The summer may be almost here, but in Silicon Valley it seems they are preparing for a cooling off. Over the past few months the wave of huge investments, which has sent many company valuations skyrocketing into the tens of billions of dollars, is fading. The word “crisis” seems to be on the tip of the tongue of many who have returned to Israel from California recently.
But a new group of angels is organizing there: J-Angels, which is intended to support the community of Israeli entrepreneurs. The group has already earned the sobriquet of “one of the strongest ‘mafias’ in Silicon Valley.”
The J-Angels club has been operating under the media’s radar for the past year. It has some 80 American or Israeli Jewish investors, mostly senior executives from the high-tech and venture capital world in Silicon Valley.
Similar to other groups of angels, J-Angels was established to invest in startups of Israeli or Jewish entrepreneurs in the United States, and contribute from their experience and networks of connections. So far, about $1 million has been invested in five different initiatives under the club’s auspices.
The group is headed by Oded Hermoni, a partner in Daniel Recanati’s Rhodium private investment fund, who is responsible for the group’s investments in Silicon Valley and is co-chairman of the Israeli Entrepreneurs and Founders Forum there; along with James Koshland, a private investor and a partner in the international law firm DLA Piper, and has served on a number of major corporate boards, including Levi Strauss & Company, where his grandfather was once CEO.
One of the main reasons for establishing J-Angels is to provide a strong support community to Israeli entrepreneurs in Silicon Valley, says Hermoni.
“Silicon Valley is made up of gangs, and the best known is PayPal,” he says. Now he wants to develop his own powerful “gang” centered on Israeli identity.
“There are groups of senior executives from Google and Facebook whose friends are exposed to the hottest deals in the Valley, and it is important for us to bring them to the Israeli community here too. There is no discrimination here — we simply are looking for things that connect the community. Another goal is to help Israeli and Jewish entrepreneurs to receive support from people who can help them,” says Hermoni.
They profit twice
In the J-Angels’ model, three prospective companies with Israeli or Jewish ownership will be invited to present their new initiatives to the club once a month — and if enough investors are interested, a team will be put together to examine an investment.
Among the angels are venture capital executives from some of the largest funds in America, including Sequoia Capital, Bessemer Venture Partners and Lightspeed Venture Partners; along with Israeli investors and senior executives from multinational companies, including Alex Sirota, who sold his startup Foxy Tunes to Yahoo and founded Loop; Lior Ron, a vice president at Google; and Ram Fish, a vice president at Samsung. Hermoni estimates the collective wealth of all the members in J-Angels in the billions of dollars.
“The connection between everyone enables the possibility of conducting a very intensive due diligence examination. The entrepreneurs who come to us profit twice: They receive comprehensive opinions and of course the possibility of an investment,” and if the company is not invested in through the club, they can still open the door to leading venture capital funds too, explains Hermoni.
In this way, J-Angels is similar to the Israeli Investment Committee, a group within the New York Angels group, and which invests in Israeli startups from afar. This groups was established a year ago by Azi Cohen, who has been investing for 20 years in the Israeli and global high-tech industry. IIC has 20 members, all active investors and members of the New York Angels, one of the 10 most active angels groups in the United States, with 130 members. They invest in three or four companies a month, out of 120 that apply.
Another group that invests in Israeli companies is the syndicates of AngelList, a platform that enables “qualified” investors (as defined by the Israel Securities Authority) to join leading angels in various fund raising rounds for startups.
A shakeout in Israel too?
Last weekend, the Wall Street Journal reported that the first quarter of 2016 was the first since 2009 in which no new technology companies had a stock market IPO in the United States. Hermoni admits that in the past few months the feeling is that Silicon Valley investors have changed their approach: “For a few years in Silicon Valley we have been dealing with the question of whether we are in a bubble, and what will happen when it bursts, but these questions have not influenced investments and the growth of well-known companies in the Valley,” says Hermoni.
The value of private firms in recent years has gone sky high. Salaries, a function of the competition between giant corporations such as Google and Facebook, has jumped by tens of percent in recent years, and as a result the amount of investment and the burning of money has increased, he says.
“There is still a lot of money in the Valley available for investment, but people are sitting on the fence in order to see what is happening to the market,” says Hermoni. “Today it is clear to everyone, without any connection to the bubble question, we are at the start of a small crisis. It can be felt even in the fall of rental prices for offices in the Valley.”
Experienced entrepreneurs say that as opposed to previous years in which it would have taken a month or two to complete a relatively large first (seed) fundraising round; today it takes about six months, and at half the value they could have received in 2015, says Hermoni. Though the latest fundraising round by Slack last week, $200 million at a company value of $3.6 billion, leaves some hope that it is just a small correction, he says.
Judging by the past, it will be six months before we in Israel feel the shakeout in Silicon Valley today. Because of this gap, Hermoni says that for now it will be easier to raise money from Israeli or international investors who operate in Israel, than in Silicon Valley.
If Israelis still want to raise money in the United States, Hermoni recommends removing as many obstacles as possible for American investors. “At the seed stage, registering a company in Israel, for example, could restrict early investors from investing. Similarly, if the company has no physical presence in the United States, or specifically in the Valley, it will limit investors,” he says.