Success in Venture Capital
Today we talk about alternative investments in field of Venture Capital. The terminology such as Pre IPO, PIPE, SPAC became part of the language. Alex Lazovsky, founding partner of West Coast Equity Partners, a Palo Alto (Silicon Valley) based Private Equity firm helps to get connected to the world of private equity and venture capital investments.
How came you started to do venture capital. What has driven you to deal exactly on this capital market?
We are a team of partners with rich background in technology and finance – ranging from serial technology entrepuirs to executive experience in large scale corporations and investment organizations. Jointly as a team we invested in over 100 early state tech companies, 6 of which became unicorns (over $1B valuation) + 2 decacorns (over $20B valuation at Exit). Additionally, from our PE firm we invested in many unicorn and decacorn companies including SpaceX, Robinhood, DataRobot, Rubrik, Coursera, eToro, Hippo Insurance, Momentus Space, Trax, OpenWeb and other.
Your venture fund is based in Silicon Valley. What type of investments do you focus on?
We manage two investment firms focused on different types of investment. a) Scale-Up VC (https://www.scale-up.vc/) is venture capital firm with 2 funds under management. We have about $200M AUM at our discretionary management. No additional investors can be admitted to our funds at current stage. This firm is focused on investments in mid stage companies. When Scale-Up VC makes its initial investment in a private tech company, such company already has customers and revenue but is not yet a unicorn. Scale-Up VC usually invests in Series-C round and such companies usually have $100M to $500M pre-money valuation in their equity financing rounds. After initial investment, Scale-Up VC keeps participating in all follow-on rounds in its portfolio companies until their Exit via IPO or M&A. b) West Coast Equity Partners (https://westcoast.partners) is a private equity firm focused on investments in U.S. based unicorn companies. Our portfolio includes SpaceX, Robinhood, DataRobot, Rubrik, Carta, GitLab, Momentus Space, Coursera, Udemy, etc. At. West Coast Equity Partners we usually invest in 3 types of deals: – U.S. based private unicorns including but not necessarily pre-IPO – PIPE deals (https://www.investopedia.com/terms/p/pipe.asp) of great tech companies – Long term investments as Limited Partners in top tier VC firms in Silicon Valley Through Scale-Up VC and West Coast Equity Partners we have investments in many different areas including: Space-tech, Fintech, InsureTech, Online education, Cloud technologies, and other.
If we go outside from Solicon valley, where would you see most interesting regions?
If you are asking about what other regions we would recommend outside of Silicon Valley, then we recommend paying attention to New York/Boston and Western Europe (mostly UK and Germany).
Overall, China and U.S. have jointly close to 85% of all tech unicorns and decacorns in the word. More or less equally shared between U.S. and China. Europe (mostly UK + Germany) has less than 10% of world number of unicorns All other countries in the world combined have the remaining few %.
China is a very opaque country with many risks. Therefore for western investors it’s better to focus on the U.S. and European VC and PE investment opportunities.
How the liquidity is managed – lock-in periods, redemptions etc. What are the rules of liquidity at different stages of your projects?
When we invest in PIPE deals, we usually do not have any lockup after the IPO. From the day we sign investment agreement, it takes usually 3-4 months to the company become public + about 30 days to finalized post-IPO registration of shares at SEC. As soon as the shares are registered we receive it to our broker account at Morgan Stanley and we have no lockup.
But great companies do not like investors who are trying to make a quick flip and who sell all or large portion of the share shortly after the IPO. Such investors may potentially cause negative impact on company market cap post-IP., and therefore such investors usually cannot get allocations in best PIPEs
When we invest in private tech companies (unicorns and other), there is always a 6 months lockup period after IPO. Unless the IPO is by direct listing like it was in case of Slack, Asana and few other companies. In their case, there was no lock-up period
Besides liquidity at IPO we have 2 additional liquidity events: a) M&A deal. In such case 85% to 90% of cash is received immediately after the successful consumption of the M&A transaction while the remaining 10% to 15% are kept in a 3rd party professional escrow for additional 12 to 24 months subject to some milestones and legal aspects. If all goes well, the acquirer approves release of these remaining funds from the escrow based on pre-agreed time schedule b) Secondary market: shares of highly demanded companies (usually renown unicorns like SpaceX, Robinhood, Carta, etc) can be easily sold on secondary market. We as investment firm rarely sell the shares but we do allow our investors to sell their position in our SPV. In most cases, we offer them higher price than it was at their initial investment and we buy them out in our SPV and we sell their position to new investors.
What is the project, which made you very excited in the past?
