Puresec, the story behind the investment

  • By TLV Partners
  • 25 May, 2017

TLV Partners believes that in the near future many cloud apps will be moving into a serverless world, and that we are now in the midst of  a major change in the creation and distribution of software and applications. PureSec is the first security solution that is designed exclusively for serverless applications.

Cloud computing is an area we find especially exciting. It has brought enormous change to the world of applications and it would be no exaggeration to say that most of the innovation in IT over the past decade has been enabled, catalyzed, or caused by cloud computing. Currently, we are in the midst of a microservices revolution, one that has, until now, been championed by containers. Through our investment in Aqua Security over a year ago, we have witnessed first hand the rapid growth this market is experiencing, and believe it will continue to proliferate enterprises across the globe.  We are now on the cusp of another revolution in cloud infrastructure: the move to serverless computing.

From Monolith to Microservices

Over the past few years, we have seen a trend toward microservices architectures, partly as a rejection of traditional monolithic systems. The promise of increased agility, scalability, and developer productivity have fueled interest in and the adoption of microservices.

Monolithic apps are good for small scale teams and projects, however, when working on larger scale projects with several teams, they become problematic. It's much harder to make changes, as the code base becomes larger and more people make changes to it.

The microservices approach, in a nutshell, dictates that instead of having one giant code base that all developers touch, there are numerous, smaller code bases managed by small and agile teams. The only dependency these code bases have on one another is their APIs.

However, using a microservices is not a free lunch and there are many challenges when moving to this new architecture. Specifically, the significant operations overhead and the substantial DevOps skills required to get microservices running, is a major challenge for both startups and enterprises alike.

The Rise of Containers

This is where container technologies like Docker come into play. Containers are a packaging strategy for microservices. One of the key advantages of Docker and other similar container technologies is that they easily integrate into Continuous Integration (CI) and Continuous Deployment (CD) pipelines.  Additionally, container technology companies’ packaged applications (in the case of of Docker these are Docker images) can be moved seamlessly across environments and build pipelines.

Due to the benefits mentioned above and more, Docker and microservices have spread like wildfire in the last two years. And it’s interesting to note, that much of this adoption is being pushed by large enterprise incumbents, as opposed to young startups. This surely stems from the necessity of more established companies to innovate in order to preserve their position in the market. In other words, the spike in interest in both microservices and containers is all about one thing: speed.

Serverless: The Next Frontier of Cloud Computing

At the 2014

AWS re:Invent conference , Amazon announced a new service: AWS Lambda. If you’re unfamiliar with Lambda, it’s what has been termed a "serverless" computing service. Instead of loading your application code into a  virtual machine or a container , you upload it into Lambda. There it sits, dormant, until some external event triggers it, whereupon the Lambda service brings your app out of quiescence and executes it. Once the application completes its task, the code is automatically removed from the Lambda service. A user never pays for any idling servers or unused capacity. The unit of scale in serverless is an ephemeral function that runs only when needed. Servereles also scales to whatever is needed for your service, making architecting for scale significantly easier than with provisioned compute instances or containers.

The broader serverless application development currently consists of a number of major vendor platforms ( IBM OpenWhisk , AWS Lambda,  Microsoft Azure FunctionsGoogle Cloud Functions ) and open source frameworks (like Apex, Sparta  and the Serverless Framework), although Lambda is currently the clear leader in the space.

Not Surprisingly, the big enterprises were the ones who first adopted serverless, with cost and speed of development as the main adoption factors. Since its debut in 2014 AWS Lambda has grown very quickly, by the end of 2016 almost 40% of AWS customers were using or at least experimenting with Lambda.

There are many benefits to using serverless computing services. However, the smaller the individual component, the more complex the entire system becomes. A single function enables a simpler deployment model, but the system as a whole becomes increasingly complex.

On the whole, we believe that the serverless market, represents a significant opportunity for startups. As such, a year ago we started to explore the serverless market, and searched for Israeli entrepreneurs taking on the market. As someone who has had success investing in security companies, I was naturally interested in the security challenges that this new type of architecture poses.

