This week was my last week (at least for the foreseen future) as a Venture Capitalist with Pitango. There was a nice party with gifts and speeches and we reflected about the past fifteen months and the many milestones that were achieved.
I am personally very proud of the new Pita&Go! theme that includes both a new and refreshing early stage investments platform and a line of events where the Pitango partners meet hundreds of young entrepreneurs every year from the various accelerators programs. Beside Pita&Go! I did my best to consume as much of the Pitango-6’s fund while I was there :) and was quite amazed by the rate of good investments in great companies - Taboola, Ubimo, Formlabs, Carambola and Keepy to name a few.
While we are gearing up (founders wise and family wise) to start something new soon, many friends and partners were asking: “so Gura ,how was it on the dark side?” and “what can entrepreneurs do differently” and of course “how can we make VCs act differently?”.
So here is my take on what can be done on both sides to get closer to ever-lasting peace and harmony (or at least decrease the uneducated bitching about the other side).
What else can VCs bring to the table:
- "Added Value" - in an angeList and LendingClub world, where early stage capital is being commoditized, it is easy to feel and measure the added value your investor brings to the table. VCs willing to provide entrepreneurs with extra *real and operational* resources will get to see the better teams coming at their door and therfore better returns. Within Added Value scope we can mention: (a) relevant introductions to people who can actually help the company (and no, this does not include time wasters consultants and vendors) , (b) pro-active approach (emphasis on *active*), helping the founders meet their first real customers and hire the needed talent that will essentially build the company’s DNA and (c) smoothly connect your VC’s partners’ network and existing content (research , artciles , lessons learnt) to be at the service of the founders and help your portfolio companies to connect as well - the amazing thing you will see is that the founders will simply take it from there and magic will happen.
- Quick response - be it a Yes or a polite NO, being able to provide the founder with the right notion of where he/she is in the process, as soon as possible, can win any VC many credit points. The founders will of course need to understand the right context (see below on the founders list) so lets add more language to “we like the company but it is too early for us”
- Operational reasoning : It is a well-known fact that many VCs came from a financial or consulting background and have not experienced a single “startup hell day”. It’s is less of a known fact that from a VC’s returns perspective it was not proven that these guys generate less returns comparing to VCs who were startups CEOs. Having said that, it will be beneficial for both sides if the VCs will better relate to the current situation the founder is facing (NO, its not reflected in the spreadsheet yet and YES, it makes the founder lose sleep at night) and have the operational background or relevant resources in the fund to help the founder face the challenge in an optimal manner.
- Funding: Ha? we just funded the company so we are off the hook - well, not so fast. It is easy to expect the young founder to go and raise capital for the startup, in higher valuation than we invested, of course, (because we “added value”). However , as we all know, there is much of an art into fundraising and similar to B2B sales, it takes time and requires a strategy and relevant leads. Being pro-active about it means to direct the young founder to the most relevant partners in the most relevant VCs (that have capital to invest!) and timeline the process so that it will not wait for the last moment. Young founders are not familiar with such process, and in many cases assume that their trusted VC on board will do it for them when the time comes. Another important point about funding is the “founder liquidity” issue. By this time sophisticated VCs have already learnt to be pro-active about it, in order to make sure the founders’ (and spouses’!) interests are aligned.
- Funder’s Single Focus: while us VCs have “so many things to worry about”, the founder in front of you didn’t sleep last night because of his/hers own single little startup. So, try to zoom-in and be with him/her , listening and thinking together. When you think you know the business better than the founder - think again! When you feel an urge to check messages on your mobile device during a meeting with the founder - just stop it! my friend Gil has created a good conduct list for this purpose.
What else Founders canbring to the table:
- Do your homework - In an era where there is abundance of high quality information (like this awesome blog…) about venture creation and all its stages , there is really no excuse to come less than ready to meet your potential investors (NO, we are not signing an NDA before the first meeting and YES, we are invested in a competing company as we mentioned clearly on our website).
