VCing the future? Early-stage start-up hunters share secrets
As Israel’s venture capital industry continues to break its own records, the competition among investors to find and fund Israel’s next big exit is vicious. What does it take to find an all-star start-up before everyone else jumps on board? The Jerusalem Post spoke with a few of Israel’s leading early-stage investors to learn their secrets.
“The job of a good early-stage investor, in my opinion, is to find a new trend while it is still in diapers, undiscovered,” says Gadi Isaev, Managing General Partner at VentureIsrael. “Once the company has created a buzz, it is too late. You have to look at the markets and evaluate where they are headed.”
Seed- and early-stage investment funds seek to invest in technology companies long before they have a product that is ready for market. The risks at this phase are greater than for established growth companies, but the potential payout is also much more significant.
Israel’s venture industry has been red-hot in recent months, with a record $1.44 billion raised by Israeli firms in January 2021 alone, according to Start-Up Nation Central. And while industry observers frequently complain that there is a shortage of seed funding available for early-stage start-ups, a recent report by Ground Up Ventures found that the number of Israeli seed investments actually rose by nearly 30% in 2020.
VentureIsrael, an early-stage technology specialist launched just six months ago, has six portfolio companies, but Isaev, a nine-year industry veteran, says the process of discovering these companies began years ago.
“The biggest challenge is to find entrepreneurs and get to know them early,” Isaev said. “Three years ago, I realized that quantum computing was becoming a hot topic, and Israel didn’t have anything, so I found out that Hebrew University had a quantum lab and I walked in and asked the professors if they knew of any entrepreneurs doing interesting work. From there, we started to get to know the people in the department and build relationships.”
That helped VentureIsrael land an investment earlier this year in QuantLR, a quantum cryptography start-up developed by Hebrew University physicists.
The company’s other investments came from similar longterm outlooks, Isaev says. “Three years ago, I understood that cybersecurity for maritime ships would
become more important, and we started developing relationships with a company called Cydome, which we recently invested in.
“One of the fields I believe strongly in right now is neuroscience. I believe computers will be able to read our thoughts and use them to generate actions. We recently made a significant investment in CorrActions, another Jerusalem-based company that is developing a noninvasive brain– computer interface platform that can identify a person’s cognitive state in order to prevent human errors in real-time.”
The key, Isaev says, is to identify important upcoming technologies, and then build relationships with the people in the industry so that both sides are ready to make a deal at the right time. “But you have to get there early,” Isaev says. “Once people know about it, it is too late.”
Nimrod Cohen, managing partner at TAU Ventures, has a somewhat different approach to cultivating early relationships with promising entrepreneurs. “TAU Ventures is part of Tel Aviv University. We are structured like other venture capital funds, but being part of a university gives us an advantage.”
Once we invest in a company, we have the ability to offer it resources from the university, including access to the staff and students, free office space, and more. We have 1,000 square meters of space that we use to create an ecosystem where our entrepreneurs can work closely together and learn from each other.”
“We also use this space to create new relationships. When we meet someone that we feel we want to work with, but we’re not sure, or they’re not sure, we’ll invite them to sit in our offices for free, or just to meet up and talk. We offer as much value as we can, and we
try to give them the feeling that they can approach us about anything anytime they want. Usually, founders are afraid to have that kind of relationship with investors. We try to make them feel comfortable, and we hope that will also translate into them working with us or recommending us to their friends.”
“In our industry, it is common that founders and investors meet just two or three times before they decide to get ‘married’ and commit to a long and very bumpy ride together. I believe that it is better to date before you get married – that is, to build a relationship where you really know each other before you make a commitment. But often, you can’t afford to do 3-5 months of due diligence before making an investment. The best thing is to start early building relationships so that when both parties are ready, the due diligence period can go very quickly.”
For Kobi Samboursky of Glilot Capital, the trick is finding the right people at the right time. “In the last two years or so, we have focused on staying in touch with talented teams, especially ones that recently had an exit and keeping tabs on them,” he says. “We’ll feel out when the time is coming for their next project, and try to make contact early on. Usually, we’ll meet up and offer to help them with the ideation process for the idea, or whatever else we can do. We have done this with teams that we knew from previous portfolio companies that had an exit, as well as others that we knew from other companies. It is sort of like scouting high school basketball players in the hopes of finding a future all-star early on. We believe that finding the right people is the most important thing, and with such a crowded market, you have to be creative and start nurturing relationships early.”
PARIS (Reuters) – France and its Western allies plan to lodge a protest with the United Nations’ nuclear watchdog to criticize Iran’s decision to curb cooperation with the agency, the French foreign minister said on Tuesday.
Iran said last month it was scaling back cooperation with the International Atomic Energy Agency, ending extra inspection and monitoring measures introduced by the 2015 nuclear deal, including the power given to the IAEA to carry out snap inspections at facilities not declared by Iran.
“The nuclear tensions will lead us in the coming days to put forward a protest in the framework of the IAEA Board of Governors to regret this decision,” Minister Jean-Yves Le Drian told a parliamentary hearing.
Britain, France and Germany – all parties to the deal with Iran – on Monday circulated a draft resolution backed by the United States for the Vienna meeting voicing “serious concern” at Iran’s reduced cooperation and urging Iran to reverse its steps.
Iran has bristled at the prospect of such criticism, threatening to cancel a deal struck a week ago with the IAEA to temporarily continue many of the monitoring measures it had decided to end – a black-box-type arrangement valid for up to three months and aimed at creating a window for diplomacy.
A vote on the resolution is due by the end of the week.
The IAEA’s 35-nation Board of Governors is holding a quarterly meeting this week against the backdrop of faltering efforts to revive Iran’s nuclear deal with world powers now that US President Joe Biden is in office.
Diplomacy, however, is making limited progress. Iran said on Sunday it would not take up a European Union proposal to hold a meeting with other parties to the deal and the United States.
“The situation is complicated,” Le Drian said. “The problem is to know who goes first and nobody wants to be trapped. The fact that the Iranians suspended the Additional Protocol is not good news,” he said, referring to Iran’s move last month to curb IAEA inspections.
Meanwhile, French President Emmanuel Macron told Iranian President Hassan Rouhani that Tehran must make clear and immediate gestures to allow dialog to resume on the 2015 nuclear deal, the Elysee palace said on Tuesday.
“Having reminded (Rouhani) of the efforts made by France with its partners in the last years to reach a negotiated solution, the (French) head of state stressed it was important that Iran made clear and immediate gestures so that dialog can resume with all parties to the Vienna deal,” Macron’s office said.
French President Emmanuel Macron told Rouhani that Tehran must make clear and immediate gestures to allow dialog to resume on the 2015 nuclear deal, the Elysee palace said on Tuesday.
“Having reminded [Rouhani] of the efforts made by France with its partners in the last years to reach a negotiated solution, the [French] head of state stressed it was important that Iran made clear and immediate gestures so that dialog can resume with all parties to the Vienna deal,” Macron’s office said.