Guy Podjarny, Co-Founder and CEO of Snyk and an entrepreneur I respect immensely,  summarized the security issues of serverless perfectly: “Serverless is amazing, and is revolutionizing how we operate applications. With it, Serverless brings a similar caliber seismic event to the world of security, fixing certain security concerns, elevating others, and shuffling the priorities for all the rest.

Since Serverless is new, we have an opportunity to make security practices and tools a natural part of how Serverless applications are built. I’m personally excited to see Serverless grow to fulfill its massive potential, both for ops and for security.”


PureSec: Securing Serverless Architectures

Shaked Zin and Avi Shulman, the founders of PureSec, approached us through one of my posts on Facebook about serverless. They had just started to develop a security solution for serverless applications. While we were intrigued, we initially had doubts whether the serverless market was mature enough and passed on the opportunity to invest. A couple of months later however, after seeing the immense progress Shaked and Avi had made and after speaking to several enterprises, we decided that we needed to rethink our decision. And after an extensive due diligence process we were convinced that they developed an innovative approach and solution for serverless security. While I would love to share more about PureSec product and their approach, unfortunately they are currently in stealth mode.

In addition to our interest in the market and fascination with the product, we are thrilled to have the opportunity to work with Shaked and Avi, both of them are extremely motivated and talented. They have a transparent approach and willingness to conduct an open discussion which is exactly what we are looking for in our entrepreneurs. For us, every investment is the beginning of a journey with unexpected turns and obstacles, one that we would never set out to without feeling fully confident in our partners..

We are very excited to announce our Investment in PureSec and welcome Shaked and Avi to TLV Partners family and wish them good luck!!

TLV Partners Blog

By TLV Partners 14 Jun, 2017

For years there was a common belief amongst venture capitalists that participating preferred is always better for investors.

Here’s a brief overview of the various liquidation preferences investors may ask for:
  • Pro-rata distribution: Upon an exit, each shareholder receives their percentage in the company multiplied by the exit size, i.e. - shareholders that hold 20% receive $20M in an exit of $100M, 20% x $100M=$20M).
  • Non-participating preferred: Upon an exit, the investors with this preference receive their money back OR the exit proceeds are simply distributed pro rata. Whichever yields more money to the investor.
  • 1x participating preferred: Upon an exit, all investors with this preference get their money back and then the remaining proceeds are distributed pro-rata amongst all the shareholders (including the investors). This is often referred to as “double dipping”.
  • 2x+ participating preferred: Same principle as above, however in the initial distribution to investors they receive 2x their money back prior to the pro-rata distribution of the remaining proceeds. In some cases, especially in cases of struggling companies, investors insist on an even higher multiple of 3x-5x.
  • Interest: Investors are often entitled to annual interest of 4-8% on their investment to “make up” for the time from investment to exit. Practically, this means that after a five year period, a traditional liquidation preference is 1.2x-1.4x times the initial investment

VCs have one common goal - they all aim to increase shareholder value. Luckily, many Israeli entrepreneurs share this dream as they want to build long-lasting companies. This alignment of interests between VCs and entrepreneurs is crucial to make sure all shareholders are working to achieve the same goal.  

The problem with participating preferred is that it creates an inherent misalignment of interest between VCs and entrepreneurs.

Take for example an entrepreneur, who raised $21M and is subject to participating preferred plus interest rate . This entrepreneur is now faced with a decision whether or not to sell the company for $80M. The shareholders agree that the company’s potential could be much higher in 2-3 years, but the company would have to raise another $20M in order to reach said potential.

Luckily, there is a late stage VC who is eager to invest in the company at a reasonable valuation (i.e. - $120M pre money). The decision, therefore, should be simple -  on the surface this a good opportunity to increase the value of the company at a reasonable price. But here is where the participating preferred misalignment kicks in. For the entrepreneur, raising another $20M means that upon an exit, he/she will have to pay back the investors $41M plus interest before seeing any profits. If the entrepreneur suspects that the chances of substantially increasing the value at exit are not high enough, he/she will be hesitant to bear more risk. In order to match the entrepreneur's current return, the next potential exit would need to be at least $200M, in order to compensate the extra dilution from the D round and the added preferences.  As such, many entrepreneurs at this stage will decide to sell the company and reduce their personal risk. The loss of potential value for all shareholders in this scenario could be huge, by far exceeding the potential profit stemming from the participating preferred.

