Wanted: Fund Ideas for Investing in Israeli Startups

StartupNation_Chinese

Pound for pound, I would always bet on the Israeli Armed Forces. Same for Technion. Which is why I want a way to invest in Israeli startups.

While SF, NY, Boston valuations go sky high (and don’t even think about the costs of doing business in London,) I’ve always been amazed at the pound for pound effectiveness of investing in Israeli startups. Talking to the 2-3 companies that come from Israel to Boston for MassChallenge is always amazing, with a startling positive ratio of talent and product to pre-money valuations.

Think Israel isn’t a hotbed for startups? This article from Forbes puts that idea to rest. Anyone who’s read the book Startup Nation knows the story: a tiny country with an entrepreneurial bent, an attitude, and a mission can do great things. A highly educated and technical population bonds and learns how to work together via shared service in the military. Big initial financial support from the Office of the Chief Scientist, but little on-site VC money after the seed money is gone. Hence low valuations, but high rates of success.

In my own portfolio, I’ve only had one investment in an Israeli company, but it delivered 3x in 6 months. I know it’s an n of 1, but it’s got me curious…  So, how to get more exposure?

So consider this an RFF: Request for Fund

Techstars and 500 Startups: start a branch in Israel, the grass is way green there.

AngelList: can you recruit Yossi Vardi or some other successful angel (not @FakeYossiVardi) to start a fund to bring in new money? Someone with a track record and flow.

Marker LLC: how about you do a syndicate, akin to FG Angels, where you do lots of little bets from the firms you see who are great but are too early stage for you?

This is a classic case where a well run angel fund or a VC with angel-sized minimums would be welcome. Someone make it happen? Ideas?

PS–Yes, I know that picture up top shows the book with Chinese characters, not Hebrew. Makes you want to get going a little faster, yes?

“OpenVC”…Really?

Bo-Knows-Sports-Dad-Hub

I really like VCs. The good ones are worth their weight in gold, which they collect with my whole-hearted applause.

But the idea that the industry is “open”? Laughable. Which is why it’s wonderful that Bo Peabody of Greycroft authored an “OpenVC” thoughtpiece in TechCrunch, bringing up how everyone benefits from entrepreneurs knowing more about the VCs they approach. In my mind, however, his list is just table stakes. I can think of many more ways the industry can help promote the openness that will truly make for better matches, less wasted time, and better returns for the industry.

Let’s throw down the gauntlet. Here is what I feel is the bare bones for the public release of data and opinions.

In the spirit (but not the grammar), of Danielle Morrill’s “#IfIwasaVC” tweets, here’s my version. If I were a VC,

*I would list all investments and firm involvements, including:

-lead partner on the investment, and whether or not a board seat is taken

-other team members (e.g., associates) actively involved in the account

-which rounds you invested in (so entrepreneurs can calculate follow-on

percentages)

*I would list all returns from all funds, including open funds using latest marks-to-market

Most radically,

*All of my quarterly marks-to-market would be shared with an industry utility (NVCA?), which would collect all such marks from other “open” investors in the syndicate, then re-share a scatterplot of these marks with the entrepreneurs, the other members of the syndicate, and other interested parties. I would further pledge to adjust my mark to the median price, if lower than my own, for the calculation of any performance used either in promoting track records for raising funds or for calculating fees. I would subsequently allow my marks and their place in the scatter diagram available to various data providers and to my LPs.

*I would show a gauge on my website, showing the amount of dry gunpowder in each fund, and whether new investments were being considered for that fund or only reserves for follow-ons. (Note—Pitchbook and others are already making estimates of this: might as well show the real numbers.)

*My website would show a timeline showing each investment and its size, highlighting first time investments.

*Concurrent with the announcement of each new investment, I would publish a blogpost “Why I invested in XYZ”. I additionally to pledge to keep it up, even if the investment goes bad.

*I would clearly state my market theses, giving real granularity to the types of businesses the firm wants to consider.

This post definitely gets my juices going, and I’m going to followup later this week with Part II.

