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#AMA With Birthright Israel Excel on Breaking In To Venture Capital

As a VC focused on investing in Israeli founded companies I’ve spent the last three years immersed in the Israeli tech community in NYC and around the world, including eight visits to Israel. It’s impossible to be immersed in such a philanthropic culture without becoming more philanthropic oneself. The first piece I wrote on the philanthropic efforts of the Israeli Tech community was “The Kamatech Miracle”.

I became involved with Birthright Israel Excel two years ago because I believed that their fellowship program bringing 50 of the most talented Jewish college student in the U.S. to Israel for 10 week internships could have a profoundly positive long term impact on U.S./Israel relations. I got involved because the student interns I met were remarkably impressive. I became involved because post the intern program, the Fellows network is incredibly active and impactful. It’s truly a lifelong program.

I got involved by becoming a Birthright Israel Excel adviser. It’s not a big commitment. I simply agree to be responsive when an Excel Fellow reaches out. Mostly the requests are simply for time over the phone or in person to give career advice/perspective. I’ve been happy to introduce Excellers to companies I know, feeling good that I’m doing both sides a favor. When Birthright Israel Excel asked me to be a guinea pig for their new #AMA program I was honored to help.

Venture Capital is an increasingly attractive field for young business professionals, especially those with an interest in helping to shape the booming Israeli tech start-up ecosystem. Birthright Israel Excel Fellows were encouraged to “ask me anything” regarding my work and perspective as a VC:

Ilan Regenbaum: I’m really keen on hearing your thoughts on the lack of a more active secondary market in Israel.

In order for a more active secondary market to emerge, Israel needs both more buyers and more sellers. To some degree it’s a Catch-22. In the U.S., a lot of secondary sales are being done as part of primary raises today. This enables Founders, early VCs, and employees to get liquidity as part of larger rounds of financings, and lets the VCs control the process. In the U.S. there are funds specifically targeting secondary transactions, but the gating factor is often the VCs, who, post the Facebook secondary onslaught, now have the right to block secondary transactions. The VCs want to control the flow of capital to companies. To a large degree, VCs want to keep out competitors, and they do this by limiting access to cap tables. If they can’t limit access, the limit the information available to secondary buyers, which decreases buying interest and the amount buyers are willing to pay. It’s a smart thing for VCs to do, but it’s generally to the detriment of everyone else.

The non-VC secondary transaction market is growing in the U.S., but it’s still smaller than what it was in 2010 during the Facebook secondary heyday. I think Israel’s market will simply lag the U.S. market. Meaning Israel will see more secondary transactions as part of primary raises, and then we’ll see the small number of secondary players grow, but it will take time.

Roy Gottesdiener: I’m applying to B schools in the US, hoping to start an MBA next year, and I consider VC as my dream job. Any tips on how to get there and what steps I should take now would be much appreciated! I come from a sales/bizdev background for tech companies and studied finance, but have no actual experience in investment or anything finance related.

First, I’d suggest you befriend some younger people in VC to get a sense of what the job really is. I find that most people who want to be VCs think it’s something VERY different from what the job actually is.

If you still want to be a VC, I’d consider getting a job at an early stage tech company, because the majority of the best VCs have significant operating experience. It makes sense for VCs to bring in execs from their portfolio companies, because they already have significant experience working with them.

If you want to go straight in to VC, outside of the traditional job search suggestions, I’d suggest becoming a thought leader in the area you know well and want to invest in. Becoming a thought leader highlights your brilliance, your special insights, your work ethic, your ability to write, and your ability to rise above the din.

Elliot Comite: Do you ever find a difference in areas of “company governance” between investing in Israel and investing in the US?

Every VC focuses on something different. I tend to focus less on governance than other VCs, as I’m largely focused on helping the CEOs execute their vision. I appreciate that some VCs get an edge for their LPs through governance. But my feeling is that if I’m running in to governance problems, it’s because I think I’m smarter than the CEO about the company, or the CEO is a bad apple. If I’m smarter than the CEO about the company, or if the CEO is a bad apple, then I made a big mistake investing in the company to begin with. If the investment was a mistake, then my time is likelier better spent helping my winners become bigger winners, then on turning around a company dealing with governance problems.