By TLV Partners 05 Jun, 2017
By Eitan Bek
By TLV Partners 25 May, 2017

Cloud computing is an area we find especially exciting. It has brought enormous change to the world of applications and it would be no exaggeration to say that most of the innovation in IT over the past decade has been enabled, catalyzed, or caused by cloud computing. Currently, we are in the midst of a microservices revolution, one that has, until now, been championed by containers. Through our investment in Aqua Security over a year ago, we have witnessed first hand the rapid growth this market is experiencing, and believe it will continue to proliferate enterprises across the globe.  We are now on the cusp of another revolution in cloud infrastructure: the move to serverless computing.

By TLV Partners 11 May, 2017
By Rona Segev
By TLV Partners 27 Apr, 2017
After a half-decade of quiet advancments in artificial intelligence (AI), 2016 was a turning point in AI. Computers are now smarter and learning faster than ever. The timing of this progress is no coincidence, rather it comes as a result of several coinciding market factors.

Take image recognition for example. Recent advancements in this field can be traced back to a team of University of Toronto researchers, who won the world’s top image-recognition competition in 2012. That team was eventually recruited by Google, and its approach, which relied on a technique called deep learning (a subset of AI), was quickly adopted by the company. In a short period of time image recognition systems based on deep learning have become much more accurate; test error rates are down to about 5%, roughly on par with a human’s performance.

By TLV Partners 02 Mar, 2017

We are pleased to share with you our glossary of must know terms that all entrepreneurs should understand. Founding a start-up is a significant undertaking, knowing the basics is the best place to start! 

Good luck!


By TLV Partners 07 Feb, 2017
Not long ago, I was invited to an event held by one of the world’s leading investment firms. The similarities between most people in attendance were uncanny: powerful men, wearing suits worth thousands of dollars, and watches that probably cost a small fortune. Not surprisingly, the atmosphere surrounding the event was almost a cliche of how powerful men talk and behave.

Throughout the day, many panels on doing good business were held, and each speaker shared their version of proper behavior when investing. Most of the ideas revolved around taking good opportunities, and aggressively attacking them. For example, one speaker said that the first thing he does when investing in a company, is getting rid of all the members of management, and appointing members of his own.

But then, someone different took the stage. He was head of one of the smaller firms in attendance (still in the billions, though), and from the minute I saw him, in his modest-looking tweed blazer, he attracted my attention. When asked what he thought is the most important aspect of business, he used a word that was previously not uttered that day: “Nice.”

“To me,” he said (and I’m paraphrasing), “as important as it is to find good opportunities, being decent and nice to the entrepreneurs you work with, is no-less important.” The room fell to silence. An air of contempt was felt, as he calmly continued to explain the reasoning behind his word-choice. “Being nice is good for your business, great teams will want to work with you, will be willing to give you better terms - not to mention that you all benefit from the pleasant atmosphere. It’s important to me that if my kids meet someone I do business with, they would hear: ‘your dad is a really good guy.’”

I was in awe of this man. There he was, in a proverbial shark tank, surrounded by these corporate warriors, discussing the importance of being nice. What really impressed me was the fact that he wasn’t hesitant or apologetic, and showed as much confidence as any other speaker there, while presenting his rare business philosophy. In an ocean of forceful language, he was an island of calmness. As powerful as all the other men in the room were, in my eyes, he was the bravest speaker there.

I admire people who are not afraid to do things their way. If there’s something I’ve learned in my many years in the field of venture capital, it’s that there’s no one way to succeed. So many of us in the industry yield to these notions of power, and forceful language, and forget that things could be done differently. I think the most important thing I took from this event is the notion that, when you’re good at what you do, you can be successful without having to give up on what you believe is right. When doing business, it is important to be assertive, make good decisions, and take advantage of good opportunities - but you could still be “nice” when doing so.