But meanwhile, anyone want to take the pledge? VCs, don’t just talk transparency, BE transparent. The most transparent will be the ones who generate the greatest goodwill and inbound traffic. Bo Knows.

Reheating Ben Yoskovitz: the Lost Post

lean analytics

As I dig through my Google Docs “electronic shoebox”, I’ve been amazed at the stuff in there. Old family pictures. Unfinished to-do lists. And an hour ago I saw a blog post I wrote on 9/13/13, just over 1 year ago, but never posted because I didn’t want to take the time to edit it and make it acceptable.  I am finally putting it up, and I will use red italics to signify my updated comments. Here goes.

===============

Author, entrepreneur, mentor and investor Ben Yoskovitz just wrote a retrospective on his first 9 months as an angel investor, listing 19 observations. (Only 76 short of Martin Luther’s 95 Theses–perhaps Ben launches the Angel Reformation after his next 3 posts.)  Since I haven’t actually seen Ben in 8 months, [still haven't seen Ben, but his startup in Halifax had an exit and now he's working on a new one in Toronto] and don’t get up to the Great White North often enough, I thought I’d send this back as an open letter. Ben, this one is for you!

Ben’s points (copied in bold black italics) are:

 

  • Angel investing is fun.  You got that right, Yosko. This reminds me a little of Woody Allen’s answer to the question “Is sex dirty?” (Answer: It is if you’re doing it right.)
  1. Some parts of angel investing aren’t fun, namely reading legal documents and wiring money.  Amen. Which is why I always recommend that companies use standard term sheets, as mentioned here. One newly made standard in the last year is YC’s SAFE documents, which I believe do everyone a disservice. More on that in future blogs, but entrepreneurs, believe me, uncapped converts are not the way to go, and there are other unpalatable things in there for investors. Don’t start pissing them off from the start. Big negative points for those investors who insist on rewriting them. And since I see most of my companies in person, I have no problem writing a check. Take the extra $25 saved and take the entrepreneurs out for a beer.
  2. Saying “no” is hard. I disagree. Saying no is easy. It’s just business. Saying yes takes guts. Trust me, if word gets out that you’re investing, you’ll get used to saying no. Just as I commented in your most recent piece.  But whether you say yes or no, don’t dawdle. A fast no is much better than the slow no.
  3. I’ve done minimal due diligence. OK–I’ve got an inconsistent opinion here. I now do much less DD than I used to. Why? I make smaller investments now, and more of them, as I am more of a believer in the “spray and pray” philosophy of angel investing, based heavily on the team. And I’m heavily biased to bet on repeat entrepreneurs, especially on repeat winning entrepreneurs. And due diligence on them is pretty darn easy. However, for new angels I recommend the opposite. Start by sitting in on angel groups, and volunteering to be on due diligence committees. (Even though angel groups do these agonizingly slowly.) You need to deeply work with other angels (almost all of whom are too slow) and learn to suck up their experience and/or watch their mistakes.  Don’t have relevant experience or knowledge? Not the end of the world. I was lucky enough to have an early exit in an investment sourced through MassMedical Angels. They do EXHAUSTIVE due diligence, and I both trusted the process and the evaluators. Everyone has to outsource some expertise, so don’t feel bad about it if the other elements of the investment (such as valuation, team, and gut instinct) meet your requirements.  When I like those three elements, and the area is something I don’t know, then I will ask a trusted angel friend with expertise in that area to take a look, then I tend to follow their thoughts. This can get various answers: I passed on Space Monkey, which has both smart and vocal proponents behind it, because of some terrific analysis by a fellow angel who knows the storage area cold and saw some big problems that I hadn’t considered. I think Space Monkey has a good product and a terrific team, but it’s probably too early to escape a premature death against the current forces of evil (ISPs, phone companies, cable providers) who no longer allow “all you can eat” data plans. [Jeez did I get this wrong. They just had a super exit, and are in the top few of my anti-portfolio. Space Monkey found a way to reshare the files only within other users of the ISP, and thus became beloved by the ISPs. We outsmarted ourselves.] In another case I backed MomentFeed, because domain expert Jennifer Lum not only looked at it for me, she invested. Which is good enough for me. Social proof is, after all, a strong signal. It’s fine to follow smart money if you know they’ve done their homework and it smells right to you. [Nice call Jen--I am now backing her AngelList syndicate. She has a killer record, with a huge exit percentage, including at least one 30x.]
