assist drug supply chain stakeholders, including FDA, in developing the electronic, interoperable system that will identify and trace certain prescription drugs as they are distributed within the United States.”

IBM hopes that this blockchain pilot will show it can build a blockchain platform or network on top of which other companies can build applications. “The network in this case, would have the ability to exchange information about these pharmaceutical shipments in a way that ensures privacy, but that is validated,” Mark Treshock, global blockchain solutions leader for healthcare and life sciences at IBM told TechCrunch.

He believes that this would help bring companies on board that might be concerned about the privacy of their information in a public system like this, something that drug companies in particular worry about. Trying to build an interoperable system is a challenge, but Treshock sees the blockchain as a tidy solution for this issue.

Some people have said that blockchain is a solution looking for a problem, but IBM has been looking at it more practically, with several real-world projects in production, including one to track leafy greens from field to store with Walmart and a shipping supply chain with Maersk to track shipping containers as they move throughout the world.

Treshock believes the Walmart food blockchain is particularly applicable here and could be used as a template of sorts to build the drug supply blockchain. “It’s very similar, tracking food to tracking drugs, and we are leveraging or adopting the assets that we built for food trust to this problem. We’re taking that platform and adapting it to track pharmaceuticals,” he explained.

Today’s startups have a distinct advantage when it comes to launching a company because of the public cloud. You don’t have to build infrastructure or worry about what happens when you scale too quickly. The cloud vendors take care of all that for you.

But last month when Pinterest announced its IPO, the company’s cloud spend raised eyebrows. You see, the company is spending $750 million a year on cloud services, more specifically to AWS. When your business is primarily focused on photos and video, and needs to scale at a regular basis, that bill is going to be high.

That price tag prompted Erica Joy, a Microsoft engineer to publish this Tweet and start a little internal debate here at TechCrunch. Startups, after all, have a dog in this fight, and it’s worth exploring if the cloud is helping feed the startup ecosystem, or sending your bills soaring as they have with Pinterest.

For starters, it’s worth pointing out that Ms. Joy works for Microsoft, which just happens to be a primary competitor of Amazon’s in the cloud business. Regardless of her personal feelings on the matter, I’m sure Microsoft would be more than happy to take over that $750 million bill from Amazon. It’s a nice chunk of business, but all that aside, do startups benefit from having access to cloud vendors?

Walmart has been working with IBM on a food safety blockchain solution and today it announced it’s requiring that all suppliers of leafy green vegetable for Sam’s and Walmart upload their data to the blockchain by September 2019 .

Most supply chains are bogged down in manual processes. This makes it difficult and time consuming to track down an issue should one like the E. coli romaine lettuce problem from last spring rear its head. By placing a supply chain on the blockchain, it makes the process more traceable, transparent and fully digital. Each node on the blockchain could represent an entity that has handled the food on the way to the store, making it much easier and faster to see if one of the affected farms sold infected supply to a particular location with much greater precision.

Walmart has been working with IBM for over a year on using the blockchain to digitize the food supply chain process. In fact, supply chain is one of the premiere business use cases for blockchain (beyond digital currency). Walmart is using the IBM Food Trust Solution, specifically developed for this use case.

“We built the IBM Food Trust solution using IBM Blockchain Platform, which is a tool or capability that IBM has built to help companies build, govern and run blockchain networks. It’s built using Hyperledger Fabric (the open source digital ledger technology) and it runs on IBM Cloud,” Bridget van Kralingen, IBM’s senior VP for Global Industries, Platforms and Blockchain explained.

Before moving the process to the blockchain, it typically took approximately 7 days to trace the source of food. With the blockchain, it’s been reduced to 2.2 seconds. That substantially reduces the likelihood  that infected food will reach the consumer.

One of the issues in a requiring the suppliers to put their information on the blockchain is understanding that there will be a range of approaches from paper to Excel spreadsheets to sophisticated ERP systems all uploading data to the blockchain. Walmart spokesperson Molly Blakeman says that this something they worked hard on with IBM to account for. Suppliers don’t have to be blockchain experts by any means. They simply have to know how to upload data to the blockchain application.

“IBM will offer an onboarding system that orients users with the service easily. Think about when you get a new iPhone – the instructions are easy to understand and you’re quickly up and running. That’s the aim here. Essentially, suppliers will need a smart device and internet to participate,” she said.

After working with it for a year, the company things it’s ready for broader implementation with the goal ultimately being making sure that the food that is sold at Walmart is safe for consumption, and if there is a problem, making auditing the supply chain a trivial activity.

“Our customers deserve a more transparent supply chain. We felt the one-step-up and one-step-back model of food traceability was outdated for the 21st century. This is a smart, technology-supported move that will greatly benefit our customers and transform the food system, benefitting all stakeholders,” Frank Yiannas, vice president of food safety for Walmart said in statement.

In addition to the blockchain requirement, the company is also requiring that suppliers adhere to one of the Global Food Safety Initiative (GFSI), which have been internationally recognized as food safety standards, according to the company.

Once a seemingly unstoppable retail juggernaut, Walmart’s been scrambling to define its digitally in this Amazon-defined era. This morning, the company announced that it’s struck a five-year deal with Microsoft, Amazon’s chief cloud competitor.

These sorts of partnerships are a regular occurrence for AWS — in fact, it announced one with Fortnite maker Epic Games, just this morning. The companies involved tend to put on a big show, in return for a discount on services, but Walmart and Microsoft are happily playing into the concept of teaming up to take on Amazon.

Microsoft’s certainly not making any bones about the competition. In an interview, Satya Nadella told The Wall Street Journal that the fight against Amazon “is absolutely core to this,” adding, “How do we get more leverage as two organizations that have depth and breadth and investment to be able to outrun our respective competition?”

Of course, neither Walmart nor Microsoft can be framed as an underdog in any respect, but Amazon’s stranglehold on online retail also can’t be understated. Not even a massive outage at the height of Prime Day could do much to ruffle the company’s feathers.

Included in the deal are AI/ML technologies design to help optimize the in-store experience — one of the key factors Walmart brings to the table in a battle against Amazon, which has mostly just dabbled in brick and mortar. For its part, Walmart has been testing cashier-less stores along the lines of Amazon’s, but the company has just to officially unveil its plans in that space.

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IBM, just like most of its competitors in the public cloud computing space, has been working on various blockchain projects in the last few months.
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