With a population of less than 10 million, Israel has roughly the same number of unicorns as Europe which has a population of nearly 750 million.
Listen to the factors that increase the chances of companies achieving unicorn status. Addressable market, scalability, management, portability, compensation structures are among the issues discussed during this informative podcast.
Oded Hermoni. Co-Founder & Managing Partner, J-Ventures
Oded brings an entrepreneur-focused perspective to the venture capital field as one of the few institutional investors to have both built a unicorn as a CEO and also identified and invested in an early-stage startup that has achieved unicorn status.
In the past 17 years, Oded Hermoni has invested across different industries as a managing partner at J-Ventures (Unicorns -Datarobot, Visby Medical, Omada, Veev), partner @Rhodium VC (which invested in the Unicorns – Yotpo, Outbrain and Storedot), Coin Ventures (Yotpo, Yieldmo) and as an Angel. Oded sees a great mission beyond the check – how to really bring value add to the companies he’s involved with or advise.
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00:00:59 – He had to use the same amount of money that was left on the first round
When you plan a company and you write this nice presentation when you see it usually wouldn’t fit what you’ve been thinking about when you see so companies have to pivot, there’s no way the market is different, the sales cycle is different. And so you’re looking for someone that is a different situation will know how to behave and to lead the company into the people.
One of our best friends started the company completely in a different area than he ended up with. I mean, he started raising money from one of the top two in the world, 1.5 million. And after 700,000 he realized that he was not doing advertising, he was doing something that is about it management. And it management for him was a completely new thing.
So he had to use the same amount of money that was left on the first round, which was 1.5 million, and take it into a completely different kind of business model and new technology and new business as a whole.
00:09:48 – It’s very hard to manage a company the way it is.
I think it depends on the quality and the characteristic of the investors who are joining around. If this is like many angel investors with very small added value, it’s a recipe for a problem down the road.
There are three or four good funds that have enough money to support the company downtown or in a good town. The first thing I would check is the previous investments of the kind partner who’s joining the board or investing because a bad investor could ruin a company regardless of the quality of the company. And if he insists to micromanagement to replace the CEO in a way and tell him all the time what to do. It’s very hard to manage a company the way it is. We need to let the founders that we pick run the business and help them where we can. But once we tried to replace them or if we need to, we can replace them. But this is not why we invest in the company. We invest in the company because of the management. And so we need to let them run the company the way they look at it and they want to.
00:28:23 – Make sure that you understand that the market is changing and the valuation will dropdown
Depends on the company right now with the current situation in the market and it was not clear until a couple of months ago was a lot of money that was waiting to invest in companies. Right now it will be the opposite and therefore I would take as much money as I couldn’t in any given time now that would be enough runway for at least two years of building the company because in the past three or four years we got used to cycles that are very short.
Six months, last month, 18 months, and we should expect cycles of 18 months, 24 months, and to build the benchmarks accordingly, we will be less. The high growth that was part of the past two years would be probably a different kind of growth and expectation, mostly revenue-based, not just other factors. But if you are a company and currently can raise more, that will last for a longer time, I would do that rather than every couple of months trying to raise more. I wouldn’t care so much about the valuation right now. Make sure that you understand that the market is changing and the valuation will dropdown. There’s no other way.
00:34:47 – You’re right, there’s a lot of money in Israel
You’re right, there’s a lot of money in Israel. So mostly for real estate, there are like five or six new dedicated only to Syrians from the latest stage point of view.
So there are a few fans in Israel who are doing the latest stage and plenty of nonisraeli fans like Atlantic that offered an office recently Tiger inside those ones were doing growth. The problem is not only for Israeli companies is that the growth market, the one harder than it used to be because of the valuation, and of the unit funds. So there aren’t a lot of funds to invest in those stages. So the big ones are getting hit very badly now because they have enough money and they are also too early in the process. But when you get to a B round, you’re being judged by your revenues and your benchmark. And this is where a lot of companies right now are struggling and do like a safe round instead of an equity round.
00:40:16 – Let’s just say get an Uber type company founded in Israel would you recommend that they do some testing in Europe?
What we’re talking about now is when the Israeli government through the Israeli Investment Authority issues a grant to an Israeli company for research and development if that company that received that grant exits it gets acquired you have to look at the specific laws but in general, as a generality, the government wants three times its investment back at the point of exit all right, as far as growing a company after you’ve identified a company and are funding the company, do you recommend that the company test its model in different parts of the world or different consumer groups to test the portability of it?
So if a company has, let’s say, let’s just say get an Uber type company founded in Israel would you recommend that they do some testing in Europe, in the United States, in Singapore to see if their business plan, their model is portable throughout different regions of the world?
00:48:46 – Wave started in Israel and did the first validation but in a way if you’re not succeeding in America …
Listen, Wave started in Israel and did the first validation but in a way, if you’re not succeeding in America it’s not only technology, it’s not only the consumer or the customer, it’s sometimes just regulation that really makes it difficult for a company.
You might be a great medical device, I don’t know, you can be a great app in Israel in a banking system and the system in America is just completely different the way investment is different and lots of things are different in the US the incentives are different and you need to check first what are the incentives of the customers or the incentives of the regulator and they are different in different countries
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