  4. I’m biased to people I know.   Amen again. The more you know the people, the better your odds are of predicting success. That’s one reason I love to invest in TechStars companies. As a mentor there and at MassChallenge, I get to see these teams closely over a period of months. There is no better predictor of success.  And sometimes you get lucky: Wayne Chang mentioned he was starting a company, and I immediately wanted to get involved, in that I knew Wayne was driven (and his partner Jeff Seibert an equal superstar.) Easy decision…and that ended up as Crashlytics, which will “pay for the fund”, as they say. I invested double my usual stake, and it will come out at least 2x better than my next best exit. [Make that almost 3x as of today.] Thank you Wayne. I’m investing in dozens of more startups just rerolling the house money created from your brilliance and sweat.
  5. I haven’t invested the same amount in each deal.  Good! See above. I have 3 levels. Regular, double, and token. Works for me.  But when in doubt, invest less, and spread it over more deals. Here’s a blogpost I wrote a couple of years ago that explains exactly how I go about allocating my money, and why it’s important to have a big top-down plan. Don’t invest too much too early!
  6. I’m involved more in some than others.  SO? That’s gonna happen. You can help some more than others. Even if you can’t be involved, though, you can always make intros and add the useful tip every now and then, including your expectations on how they should communicate with you and your fellow angels. And I know you do all that, so you’re spreading good karma regardless of involvement.
  • Having said that, I always think to myself, “Don’t invest in entrepreneurs that need a lot of help, you want to invest in those that don’t need any help, because they get it.”  I know a few prolific angels who like investing very early because they want to give back to the community and help people who need it most. “Early Money Is Like Yeast”, and all that. Unfortunately, most of us are not that wealthy to be angel investing as a proxy for charity. I’ll talk to anyone for a few minutes, but my investments are strictly for profit.
  • At the same time, there’s definitely some truth to the statement as well. If you need my help with the core business then we’re in trouble. I can help with introductions, provide advice around analytics, Lean processes, recruiting (and a few other things I’m reasonably good at), offer a shoulder to cry on, listen, commiserate on the challenges of being an entrepreneur and probably a few other things too, but beyond that and I start to worry.   Agree completely.
  1. I haven’t always agreed with the entrepreneurs.  I can only think of one investment that I’ve made when I didn’t agree with the designs of the entrepreneurs. That was for a company that has great intellectual property which I believe can do good with great social good, but the entrepreneurs are passionate about it just being about fun.  I’m hoping that their passion continues them to tinker with their invention, but that once it’s improved that they then see the light and turn it into a money machine rather than a toy. We’ll see. If we were always logical, I wouldn’t have backed it, and it’s too early to tell. I’ll have a stronger opinion on this later, but it will still be off of a n of 1. [That company pivoted and now is into a serious B2B model and is doing well. So it worked out.]
  • My feeling on this is simple: entrepreneurs own and run their companies. Those startups are their babies, not mine, I’m just along for the ride.  Yep, you need people who will listen to your opinion, but make up their own minds. If they don’t do both of those, however, avoid.
  1. I haven’t developed a real thesis for making future investment decisions. That’s OK–whatever thesis you come up with generally gets outdated fast. In retrospect, most of my best exited investments have been in the mobile space: Crashlytics (Twitter), UpNext (Amazon), LocalMind (AirBnB), Cardmunch (LinkedIn)–OK, enough bragging–there’s an equal number of writeoffs, and some other zombies nominally breathing but really living dead.) [Strangely, had no more activity in the mobile space all year, and no zombies changed status either. Bizarre.] I didn’t intend to invest so heavily in mobile, a space where I have little expertise, but all of these products scratched an itch of mine in some way that made me say “I need that, others must as well.”. But if you are looking to pick a thesis, pick companies that will be bought by bigger companies. Easy, right?
  2. I’ve invested in a broad range of companies so far. But one common thread (other than what I’ve mentioned above) is that they’ve all got the makings of an unfair advantage (i.e. a hook, a new approach, something they’ve learned that they can take real advantage of) that could result in them winning big time. Good for you! Send me your leads! Just be prepared for me to say no.
  3. I’ve been influenced by the participation of high-profile investors (but not too often). Yeah, well that is not a sin. One reason YCombinator and TechStars companies have such a following is that it’s so hard to get accepted, they MUST have something on the ball. Same thing with getting great investors. AngelList is built on social proof, and I buy it as a good screen. But don’t necessarily think “high-profile”, try to think knowledgeable. Wayne and Jen above aren’t high profile, but they sure as hell are smarter than me. Now, if you think the idea is stupid but the investors are great–pass. (I think of Mahalo and Scvngr, both of which I wish I could have shorted. Both ideas sucked.) If investors, team and concept look good and the valuation isn’t crazy? Buy. But if the CEO doesn’t sell well...run.