One of the most exciting investments of our firm is SpaceX. It was a long journey and took us time to build relationship with one of the board directors of SpaceX and finally we got lucky and became investors in this largest private space tech company in the world. Another exciting investment was Robinhood. We invested in last two rounds of financing of Robinhood, including the latest convertible loan of $3.4 billion that Robinhood raised within a week. Only such legendary companies like SpaceX and Robinhood are able to raise any amount of capital they need in no time.
How you build your relationship with investors?
We are focused on building our firm brand and our team reputation as successful and highly profitable investors by making investments in fast growing tech unicorns. The deal we invest in are usually inaccessible for regular investors like UHNIs, Family Offices, and other, especially for investors outside of the U.S. Examples of such recent unique deals are SpaceX, PIPEs of eToro, Hippo Insurance, and other. To make it clear – when you read about any planned IPO (regardless if it’s related to a reverse merger with SPAC or it’s about traditional IPO), if there is also PIPE deal as part of such IPO, it means that such PIPE deal is already fully allocated and in case of good deals it’s way too oversubscribed. It means that large hedge funds, mutual funds and PE firms like West Coast Equity Partners already got allocation and no outsider can get access to such investment opportunity on same terms. In other words, when you read rumors online, it’s too late to get access directly. That’s why investors are approaching our firm trying to get an opportunity to invest in unique and highly profitable deals.
What background they normally have?
Our first investors were family offices (MFOs, SFOs) and UHNWIs from the U.S., Europe, Hong Kong and UAE. Today we also have institutional investors, including pension funds and other, investing through our funds and SPVs.
What exciting projects are you working on currently?
We are investing again in SpaceX as we got more allocation now. We are very excited about this opportunity. We believe SpaceX and its still internal business StarLink will grow 10x in the next 5 years or so. We are already oversubscribed in this deal even though it will take us few weeks more to close the formal legal side of this investment transaction. All our investors pass strict KYC/AML compliance of SpaceX and investors from some countries are not allowed to be admitted in this deal.
Additionally, we have already secured allocations and we are investing in few renown PIPE deals including eToro ($10B IPO), Hippo Insurance ($5B IPO), Cipher Mining ($2B IPO) and few other PIPE deals that we are not yet allowed to disclose until it’s officially and publicly announced. All these companies are expected to be public in Q3 this year
We are also launching now a unique fund that will invest in U.S. based unicorns valued between $2B to $5B based on their last round post-money valuations. Based on our back-testing analysis this fund is expected to generate over 5x net ROI within about 3 years.
We are a team of partners with rich background in technology and finance – ranging from serial technology entrepuirs to executive experience in large scale corporations and investment organizations. Jointly as a team we invested in over 100 early state tech companies, 6 of which became unicorns (over $1B valuation) + 2 decacorns (over $20B valuation at Exit). Additionally, from our PE firm we invested in many unicorn and decacorn companies including SpaceX, Robinhood, DataRobot, Rubrik, Coursera, eToro, Hippo Insurance, Momentus Space, Trax, OpenWeb and other.
Your venture fund is based in Silicon Valley. What type of investments do you focus on?
We manage two investment firms focused on different types of investment. a) Scale-Up VC (https://www.scale-up.vc/) is venture capital firm with 2 funds under management. We have about $200M AUM at our discretionary management. No additional investors can be admitted to our funds at current stage. This firm is focused on investments in mid stage companies. When Scale-Up VC makes its initial investment in a private tech company, such company already has customers and revenue but is not yet a unicorn. Scale-Up VC usually invests in Series-C round and such companies usually have $100M to $500M pre-money valuation in their equity financing rounds. After initial investment, Scale-Up VC keeps participating in all follow-on rounds in its portfolio companies until their Exit via IPO or M&A. b) West Coast Equity Partners (https://westcoast.partners) is a private equity firm focused on investments in U.S. based unicorn companies. Our portfolio includes SpaceX, Robinhood, DataRobot, Rubrik, Carta, GitLab, Momentus Space, Coursera, Udemy, etc. At. West Coast Equity Partners we usually invest in 3 types of deals: – U.S. based private unicorns including but not necessarily pre-IPO – PIPE deals (https://www.investopedia.com/terms/p/pipe.asp) of great tech companies – Long term investments as Limited Partners in top tier VC firms in Silicon Valley Through Scale-Up VC and West Coast Equity Partners we have investments in many different areas including: Space-tech, Fintech, InsureTech, Online education, Cloud technologies, and other.
If we go outside from Solicon valley, where would you see most interesting regions?
