“The venture capital industry has remained unchanged for 50 years. They know how to make disruption for any other business, but not for themselves. I don’t want to make an upheaval in the market. I’m a venture capital man myself; I’m one of the guys. I’m bringing more money and more ideas to rejuvenate this sector and make it a little more democratic,” says Jonathan (Jon) Medved, founded and CEO of the OurCrowd platform.
OurCrowd is a strange bird on the Israeli venture capital scene: a crowd-funding platform that facilitates investments starting at $10,000 on the one hand and a venture capital fund that has raised over $900 million, invested in 170 companies and funds, and had 29 exits on the other. It makes relatively small investments, usually at the early stages, but its diversification and large number of investments make it significant on the Israeli venture capital scene.
“The problem we wanted to solve is that of people who want to invest only $10,000. They won’t be asked to invest in financing rounds and won’t know about good deals. Funds holding $10 million rounds aren’t interested in their money. It’s a problem shared by a real estate developer in Tel Aviv, a hotelier in Hong Kong, and a dentist in Beverly Hills. OurCrowd is a pipeline between individual investors and startups. We’re a venture capital fund for all intents and purposes. We do due diligence, set values, and invest 5% of the round from our own money.”
30,000 investors are registered in OurCrowd’s crowdfunding platform. Figures provided by the company to “Globes” show that in 2018 alone, the fund raised $400 million and invested in 80 companies: 24 new investments, 56 follow-on investments, and four investment funds. The fund was involved in 10 exits, the most prominent of which were BriefCam, sold for $90 million to Canon, and Jump, sold for $200 million to Uber. In 2019, OurCrowd has already been involved in the sale of Corephotonics to Samsung for $155 million.
“Globes”: Do the conventional funds trust you when you lead an investment in a startup?
Medved: “They regard us as a normal fund – just a little odd for raising money the way we do. Look at who’s following us here (pointing to the investment proposal in cyber company Trusona led by OurCrowd and doubling over with laughter): Kleiner Perkins, which is one of the two most famous funds in the world and invested in Amazon and Google, is following in our footsteps.” Medved tries to start a video that will not work, and curses it wholeheartedly, saying, “There are good companies here; it’s wild shit.”
Opening the investment industry to everyone
Medved is a physically imposing figure with a heavy American accent who speaks vivaciously with both literary Hebrew phrases and fancy curses in English. He should not be taken lightly, despite his bonhomie; he knows Israeli high tech through and through, has a network of connection is all of the best places worldwide, and is sought after by delegations from all over the worlds. OurCrowd investors conference next month proves it: 15,000 invited guests, investors, and entrepreneurs and 130 delegations from all over the world will crowd into the International Convention Center (Binyanei HaUma) and the streets in Jerusalem.
At the conference, which will address the impact of startups, OurCrowd will launch a new social impact fund, for which it is starting to raise money. OurCrowd plans to raise $30 million for the fund, which will invest in companies offering technological solutions to global problems. The profit aspect will not be sacrificed for the social aspect. Speakers at the conference will include Softbank US president David Bonderman, a founding partner in the TPG impact fund, which manages $88 billion, and Nobel Prize winner Daniel Kahneman.
Medved says that he will double the amount of capital raised to $2 billion by the end of the year, as he has done in each of the past six years since the fund was founded. His love for the startups he collects in his toybox is obvious. He talks about them affectionately, quotes especially effective sentences from their video, discusses in depth aspects of the investment in them, and laughs loudly at anecdotes about them.
Medved, 63, has had an interesting life. His parents, who were born in the US, were among the founders of Kibbutz Sasa on the northern border. They then returned to the US, where his father became a nuclear scientist and entrepreneur. Medved grew up in California in the 1970s. He became an activist against the Vietnam War and studied history at the University of California at Berkley. After visiting Jerusalem in 1973, he switched to combating the anti-Israel demonstrations in the Yom Kippur War. He was recruited by the Jewish Agency and went on a public relations tour of US universities. He immigrated to Israel in 1980, intending to be an educator, but eventually started a fiber-optic communications factory with his father. In 1990, together with managing partner Neil Cohen, Michael A. Eisenberg from the Aleph fund, and Vintage Investment Partners founder and managing general partner Alan Feld, he founded Israel Seed Partners, which raised $260 million and became one of the big success stories of Israeli high tech. He later founded Vringo, a startup, which held its IPO in 2007. He founded OurCrowd in 2013.
When he entered the venture capital field, Medved discovered in lectures to which he was invited that people were mainly interested in how they could invest small sums in Israeli high tech. “This is a complicated business. The minimum investment is usually $5 million for a limited partner. It’s worthwhile combining several such investments, which takes $20-30 million. Because investing more than 5% of a portfolio in venture capital investments isn’t recommended, you need hundreds of millions of dollars to do it effectively. I asked myself how this kind of investment could be opened to a large number of people,” Medved explains.
The solution is provided by OurCrowd’s platform, a market platform displaying currently open investments in various companies. All of the information usually available to a venture capital investor is also available here: the background of a company and its technology, a business analysis of the market and the company’s latent potential, a document explaining why OurCrowd’s experts decided to invest in the company, a presentation by the company’s managers, and a webinar of a talk with the managers. “I’m not an agricultural expert; I barely know which side of the cow the milk comes out, but I trust my people to check it out, and I can understand what they write here,” Medved says.
Funds chasing after investors
OurCrowd invests in any sectors with technology, whether cyber, health, software, or drones. Medved says that the portfolio includes 200 companies and funds. According to the PitchBook Data website, OurCrowd was the most active fund in Israel as of August 2018.