 

  1. I’ve also been affected by investors saying no. A couple of times I’ve second guessed my decision to invest after hearing that other investors have said “no”.  If you’re wrong, consider it tuition. If you’re right, you won!

 

  • Party rounds are bad. I knew this already, but when looking at an investment now, if I see a lot (say 7+) people participating I get very nervous.  I’ve got a big trouble with having a number make a difference. I’ve got well more than 10 people, because 1) virtually every one I know to be a value-add investor, and the others I’m friendly with or let in as a favor to another member of the syndicate, 2) I want to diversify, in that angels are great on terms and support, but can’t be depended upon to follow-on, and 3) I depend on all of them to feed me ideas, leads, etc. One investor got me my CTO, something I never expected. The more helpful investors you can find, the better! Passive investors…only take them if you need to. But do not judge a deal by the number of investors, large or small. If large, find out WHY there are so many. Numbers alone don’t make a party round.
  1. I’d like to work more closely with other angels. Yep. It’s great. And as you expand your network, you’ll get better deal flow and be a better investor.
  2. I’d like an early exit or two. Or three or four. Your fellow Canuck Basil Peters literally wrote the book on the subject. A balanced portfolio or team has both power hitter/sluggers with low batting averages, and some leadoff batters with better odds of getting on base, even if they have less power. OK, obligatory sports analogy is completed.

Angel investing is almost completely irrational. I don’t think anyone is disagreeing with you on that one. May the force be with you!

yosko

All in all, I think the advice still holds up. Plus ça change, plus c’est la même chose. Ben, sorry I took so long to post my response, but glad I still had it. BTW, Lean Analytics is next on my list to finally study, not just skim. 

AngelList and Mattermark Need to GET IT ON! Oh yeah, baby…

Let’s get straight to it: AngelList just has to buy Mattermark. The two companies that are doing a lot of the shaking up of old school venture capital deserve each other.

How much sense does this match make? Let’s compare these two for fit vs. the 500 lb market gorilla, Bloomberg.

Bloomberg AngelList Mattermark
Straight Thru   Processing of Trades Yes Yes
Messaging Yes Yes
Data Analytics Yes Yes
Post Trade Monitoring Yes Yes
News Yes Yes
Business Model Subscription (monitors) and by trade (TradeBook) By Trade (Syndicates) Subscription

Let’s say I want to invest in a startup. I’ll see it on AngelList, then I’ll research it on Mattermark. I’ll buy it on AngelList, then I’ll monitor it on Mattermark. What a wonderful world it would be with fully integrated, one-stop shopping. Now, every time I toggle, it makes me want to beat my head against the wall.

How about cultural fit—both are SF-based, lean startup types using technology to democratize the markets and seamlessly deliver access and info. Both feature tremendously insightful writers. Both have raised funds from Mark Andreessen, 500 Startups, big name VCs and angels. This deal is just crying to be done. Brangelina. Billary. Bennifer. And now AngelMatter.

