An Alternative to Planting Trees in Israel - Seeding Startups

1,000 people from all over the world took part last week in a Jerusalem conference on the Internet investment platform OurCrowd.

Bloombergs

On an autumn evening in November 2012, at the beginning of Operation Pillar of Defense in Gaza, a heavy volley of rockets was fired at Be’er Sheva. At the same time, a wedding with 300 guests was being held in the southern city. When the warning sirens went off, they hurried to the shelters and within moments there started a performance in the sky that under other circumstances would have been quite impressive: The Iron Dome system intercepted 12 rockets, one after another, as interceptor missiles painted the sky with stripes of light, and then there was an explosion. The wedding photographer took advantage of the opportunity and uploaded the clip to YouTube.

Last Wednesday this clip was shown at the end of a lecture by Dr. Danny Gold, brigadier general in the reserves who headed the research and development branch in the Defense Ministry’s Administration for the Development of Weapons and Technological Infrastructure (known in Hebrew as Maf’at). Gold is the person identified more than anyone else with the development of Iron Dome.

After the clip was shown, and after the round of interceptions was shown for a second time, the crowd stood on its feet and gave a Gold a long, enthusiastic standing ovation.

“I have to go shake his hand,” said a 20-something young man wearing a kippa, in English, to his friend standing next to him.

A few minutes later the excited crowd continued on to the next stage: A series of presentations from innovative Israeli startups. One of them, Vocalzoom, raised $250,000 in investment in 10 minutes, while they were presenting the company’s business on the stage. As the day went on, the company received another $250,000 in investments.

Israeli technology, Zionism and money – these three components attracted a group of 250 investors last week from all over the world to Jerusalem. The investors, most of whom were Jewish, came to the first annual conference of OurCrowd, and some 1,000 people showed up altogether, many from as far away as Singapore, Austria, Mexico, South Africa and of course the United States. There were real-estate investors, bankers and industrialists too. On Thursday the guests divided up and went on buses on a technological field trip all over the startup nation.

OurCrowd is a crowdfunding investment platform that allows private investors to join investments in startups. Some $4 million was invested via OurCrowd on just the first day of its conference in Jerusalem.

The platform belongs to one of the hottest trends in the high-tech funding world: equity crowdfunding. In other words, equity investments in private companies by a large group of investors – without requiring a prospectus. The idea is to allow a large number of smaller investors to pool their funds, and still make what is a very significant investment in a promising young company.

Jon Medved is the CEO of OurCrowd, which is headquartered in Jerusalem and was founded in 2013. So far it has facilitated some $85 million in investments in 55 firms, 80% of which are Israeli.

6,000 private investors from 90 countries

This new method of raising capital evolved from the combination of two major changes: The growth of the Internet and regulatory changes in the investment world. OurCrowd was ranked second among active investors in Israel in a survey published last week by PitchBook, an American research firm specializing in venture capital and private equity.

Some 6,000 investors from over 90 countries are registered on the OurCrowd platform. They receive most of information they need to make investment decisions on whether to join a specific investment – including a presentation, due diligence examination of the firm and an opportunity to speak with entrepreneurs. All investors receive the exact same investment conditions and do not need to carry out any negotiations over the investment – OurCrowd’s management does that for them.

This is how OurCrowd shortened the process for investors and opens up investment opportunities that would otherwise be very difficult for them to find independently. The only thing left for the investors to do is decide whether to join in the funding round. The initial level of investment is $10,000. The largest single independent investor in OurCrowd has put up $5 million of his own money so far.

Gilad, who heads a family investment office, says he has made four investments in Israeli companies through OurCrowd so far this year. The platform saved him many hours of friction and dealing with legal work, lawyers and negotiations over terms.