If you are asking about what other regions we would recommend outside of Silicon Valley, then we recommend paying attention to New York/Boston and Western Europe (mostly UK and Germany).
Overall, China and U.S. have jointly close to 85% of all tech unicorns and decacorns in the word. More or less equally shared between U.S. and China. Europe (mostly UK + Germany) has less than 10% of world number of unicorns All other countries in the world combined have the remaining few %.
China is a very opaque country with many risks. Therefore for western investors it’s better to focus on the U.S. and European VC and PE investment opportunities.
How the liquidity is managed – lock-in periods, redemptions etc. What are the rules of liquidity at different stages of your projects?
When we invest in PIPE deals, we usually do not have any lockup after the IPO. From the day we sign investment agreement, it takes usually 3-4 months to the company become public + about 30 days to finalized post-IPO registration of shares at SEC. As soon as the shares are registered we receive it to our broker account at Morgan Stanley and we have no lockup.
But great companies do not like investors who are trying to make a quick flip and who sell all or large portion of the share shortly after the IPO. Such investors may potentially cause negative impact on company market cap post-IP., and therefore such investors usually cannot get allocations in best PIPEs
When we invest in private tech companies (unicorns and other), there is always a 6 months lockup period after IPO. Unless the IPO is by direct listing like it was in case of Slack, Asana and few other companies. In their case, there was no lock-up period
Besides liquidity at IPO we have 2 additional liquidity events: a) M&A deal. In such case 85% to 90% of cash is received immediately after the successful consumption of the M&A transaction while the remaining 10% to 15% are kept in a 3rd party professional escrow for additional 12 to 24 months subject to some milestones and legal aspects. If all goes well, the acquirer approves release of these remaining funds from the escrow based on pre-agreed time schedule b) Secondary market: shares of highly demanded companies (usually renown unicorns like SpaceX, Robinhood, Carta, etc) can be easily sold on secondary market. We as investment firm rarely sell the shares but we do allow our investors to sell their position in our SPV. In most cases, we offer them higher price than it was at their initial investment and we buy them out in our SPV and we sell their position to new investors.
What is the project, which made you very excited in the past?
One of the most exciting investments of our firm is SpaceX. It was a long journey and took us time to build relationship with one of the board directors of SpaceX and finally we got lucky and became investors in this largest private space tech company in the world. Another exciting investment was Robinhood. We invested in last two rounds of financing of Robinhood, including the latest convertible loan of $3.4 billion that Robinhood raised within a week. Only such legendary companies like SpaceX and Robinhood are able to raise any amount of capital they need in no time.
How you build your relationship with investors?
We are focused on building our firm brand and our team reputation as successful and highly profitable investors by making investments in fast growing tech unicorns. The deal we invest in are usually inaccessible for regular investors like UHNIs, Family Offices, and other, especially for investors outside of the U.S. Examples of such recent unique deals are SpaceX, PIPEs of eToro, Hippo Insurance, and other. To make it clear – when you read about any planned IPO (regardless if it’s related to a reverse merger with SPAC or it’s about traditional IPO), if there is also PIPE deal as part of such IPO, it means that such PIPE deal is already fully allocated and in case of good deals it’s way too oversubscribed. It means that large hedge funds, mutual funds and PE firms like West Coast Equity Partners already got allocation and no outsider can get access to such investment opportunity on same terms. In other words, when you read rumors online, it’s too late to get access directly. That’s why investors are approaching our firm trying to get an opportunity to invest in unique and highly profitable deals.
What background they normally have?
Our first investors were family offices (MFOs, SFOs) and UHNWIs from the U.S., Europe, Hong Kong and UAE. Today we also have institutional investors, including pension funds and other, investing through our funds and SPVs.
What exciting projects are you working on currently?
We are investing again in SpaceX as we got more allocation now. We are very excited about this opportunity. We believe SpaceX and its still internal business StarLink will grow 10x in the next 5 years or so. We are already oversubscribed in this deal even though it will take us few weeks more to close the formal legal side of this investment transaction. All our investors pass strict KYC/AML compliance of SpaceX and investors from some countries are not allowed to be admitted in this deal.
Additionally, we have already secured allocations and we are investing in few renown PIPE deals including eToro ($10B IPO), Hippo Insurance ($5B IPO), Cipher Mining ($2B IPO) and few other PIPE deals that we are not yet allowed to disclose until it’s officially and publicly announced. All these companies are expected to be public in Q3 this year
We are also launching now a unique fund that will invest in U.S. based unicorns valued between $2B to $5B based on their last round post-money valuations. Based on our back-testing analysis this fund is expected to generate over 5x net ROI within about 3 years.