Naval, Nivi, Danielle: turn on the love light, light the candles, cue the Marvin Gaye music. Make it happen.

We’re all sensitive people

With so much love to give, understand me sugar
Since we got to be
Lets say, I love you

There’s nothin wrong with me
Lovin you
And givin yourself to me can never be wrong
If the love is true

Don’t you know how sweet and wonderful, life can be
I’m askin you baby, to get it on with me
I aint gonna worry, I aint gonna push
So come on, come on, come on, come on baby
Stop beatin round the bush….

Let’s get it on
Let’s get it on
Let’s get it on
Let’s get it on

My 5 Step Program to Regain My Investing Chops

Im-Back-Terminator

A few years ago, I pretty much dropped out of everything but running my startup, BuysideFX. That’s now over ;^(    and now I’m itching to get back to investing in early stage companies. But I’m rusty. Real rusty. When I was running BuysideFX, I felt a duty to my investors not to be wasting braincycles on any other startups, and so now I feel out of it: I’m outside of the latest thinking, out of the good deal flow, out of touch in general. It’s like me trying to ride a luge sled again—intellectually, I know how, but my body, reflexes and muscle memory are so out of shape that I would crash hard if I tried to take off from the top. Not recommended.

So I’m taking some time to plot out my return to angeldom. I think it will take me a few months to get back into the swing of things, and here’s my workout schedule

I.   Catch up with my existing portfolio companies

Since I checked out 30 months ago, I’ve been a bad angel. Very little contact with my companies. Before I make new investments, I want to see how I can help improve the old ones. And of course, the best leads for great new investments (like Drizly from Brent Grinna at Evertrue, or Robin or CommandIQ from Phil Beauregard at Objective Logistics) come from entrepreneurs on the ground.

  • First, figure out who’s still around. My accounting is abysmal. That changes now. I’m setting up new gmail folders, transferring over from spreadsheets into cool cloud based angel accounting software from Seraf,
  • Reconnect with everyone to make sure I have the right contacts. I know at least 2 CEOs have been swapped out.
  • Enter everything into Mattermark to get a broad-brush idea of who’s hot and who’s not. (More on my very positive reactions to Mattermark in future blogs.)
  • And not to forget the ex-portfolio companies, like Crashlytics=>Twitter. I owe you forever, @wayne!

II.   Check out what’s been going on in my AngelList Syndicates

When AngelList syndicates came out, I knew that it was right for me. See my previous posts

So, now I actually have to figure out how they’ve done, and how syndicates have evolved.

  • I am entering each backed syndicate’s portfolio into Mattermark to get some portfolio level and individual company stats. Like Seraf, this wasn’t around in early 2012 when I started slowing down.
  • After trying to figure out the logic behind each underlying investment, I’m going to attempt to grade the syndicates. I’m going to cut back on some of them, as I’ll want to have access to that cash for my own direct investments. I’ll write up my favorites in a future post—sort of like a VC teardown.
  • Time to prune some of the syndicates. For instance, the syndicates which ballooned up far too big—with $mms dedicated to each deal, like Kevin Rose’s syndicate—I’ll just drop. The best deals probably won’t likely give up big tranches for nameless syndicates, and I’ll be cut down to next to no participation. (Request: @Nivi and @Naval, can all of the syndicate holdings be made public so we can study from the masters?)

III.   Get busy in Boston-Montreal corridor again.

  • With face time visiting companies at the co-working spaces, accelerators, etc. I’ve already re-engaged with the new TechStars Boston Fall2014 class, but know almost no one at MassChallenge, Founder Fuel and Tandem Launch in Montreal, Bolt, Blade, Harvard Innovation Center, MIT Media Lab, etc. That alone will take some time.
  • Re-establish connections with my angel buddies going to some of my favorite groups. Groups like Walnut, CommonAngels, LaunchPad, a few others.
  • Get reacquainted with VCs and Seed Funds. Every year Rob Go of NextView Ventures publishes his “Hitchhikers Guide” to the Boston Startup Scene. (Hey Rob, we’re waiting on the new one!) I’m a few editions out of date. First person I want to meet: Bill Aulet of MIT.
  • And while I’m getting reacquainted with the East Coast, I need to re-engage with my West Coast buddies as well. You know who you are.