- Understand the VC ADHD - very simple yet very hard to understand , the VC’s attention and portfolio are diversified while the founders’ focus (as their spouses may know) is dedicated to one single company. The VC partner on your board is on many other boards beside yours, some are of very successful and growing companies (where they are expected to put as much attention to maximize the fund’s returns) and some of companies that might suffer from a management or market hurricane. Once this is well grasped, you can better work together by (a) preparing your partner on time for important millstones (be it a coming term-sheet or a sharp drop in revenue) so he/she can work out a resolution *within* their fund (b) provide context: don’t assume that when you mention a name of one of your employees or a random customer your VC partner will be able to quickly add value to the conversation - help them zoom in first.
- Understand the decision making process within the fund you are engaged with and the actual role of the fund representative you work with - this might not be an easy one but worthwhile exploring, so you will not be surprised later on (VPs , Principals , Managing Directors and even Partners are not always what you assume)
- Understand the VC’s KPI: VCs expect you to understand your business’ KPIs but you also need to understand their business KPIs. It is very common that founders are disappointed the VC didn’t like the fact they are planning to get to $10m in revenue and exit at a $50m valuation - this is a *LOT* of money! whats wrong with them? - well, while a micro VC or a group of angles might be satisfied with this outcome, a professional VC must not invest in such a company. Here is why - in very rounded numbers - if a $200m fund wants to create a 3X return for its investors, it needs to generate $600m in exits. And if the fund has 20% of your company’s shares when you exit (which rarely happens), the fund needs to see an overall exit about of $3B (with a B!) so that it will meet the needed $600m for itself (keeping rough numbers and excluding management fees and preferred interests calculations). What you may perceive as a fantastic outcome of $50m means that the VC partner will need to be investing in 300 (!) companies such as yours (remember that most startup are not getting to the $50m exit line) so 60 companies per each partner in a VC with 5 partners - i think you are getting the point. more about this in an industry view, here .
- Be pro-active - similar to the energetic way you are charging on new markets and new product features, you can maximize the value you get from your VC partner. Learn about their network , tell them explicitly what type of help you need this month and which one of their portfolio companies can be of help to you.
- Build the relationship - timing is everything and if you want to maximize the probability to have a certain VC invest in your company, you need to help them get to know you (*follow* on twitter does not count) in advance and get constant updates about what you do in the most friendly and casual manner. In many cases when there is chemistry, things will happen, if not in this round, then in the next round or the next startup.
it takes two to tango :)
Innovate Israel - Lodon December 2013
World Health Organization says 280m people are visually impaired and for 80% of them this is of diseases that can be avoided. To begin with , developing and releasing such an app is great and even filling up the empty slots on remote doctors calendars will do the work. But what happens when the doctors are overbooked ?
A lil’ brain teaser for my entrepreneurs friends and entrepreneurship class students at Zell IDC:
Imagine this typical startup :
- The founders are 35ish years old with kids, when starting it, with minimal background in the specific industry (was it such a good idea to start this)
- The founding team background includes profound global sales and management experience, with P&L responsibilities, in the US and EU
- The founders also served in one of IDF’s Elite units (but not the one with the 82XX numbers.. and no dog and no silly T-shirts)
- The team has to invent new ways to penetrate and educate the market, and find customers and partners who were not so much around in the early days
- The founders had to keep raising more money every few years from the type of people who are “up there” and are managing “other people’s money” and care mostly about IRR and boring financial data
- The team made every mistake in the book, like every other startup, and even had to pivot after the WEB1.0 bubble burst (they carry the scars even today). The company even had to change its original name due to a forceful litigious US competitor
- As the team expanded , they had to find the right ways to work together (it does not mean they don’t still argue..) . Eventually they built a platform that is scalable and serves its customers well. Some of the customers keep purchasing the product even after 10 years and new customers are joining as well.
- The team stayed together through the good times and the bad times and grew from 2 to 4 to 6 and now around 30 people. Like in many growing startups, the junior people on the original team grew with the company and got promoted to take more responsibility
- While many competitors have emerged , they have discovered what every startup discover : “startups don’t kill startups” and as long as you focus on your business things turn out to be fine. The market ended up being big enough to obtain some of the competitor but many others got shut down.