The minimum investment in a company is $10,000. With a larger sum, a portfolio of companies can be assembled. For $50,000 you can invest in one of the conventional VC funds in whose financing rounds OurCrowd participates, or in OurCrowd’s own VC funds.
“Everything is accessible, maybe not to a student or bus driver, but for investors classed as “qualified.” Every country determines what is allowed for people with resources investing in private ventures. In the US, they have to have $1 million to invest and NIS 8 million in Israel. A study found that there are 160,000 households in Israel with $1 million in capital in addition to their homes. It is estimated that there are 14 million such households in the US. This is our target market.”
OurCrowd does not usually make large investments. For example, the fund invested $750,000 in auto cyber company Argos in a $26 million financing round. The company was sold last year to German company Continental for $430 million, giving investors a 12-fold return on their investment. Someone who invested $10,000 in the company came away with $120,000 two years later. The investment in other companies sometimes reaches $5 million or a little more. As is usual with startups, the investment is not liquid, at least until the company develops. The shares can then sometimes be sold to new investors.
What competition do you see when you go in for an investment?
“The market has changed. The advantage has moved from the investor to the entrepreneur. The good entrepreneurs can be selective, and the selection doesn’t always depend on the amount of money, but on who can provide more value – who can bring more investors, lead to a future IPO or merger at a high value, and can help recruit a team and open doors to customers and distributors. At our conference, there will be an event in which the funds ask the entrepreneurs to explain why it’s worthwhile putting money into them.”
Conventional funds boast of their venture capital expertise and their great selectivity, which brings few companies. You sound like a supermarket.
“Yes, but like any good supermarket, there’s a meat expert at the meat counter and an expert in vegetables in charge of vegetables. We have former Symantec and Microsoft cybersecurity officer Ron Moritz leading cyber investments, whom everyone appreciates. In artificial intelligence, we have Eli Nir, one of the two partners in Amiti Ventures, who led the investment in Corephotonics in 2015. In digital health, we have a great medical team. We have an expert in every field; otherwise, we don’t invest. In contrast to other funds, we involve investors in decisions. They have to agree; otherwise, even the best idea won’t happen.”
How are you convinced that the idea is excellent?
“There is information on the website and there are offline discussions, such as at a conference in which 15,000 people hold discussions at hundreds of events. We have events all over the world. They are designed mainly in order to talk with ‘weighty’ investors with $500,000 or $1 million to invest, and who feel uncomfortable making a decision by pressing a button on the website. If other investors want to talk with the company, they can do it on a webinar. That’s what’s great about the Internet.”
What is the difference between you and ordinary venture capital funds?
“There are excellent venture capital funds in Israel, but they have their own special characteristics, for example, a fund that raises $100-300 million in each fund and sets a 3-4-year period for investment. The fund keeps half of the capital as a reserve, so it has $25 million a year and chooses 4-5 investments. We do that in one month.
“Furthermore, their investors are pension funds, banks, and insurance companies. I also have 30,000 individual investors. The conventional funds don’t allow any investor to choose. They get a $5-10 million check, decide in which it will be invested, and the investors sit quietly and wait for the money to start coming back. I offer a market in which everyone can choose – companies and funds; we like all of them.”
When you invest in so many companies, does it mean that a higher percentage of them fails?
“We proved that it works. When we began, we told startups that that we do the same due diligence as an ordinary fund. The difference is that we start raising money only after we sign an investment agreement. They used to say that they preferred an ordinary venture capital investor who just gives the money at that point. When we began providing that we could add value, however, they said that the webinar wasn’t a bad idea, because it reaches influential people, and if there’s an investors’ meeting in San Francisco, they discovered that investors from Google and Goldman Sachs attend. The bigger we get, the better companies we get.”
It sounds like a lot of work. Do you enjoy it?
“It’s really fun for me. I’m addicted to deals, and I get energy from it. When you sit in front of young investors every day, who tell you their dreams and you can help them realize those dreams, it’s like endorphins. The challenge here, however, is that there are really a lot of pleasant parts: you have to supervise the portfolio, you have to recruit more investors, and there’s the conference, which is a lot of work. In the first year, there were 800 guests, and people said, ‘Wow! 800 people will go to Jerusalem?’ This year, there’s an entire week of events, and there are other organizations taking advantage of the opportunity to organize their own events during the same week, and the hotels are full.”
Beyond fun, is there a feeling of responsibility?
“A very heavy responsibility. I must be an optimist – the venture capital business is not for pessimists. A decade or two ago, I expected a startup nation here, and I was right. The problem is that you never know, so I worry about the trade wars, I worry about politics, about the US administration, and our political instability. All of this can potentially have a negative impact on the business. On the other hand, if you look three or four, or even 10 years ahead, I think our position isn’t bad. Innovation will continue.”
Where is the venture capital investments sector headed?
“Once upon a time, you could wait until a technology company held an IPO and invest in it then. For example, someone who bought shares in Microsoft or Apple in their IPOs and held them, like Warren Buffett, made back their investment 1,000 or 2,000 times. But today, you have Uber, and it’s hard to envision getting a return like that on a $100 billion company. Investors are therefore demanding to get in when the company is still private, and they ask themselves why they weren’t invited to invest in Uber’s first financing round, when its company value was $5 million.”
Do you think you have changed the funds industry?
“Let’s call it ‘enrichment.’ I think that we brought reinforcements. I see us as assistance and good partners for the other funds. We want to invest in them as a limited partner with our funds, and invest together with them in companies growing with us or with them. It works; there will be 400 venture capital funds with at the conference. Everyone comes.”
Published by Globes, Israel business news – en.globes.co.il – on February 10, 2019
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