IV. Start reading again. Need to improve the inbound flow of ideas, although I never really stopped reading some of the top bloggers. First book on my bedside table: Traction by Gabriel Weinberg. Then, I actually have to slow down and study Lean Analytics by Ben Yoskovitz and Alastair Croll.

V.  Paying it forward

  • Need to get the karma wagon back in gear. While I’m making contact again with the folks in #3, it’s time to start seeing how I can, to quote Sir Topham Hat, become a Really Useful Engine. Doing stuff like mentoring again—you always get back multiples of what you put in. And investors love 10x.
  • Creating and sharing content. In addition to highlighting some of the companies I know and getting them some exposure, (hi there, WooSports!) I want to take my new iMovie talents to start some interview series, hearing what entrepreneurs, service providers, angels and VCs are thinking about how to create more killer companies.
  • That means I’m going to be a lot more active on my blog and on Twitter. We’ll save the post-mortems on BuysideFX a few months so I can get a little perspective.

OK. less yakking, more hacking, I gotta get back to work.

But  I’m Baaaaaaaaaaack!

It Ain’t the Firm, it’s the PARTNER!

jerrymagure

I don’t care if you’re talking about law firms, venture capital firms, talent agents, or the Catholic Church. When you are choosing some vendor/partner/relationship, whatever, don’t be fooled by the brand name. It all comes down to the people you deal with.

You may be dealing with a brand name law firm, but know that your experience will only be as good as the partner in charge of your account. “What?”, you ask slyly. Are you intimating that it’s really the junior lawyer who does all the drafting that counts?  Well, that’s important, but guess who picks which junior lawyer is going to be…that’s right, the partner.

That’s not to say that you want to go to an unknown firm. Sometimes, you do want some brand name value behind you, but–especially if you’re paying–you should be able to assess and then pick your firm DEPENDING ON THE PARTNER.

Lots of times, you can try before you buy–before you settle on a church, you can check out the priest at a mass or two.

If you’re thinking VC, some questions could include:

  • What are the firms YOU brought into the firm and why
  • Can you give me the names of 2-3 client CEOs of firms that have been successful with you and the same number who have cratered with you. (Also a good question for lawyers.)
  • How have you personally added value to some of YOUR portfolio companies, separate from that offered across the board to all of your firm’s portfolio companies.
  • How quickly do they grok your business? Do they have insightful questions, or even better, does their imagination get them started and they follow up with you on an unsolicited basis with an idea or an intro?

My personal favorite is the email test. Send an email out really early, or really really late. How soon does the partner get back to you? That’s a really simple test, but one that shows the work ethic and commitment. It’s not XYZ firm that is responding, it’s the PARTNER.

Find a good one.

PS–the only exception to the rule: banking for startups. There is only one choice. Silicon Valley Bank. Extraordinary service across the board.

As always, Steve Blank and Friends Nail It

Image

Readers know I’m not posting much nor doing a lot of (non-syndicated) angel investing now, but I read a great post on Steve Blank‘s blog yesterday inspired by John Selep. The post shows one investor’s framework for tieing in Steve’s management teachings to improve not only his odds of making successful investments, but those of every startup looking to raise money.

In one way it’s a great filter–is the entrepreneur sufficiently sophisticated? coachable? flexible? pragmatic?  But equally important for angel investors, it’s a great positive way to give helpful commentary back to the inevitable 95% of “no’s” that result when you talk to startups.

Accelerators–(I’m talking about you, @MassChallenge and @TechStars)–this has to be on your curriculum. Every entrepreneur should read not just the post, but the referenced materials from Eric Ries, Alex Osterwalder, and Steve. As should angels and mentors. I’m sure there’s a closing joke about angels, evangelists, and the Gospel according to Steve, but I’m back to work on BuysideFX.

Sometimes the best way to advise is just to point. Go read it!

 

 

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