- Like in many growing startups the organization became more complex and processes and routines had to be placed (tend to make things move a bit slower than what the founders had envisioned)
- When there was a problem with the product, the company was sometimes slammed in talkbacks like other startups (luckily, there was no Twitter in its early days ) and had to fix things and focus on making the customers happy.
- While having a strong presence in the US and an office in the Silicon Valley, The company also started to diversify its customer base in accordance to global trends and gained more and more customers from Asian markets
- Leading team members, branched out during the years to start their own startups and are now heading very successful companies in the same industry while keeping in good touch with the “mothership”
- The company volume grew 50X since inception but the founders insist on not selling it and keep focus on growing the business (don’t know when to quit?)
- The company put a lot of emphasis of helping minorities get better chances, is a strong supporter of the Tmura non-profit organization and an overall strong supporter of the Israeli Tech eco-system, where it keeps to focus.
- And lastly , the company started to offer its enterprise product in a more SAASi \ Light version as it tries to capture the growing trend of long tail partners and help them build their business till they are capable to work with the enterprise version
Any guess who is this company ?
if not , continue to read below —>
Ok , perhaps one more clue : The team members enjoy Judo, Yoga, Food trips, Humus eating, Sailing, Golf, Mountain Climbing, Kite Surfing and one of them is an avid blogger
Ok , Now, Any Guess who is this company ?
if not , i am not sure you should be reading this blog..
Ok , one more clue , this is the company logo:
So , maybe VCs and StartUps are the same ?!
No way they are ! … But maybe they are more similar to each other than what we use to think :)
Happy B-Day to Pitango#6 !
Israel ranked #4 —> Most efficient HealthCare : countries
As many of you readers know, I am an avid fan of Israel and the startup nation. It is always mind blowing to see the data points of our little country huge impact in terms of IP , export , innovation etc . But this post is not about our ongoing petting on the shoulder.
We tend to think or feel that the Israeli startup\tech community is a separated bubble , almost a different nation , a local startUpNation star that exists in the global universe . We think that besides being in charge for half of the Israeli export and employing the best Israeli minds and pushing the economy forward ( they call us “the economy locomotive”) , startupNation does not have much to do with whats going on in the “rest of Israel”. This post presents a different point of view of two collision points with “the rest of israel” that we , as Israelis , need to carefully think about:
#1 - Racism
Few weeks ago , a group of jewish settlers gangsters have attacked two small arabic kids that were walking in Jerusalem with their nanny. The kids called their father and cried for help. Besides the life long trauma they got , the kids are now safe and the story wasn’t even too interesting to hit the main news for more than few seconds. Why? Because we got used to such Apartheid-like incidents. The israeli society turned indifferent and everyone has their own urgent issues to worry about.
What these settlers gang didn’t know is that while they were beating the poor kids, their father, was working on launching a major company that will have great impact on the life of many people in our region. The dad Is an, an experienced executive who just relocated with his family back to the region despite of his wife’s objections. He felt obligated to come back and make a difference and have been working hard to raise the capital and talent for the new venture. The Kids , their mom and the dad are now on their way back to North America. We lost many jobs that were supposed to be filled , many taxes that were supposed to be paid, and another piece of our dignity, us a state that once declared that such pogroms won’t happen anymore.
btw - the day this pogrom happend was Jerusalem Day.
#2 - ”Show me the money” Porn,Forex,Gambling,Toolbars and other clicks
One of our startup nation top ranking is in a matrix that we don’t like to discuss much - the Gini Inequality rank. Its also a known fact that Israel is one of the most challenging places in the world in terms of life style ( aka - your ability to save for an apartment or for your retirement and get good education for your kids ). Since it takes over 185 salaries in Israel to save for an apartment , comparing to 30 in Sweden , the Israeli young entrepreneurs-to-be are facing a brutal reality. When you are in your 20s in Israel , post army service and University, you still have 3-4 years to give it a shot to dream big and try to change the world . However if you are in your 30s and have kids and family to support , the day-to-day reality in Israel does not give you too many chances to shoot for the stars.
