VCing the future? Early hunters at an early stage share their secrets

As Israel’s venture capital industry continues to break its own records, competition between investors to find and finance Israel’s next major exit is fierce. What does it take to find an all-star start before everyone else jumps on board? The Jerusalem Post spoke with some of Israel’s leading investors at an early stage to learn their secrets.

“The job of a good investor at an early stage is, in my opinion, to find a new trend while it is still in diapers, undiscovered,” said Gadi Isaev, CEO of VentureIsrael. “Once the company has created a buzz, it’s too late. You have to look at the markets and evaluate where they are going.”

Investment funds for sowing and early stage try to invest in technology companies long before they have a product that is ready for marketing. The risks in this phase are greater than for established growth companies, but the potential payout is also much more significant.

Israel’s investment industry has been red hot in recent months, with a record $ 1.44 billion raised by Israeli companies in January 2021 alone, according to Start-Up Nation Central. And while industry observers often complain about the lack of seed funding for start-ups at an early stage, a recent report from Ground Up Ventures found that the number of Israeli seed investments actually increased by almost 30% by 2020.

VentureIsrael, an early 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 several years ago.

“The biggest challenge is finding entrepreneurs and getting to know them early,” says Isaev. “Three years ago, I realized that quantum computing was a hot topic and Israel had nothing, so I found out that the Hebrew University had a quantum laboratory and I went in and asked the professors if they knew of any entrepreneurs who did interesting work. we get to know the people in the department and build relationships. “

It helped VentureIsrael land an investment earlier this year in QuantLR, a quantum encryption startup developed by Hebrew physicists.

The company’s other investments came from similar long-term prospects, says Isaev. “Three years ago, I realized that cyber security for seafaring would become more important and we began to develop relationships with a company called Cydome, in which we recently invested.

“One of the areas that I strongly believe in right now is neuroscience. I think computers will be able to read our minds and use them to create actions. We recently made a significant investment in CorrActions, another Jerusalem-based company that develops a non-invasive brain-computer interface platform that can identify a person’s cognitive state to prevent human error in real time. “

The key, says Isaev, is to identify key 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,” says Isaev. “When people know about it, it’s too late.”

Nimrod Cohen, managing partner at TAU ​​Ventures, has a slightly different attitude to cultivating relationships with promising entrepreneurs early on. “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 have invested in a company, we have the opportunity to offer it resources from the university, including access to staff and students, free office space and more. We have 1000 square meters of space that we use to create an ecosystem where our entrepreneurs can work close to each other and learn from each other. “

“We also use this space to create new relationships. When we meet someone we feel we want to work with, but we are not safe, or if they are not safe, we invite them to sit for free on our offices, or just to meet and talk.We offer as much value as we can, and we try to give them a sense that they can contact us anytime they want.Usually founders are afraid to have such a 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 for founders and investors to meet only two or three times before deciding to get married” and commit to a long and very uneven ride together. I think it’s better to meet before you get married – to build a relationship where you really know each other before you make a commitment. But often you can not afford to take 3-5 months of caution before making an investment. It is best to start building relationships early so that when both parties are ready, the due diligence period can go very quickly. ”

For Kobi Samboursky from Glilot Capital, the trick is to find the right people at the right time. “For the past two years, we’ve been focusing on keeping in touch with talented teams, especially those that recently had an outlet, and keeping track of them,” he says. “We know when it’s time for their next project and try to get in touch early. Usually we meet and offer to help them with the idea process for the idea, or whatever we can do. We have done this with teams we knew from previous portfolio companies such as had an exit, like others we knew from other companies.It’s kind of like scouting high school basketball players hoping to find a future all-star early.We think it’s most important to find the right people, and with such a crowded market must you get creative and start nurturing relationships early. ”