Obviously, there are some companies like Uber that are massively successful and then run in to governance problems. While those events tend to get investors more focused on governance, they’re outliers.

Dan Stolar: More and more U.S. VCs are opening offices in and/or dedicating resources to Israel. However, recently some of the U.S. legacy VC firms have been pulling back their investments in Israel and/or are having particular difficulty deploying capital (i.e. Sequoia and Accel). What do you feel has differentiated the U.S. venture firms that have entered the Israeli tech ecosystem and successfully established themselves from those who have not?

I think the U.S. VCs having the most success in Israel are those that have hired the most talented Israeli VC partners, and then given those partners free reign. It’s hard for most U.S. VCs to give free reign. It’s simply not their model. The U.S. VCs want to have veto rights. Fights ensue. The good Israeli VC employees/partners leave/break off.

Separately, why do you think most top tier growth-stage deals for Israeli companies are done outside of Israel, and do you see this trend changing in the next 3–5 years?

I think Israeli entrepreneurs are often brand focused. They sometimes prefer to go with the big-name U.S. growth funds that have had massive successes they can point to. The Israeli CEOs believe those big-name firms can be more value added, in addition to the value just from the brand association. While there is certainly some degree of truth to that, at the end of the day, the Israeli CEOs mostly work with VC Partners, not VC firms.

There is also a big Catch-22 here too, as there is obviously much less growth stage capital in Israel as there was traditionally much less growth stage investing to do. As there continues to be more growth stage investing to be done in Israel, we’ll see good growth in the amount of late stage capital in Israel. And as the market matures, we’ll see Israeli entrepreneurs more focused on VC Partners and less on VC firms, which will lead to Israeli firms getting a larger share of the late stage market, even if it’s still a minority share.

Avery Rosin: What do you think about ICOs and how it could impact early stage investing in the future? Are you looking at blockchain and crypto technology investments?

I think decentralization is the next BIG thing and as a result, I’m spending a lot of time focusing on blockchain, cryptocurrencies, and ICOs, as the are major tools enabling decentralization. I think for many companies, ICOs are a much better alternative for raising capital than early stage companies.

While I think we’re in a massive crypto bubble today, it’s important to recognize that we were in an internet bubble in the early days of 1994. And we were in a bigger bubble in 1995, and an even bigger bubble in 1996, and… until it all blew up in 2000. So this crypto bubble thing could go on a long time. And while the crash of 2000 was devastating to live through, it’s just noise today. So if you believe, like I believe, that decentralization is the next big thing, then get in today. It’s still VERY early. If the crash happens before you can retire from your crypto wealth, then wait out the crash. That was the right strategy with the internet. I think it’s the right strategy in crypto.

Daniel Goldsmith: How do you think about the urban technology space (e.g. mobility, infrastructure, etc.) in the context of IoT and connected devices? How does Israeli tech (e.g. Via) come into play here and where do you see the trends going?

That’s obviously a very broad question. I LOVE Via, and not just because I’m an investor, but because the future belongs to the companies with the best data. And Via is poised to have the best data on ride sharing in many of the world’s largest cities.

I think urban living is undergoing massive changes across the board. This includes transportation, how we work, how we live, how and what we eat, and how we spend our time. IoT and connected devices are a major part of the urban disruption to come. But, again, the winners are going to be largely based on data, and FAMGA (Facebook, Apple, Microsoft, Google and Amazon) have massive amounts of data that they will leverage to be major players across the urban tech landscape. So when I look at investments in the space, I focus on what proprietary data or data advantage the companies have relative to FAMGA.

Thank you to all of the Excel Fellows who share my enthusiasm and commitment to VC and Israel. I look forward to working with all of you to continue your professional development. Birthright Israel Excel is a lifelong business fellowship for young Jewish leaders that begins with a 10-week professional experience in Israel. Learn more online about their summer experience and upcoming Birthright Israel Excel Summit , or email them at info@briexcel.com.

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