This is why when a group of very smart , x- intelligence unit team is gathered to create a startup they first think “how much of a hit” can our savings and families take and usually , in Israel , its a very short period of time. Very short comparing to other entrepreneurial hubs in the world.
So what do these A-teams do ? How do they deploy their brains to overcome this shortage of time ? Will they go and create healthcare algorithms that save lives ? will they work on a global business model that require b2b sales with long sales cycles ? Keep in mind that unlike the European or American entrepreneur the Israeli team do not have a regional market to sell to and experiment with.
For many of such teams the answer is simply NO . Many of them will create companies that play in the field between “let make the user click on something or download something he does not want” and “lets give the user a sense of control on the outcome of a currency exchange or casino so he can spend more money “. Many of you understand which companies fit to these categories.
The dollar numbers of this grey part of our industry are stunning and way passed $1B in revenues this year ( most are off-shore so don’t expect to see any capital gains in Israel ). Hundreds of such teams spend their best time and brains on launching more of these technologies. On one hand these companies now employ few thousands people in Israel who support their families and bring food to the table and create a derivative effect of skilled personel. On the other hand , imagine what this brain power could have done and how much impact it could add to the world if deployed on real world problems-to-solve. Big endings and unjust critic of big dreams such as Modu and Better Place are also pushing to this “show me the money” direction.
So , where do we go from here?
We got used to thinking of the state of Israel as a startup and as such it was “ok” to have some “bugs in the product” , not to have the best customer facing policy and blame all that on lack of resources or experience of Industry connections - sounds familiar ?
Israel is now a successful independent nation with over $60B (B!) in annual export as of 2012 . It is the most stable and sophisticated democracy in our crazy region. We have one of the best health systems worldwide and we even found enough natural gas in the sea to enable us to support the energy needs of other countries .In addition , we have a healthy venture industry that will support future growth and resources ( Israel is still far no.1 in terms of VC money per capita).
StartUpNation is not a startup anymore, and we cant afford ignoring these two issues mentioned above for our sake as Israelis and the sake of the future of our place in the global tech community. While the two issues above are not , by all means , a representation of the entire Israeli and tech community , their mere existence requiers our attention.
Being on both sides of the fence, startups and VC, is extremely beneficial if one wants to learn the perception gaps between both “sides” and how easy it is to bridge some of them.
So some early stage startups founders think that traditional VC’s in Israel don’t understand them well enough, can’t deploy seed capital efficiently (fast) enough and therefore can’t add to them much value in the early days.
Traditional VCs tend to think they can wait in their office till the founders “get traction” and come pitch to them. Occasionally, they will appoint a representative to mentor at an accelerator (usually this means having the bootstrapped founders coming to the VC office to get their mentorship hours..).
How about having the Managing Partners of the VC’s get out of their offices and go and meet the many startups founders at the accelerator where they work hard to shape the future?
How about having the new generation of entrepreneurs learn about the real key objectives of the partners (hint: it’s not about taking stupid risks but rather about creating super returns), get to know them on a personal level and see how they, their portfolio companies and their network can help the startups during the early days.
Enters Pita&go! - Pitango’s line of ongoing casual gatherings where real VC’s general partners come and meet real entrepreneurs where they really build things.
Feedback from the field (some of us were elsewhere) was very positive and it seems that the many startups/members of Siftech and TheHive enjoyed meeting the Pitango Team: Rami Kalish, Rami Beracha , Eitan Bek, Aaaron Dubin and the one and only Sharon Erde!
Thanks again to Amir Shevat, Eyal Miller, Yossi Matias and the Google Israel team for their amazing Campus initiative and their ongoing effort to help the local startup eco system.
We are thrilled to take an active part and are looking forward to many more Pita&go! gatherings.
Another BIG thanks is to my friends (and family) at the eBay Innovation center who were the inspiration behind this awesome Pita&go! name. Erez, Matan and Ron you rock!