Despite the strong Israeli connection, most of the investors in OurCrowd come from outside Israel. In practice, 90% of the capital has been put up by foreign investors, mostly Jewish ones. Next year, given the regulatory changes led by the Israel Securities Authority to make it easier for private investors to fund startups, OurCrowd plans to try to find more Israeli investors. The ISA intends to lower the bar for meeting the criteria for being a “qualified investor” to 8 million shekels in assets, down from 12 million shekels previously, or a lower amount of assets combined with a high income.

David Goodtree from Boston has invested in a number of startups, particularly around where he lives, but has had enough of the process that comes before the investment – and has stopped taking part. You need to look at a lot of frogs to find prices, he says. You have to look under rocks everywhere.

Negotiations with entrepreneurs over the conditions of the investment is his least favorite part of the business: You spend a lot of time with lawyers and in the end wind up investing a small amount of money at a very early stage with a lot of risk, you waste a lot of time for very little money, explains Goodtree. He has more than broken even, he says.

The process of finding the companies is what interests him, and the time Goodtree is willing to invest in them has gone from a few weeks to minutes: You go to their website, see the presentation, hear them, see the deal conditions and the due diligence. After that he can do more research, but it saves him the time he would have had to spend otherwise.

There is an advantage to being exposed to investments at a number of stages – from very early stages through advanced ones, he says. Some of the companies who raised money at earlier stages have already returned and raised more funds at a more advanced stage.

In July, a number of OurCrowd investors invested in ReWalk, the first of the Israeli startups to have crowdfunded and then to have an IPO. Goodtree says OurCrowd has solved many of his problems, and he has already invested in 12 companies through their platform.

‘It’s not charity – it’s pure business’

Last week’s conference brought the virtual investment world in contact with the real world. “People think that crowdfunding is only virtual and there is no contact. We are aiming for contact so as to receive help from the investor in building the company,” said Medved, one of the most experienced venture capital investors in Israel.

One thing that stood out was the number of kippa-wearing men compared to most high-tech events in Israel. This is not a coincidence: OurCrowd’s investors are mostly Jewish Zionists from English-speaking countries.

Does that make investing in Israeli startups the modern-day equivalent of donating money in the Jewish National Fund’s Blue Boxes of yore? Goodtree is offended by the question: “It’s not charity – it’s to make money. It’s pure business.”

He says it is an investment in the next Check Point, Teva or Mobileye. Israel is known around the world for its innovativeness that has solved global problems. Individual foreign investors never had access to companies, so OurCrowd is bringing global investors something they want, he said. From Boston he only has access to companies from Boston.

Geoff Levy from Australia is willing to admit that Zionism is one of his considerations in investing via OurCrowd. Australians have invested $20 million through the platform so far, most of it in Israeli companies. Investing in Israeli startups is not in place of giving contributions to Zionist organizations, says Levy.

There were 15 people in the Australian delegation to last week’s conference. Medved went to Australia to meet the Jewish community there, and made the original connection with investors there. Jews have a tendency to invest in Israeli companies – but only if it is a good investment.

“We wanted to invest in startups first of all because of the economic consideration,” says Levy, the chairman of the OurCrowd Australia advisory board. “If the Jewish community is offered the opportunity of choosing between a good investment in Israel and one in Silicon Valley, they will prefer the Israeli company. If there is a choice that will make you proud as a Jew, it’s important.”

After a period in which most of the investments in OurCrowd were made by Australian Jews, over the past six months non-Jewish Australians have also joined in – and have now put up 30% of the capital that has flowed in from Down Under.

OurCrowd represents the new models born in the venture capital world, which has gone through a serious shock over the past decade. There are other platforms in Israel and around the world, such as iAngels, which allows investors to join angel investments in Israel, and SeedIL, which views itself as a boutique investment club with a higher minimum investment.

Crowdfunding platforms are expected to become major players in the equity capital industry. If OurCrowd’s vision comes true, some of the non-Israeli companies on the platform will grow and OurCrowd will grow – until it becomes a channel connecting investors from all over the world to investments all over the world.