How AVG Turned a Hitter’s Count into Its First Career Home Run
August 26, 2019 | Scott Murphy
Both baseball and venture capital are about hits and misses: No one hits a home run every time they step up to the plate. The goal is to perfect your stance and swing at the right pitches.
The baseball batter’s ideal situation is the “hitter’s count”—when the pitcher has thrown more balls than strikes and the odds of landing a hit are better. In the MLB last season, the average on-base percentage while facing three-ball, no-strike pitch counts (0.950) was nearly eight times the average OBP for no-ball, two strike counts (0.119).
Just like sighting a good pitch leads to success in baseball, recognizing well-positioned investments is key to developing a successful portfolio. Similarly, identifying when a deal is well-positioned to develop into a win is the venture equivalent of a hitter’s count. An investor can take ball four and trot down to first base – or take aim and swing for the fences.
A few years after building its first 10-year fund (the Where Fund) in 2014, Alumni Ventures Group was presented with a hitter’s count situation. The Where Fund’s portfolio of 13 investments holds a positive cash-on-cash valuation at current carrying costs. That’s due in large part to an investment in SaaS company Logz.io now valued at a double-digit multiple. With a subsequent reinvestment, AVG capitalized on a clear hitter’s count and connected for the company’s first career home run.
Stepping Up to the Plate
Logz.io launched in Tel Aviv in 2014, the same year Michael Collins founded AVG. Collins recognized the utility and scalability of the Logz.io’s analytic tools for better leveraging log data. Simply put, Logz.io builds platforms to monitor and secure business applications.
“The focus of the Where Fund was developing a portfolio of early-stage companies innovating in a variety of sectors,” said Collins. “With Logz.io, we saw a burgeoning startup aiming to solve a niche industry workflow issue, which directly aligned with our investment thesis.”
While AVG’s equity purchase in Logz.io was comparable to other Where Fund investments, the return has greatly augmented the results of an already successful portfolio.
Logz.io showed immediate and sustained growth, and now serves 700+ clients in 55 countries, including Amazon, British Airways, CNN, and Dyn. The company was named one of Israel’s most promising startups in 2016 by Calcalist, a top Israeli business newspaper.
The following year, AVG’s initial investment in Logz.io liquidated for a 6x+ return. AVG’s return from Logz.io is the largest among the Where Fund’s four exits to date.
Swinging for the Fences
Logz.io’s success and growth presented Collins with a clear hitter’s count. He could have settled for the exit, taking ball four, and reaching base with a walk. Instead, he took a chance to reinvest and swing for a home run.
“Normally, we fully liquidate once our investments reach that position,” said Collins. “However, our team is always looking for home runs with every deal. After reserving part of our initial returns, we saw an opportunity to achieve that by reinvesting in Logz.io.”
While total liquidation is still AVG’s standard practice, AVG prizes flexibility and intelligent decision making to deliver the most value to its investors. Through both established processes and well-researched exceptions, AVG has builts a sustained, successful model that optimizes its chances to hit home runs.
The decision to consider a compelling alternative strategy with Logz.io proved to be a successful swing. AVG’s original investment in Logz.io now has a 20x+ valuation. The deal’s ROI is the highest among companies in the Where Fund’s portfolio and helped Collins solidify his strategy for future funds.
“Our results tie back to what historically has been the case for venture investing,” said Collins. “Most investments result in base hits or strikeouts, but one or two home runs will make all the difference in the game.”
If you’re interested in taking your own turn at the plate, you can explore AVG’s growing product line of 20+ funds for accredited investors.