By TLV Partners 13 Dec, 2015
By Eitan Bek and Roy Leiser
By TLV Partners 04 Dec, 2015
They will be joined in the round by hi-tech entrepreneurs Michael Fey, President and COO of Blue Coat Security; Giora Yaron former Chairman of Mercury and Boaz Chalamish, former SVP and GM of VMWare.

Scalock was founded in 2015 and has 10 employees. The company develops SaaS security solutions for virtual containers (e.g. Docker). Scalock’s product provides protection and security against internal and external threats to container-based applications and micro-services, and a complete access control mechanism to monitor and enforce security for virtual containers in run-time. The company plans to use the funds raised to establish its presence in the US.

Dror Davidoff and Amir Jerbi the founders of Scalock, are both seasoned Entrepreneurs with an extensive background in the hi-tech industry. Davidoff was the CRO at Clicktale, and EVP of Sales at Sentrigo and Cyvida. Amir was principal software architect at CA Technologies and led the development of virtualization technologies and cloud environments for CA’s ControlMinder product line.

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By TLV Partners 04 Nov, 2015
Pitching to VCs is much more than just going over a presentation. Your presentation can help you better articulate yourself, but even the best presentation can’t compensate for interpersonal mistakes. One of the common mistakes founders make in the first pitch is to cover as many aspects of their business as possible, instead of focusing on a small set of the best selling points. The purpose of the first pitch is to ignite interest and to convince the VCs it is worthwhile to start a due diligence process. You will have enough time to go over all aspects of your business if successful.

Some Do’s and Don'ts of Pitching to VCs:

  • The presentation should be short and clear. The VC is trying to digest the main aspects of your business in a short timeframe, not to become an expert in your technology or market.

  • Don’t come alone, VCs don't like sole founders. They look at it as a sign that the Founder is either failing to attract talent or afraid of strong people around him/her.

  • The team is one of the strongest selling points you have, assemble top notch professionals and let them present some of the slides. It is extremely unattractive to have the CEO present while the other team members sit quietly during the whole meeting.

  • Solve your team conflicts before you start fundraising, and never reveal them during your pitch.

  • Invest time in sizing your market. As a rule of thumb, the VC is looking for companies that have the potential toexceed$1B in value in a few years. We are looking for a market size of at least $700M-$800M, so come prepared with all the necessary data to prove your market size. Your ability to find the correct data and do the math right is also being assessed.

  • Validate your market - you don't need millions of dollars in your bank account to call potential customers and set validation meetings. Fundraise after you have at least 5-6 potential customers who are willing to talk to VCs and be your design partners.

  • Prepare a prototype to demonstrate your product. They say a picture is worth a thousand words; a demo is worth a million.

  • Surprisingly enough, most investors will spend a lot of the time on your projected financials even though everyone understands that Excel can tolerate any assumption. It is important that you look at comparables in your industry and fully understand revenue growths, expected costs and all business model assumptions.

  • Do some basic research on the VC and their portfolio before you set a meeting. Discovering ten minutes into the meeting that the VC just invested in your direct competitor is frustrating and embarrassing.

  • Don’t become defensive. The VC may ask you some tough questions or argue with your assumptions. Dealing calmly with the challenge will impress the VC; becoming defensive will end the meeting promptly.

  • Come to the meeting open minded and be prepared to learn. VCs usually invest in one out of every 100 companies they asses. You can benefit from the meeting even if you don’t get the funding.

  • Regarding valuations - how much you should aim to raise and how to deal with the valuation negotiation - the best advice here is to follow the norm, which may change with market conditions. For example, if good A round companies in 2015 are raising an average of $4m-$5m for 33% of the company, you will need a good reason why you are raising only $2M, or $8M, or why your valuation is much lower or higher. Unless you have a good reason, you will be viewed as either desperate or out of touch with reality.

  • Last advice - unless you have a clear indication that you are about to receive a term sheet from other VCs, try not to share too much information. You can safely assume that the VCs all know each other and will share information with one another. 

Feel free to ask us questions, we are happy to help.

Good Luck!

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