A few Sunday evenings ago, dozens of young people crowded into a bar on Tel Aviv’s Dizengoff Street and imbibed the advice of the guest speaker. He fired out his words. “You won’t raise money without being committed to a full-time job in the startup” was one piece of advice.
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But there were lots more: “Put into the founding team someone who knows how to write code.” “You won’t raise money without having some kind of product — it doesn’t cost anything to develop one today.” “Cut back on meetings — startups don’t need lots of meetings.” “Don’t work with big companies before you can scare them — their job is to kill startups.”
The young people paid close attention for good reason. The speaker was Gigi Levy-Weiss, Israel’s busiest and most networked angel investor. Over the past decade, Levy-Weiss has invested in no fewer than 67 startups.
Many of the young people at the bar are sticking with their day jobs and work at startups in the evening. But the meeting with Levy-Weiss set their imaginations on fire. They know his reputation and that if Levy-Weiss comes on as an investor, it’s not just about money. It’s a way to open doors to other investors and get a startup on the right track.
Levy-Weiss rushed to cool their enthusiasm. A good idea is not enough. He says just 5% of his decision to invest in a startup depends on the idea. Another 25% is influenced by the business sector and 70% on the team. He has to love them, and his loves comes conditionally.
“If the team is excellent but they have a stupid idea, I don’t love them,” he says.
Levy-Weiss has seen enough startup proposals to know what he’s talking about. He receives about eight a day — up to around 200 a month. He filters through them all himself without any experts to weed out the duds.
“A large number of the proposals I receive are stupid,” he told TheMarker in an interview, saying he doesn’t hide his email address. “I take care to answer everyone.”
Why this benevolence? “I remember that when I started as an entrepreneur I'd approach people and in most cases wouldn’t get an answer,” he says.
“It drove me crazy — how can a person not bother to even answer me with a ‘no’ or ‘I’m not investing now,’ or say ‘your product doesn’t interest me?’ Most people didn’t respond. It bothered me so much that I said I’d never be like that. It costs me a lot of hours of the day, but it’s part of what I am.”
So why doesn’t he get help to do the filtering? “If I took smart people to do my filtering for me, I could miss a lot of good investments,” he says.
Even with so many hours winnowing through proposals, Levy-Weiss averages only one investment a month, and his record over the past 11 years boats plenty of successes. These include Playtika, which was bought by the casino company Caesars Entertainment; Crossrider, which was bought by Teddy Sagi and later went public in London; Somoto and SweetIM.
Levy-Weiss has a few dozen companies in his portfolio today including SimilarWeb, which recently raised $25 million, Internet advertising firm Kenshoo, MyHeritage and social gaming firm Plarium.
Many Israeli angel investors start out by forming their own startups and later become investors, but Levy-Weiss comes from a management background. He held senior positions at several Israeli companies including Amdocs, where he was the president of the European and Latin American division. He later became CEO of Internet gaming company 888, which he left four and a half years ago.
You give so much weighting to the startup’s team. How do you tell you’ve got a winning one?
“It’s a combination of many things, and a lot of it is gut feeling. I look at experience, the entrepreneurs’ track record and what they did and whether they have proof. In addition, it’s always better to come to me with someone who can recommend you.”
The idea isn’t so important. How do you explain that?
“Because none of my most successful companies ended up where they started. You learn the market, it changes, big companies do things, and you reach a situation where you can act and clear your path to success.
“That’s why it doesn’t really matter to me what the original idea is, though it can’t be stupid.” He says an excellent idea with a mediocre team interests him much less than an excellent team with a mediocre idea.
So how does he weigh up the entrepreneurs? Levy-Weiss looks at the materials they send him and at the first meeting assesses their professionalism and the way they answer his questions. In most cases he won’t meet with them before they answer technical questions via email to better understand the business.
“But no less, I learn how the team responds to questions,” he says. The whole process doesn’t take very long — in most cases a month or a few weeks.
“There were cases where I fell in love and decided to invest after a day or two of interactions and two meetings. Usually it happens with people I knew from before, or entrepreneurs who came through people I trust. So I can remove the character side from the equation. The same goes for serial entrepreneurs who have already built a company and have shown they have an entrepreneurial character,” he says.
“This morning, for example, I read a presentation. It was okay but didn’t relate very much to competitors. I immediately responded with a question: ‘Here are four or five of your competitors, some have already raised a great deal of money. How do you see yourself dealing with the competition? What’s special about what you do? Why would a customer who chose your competitor switch to you?’”
The confidence factor
From the answers, Levy-Weiss says he can see if the team has thought about these questions. If not, that dampens his enthusiasm.
“Entrepreneurship is a world of contradictions. You want someone who’s an alpha leader, who runs forward and doesn’t stop. In the same breath you want him to listen. You want someone who understands that startups fail. You want him not to think for a second he can fail,” Levy-Weiss says.
“You want someone who gets up in the morning and knows what has to be done today, but in the evening can change direction and wake up the next day knowing he’s now doing the right thing. These are elusive characteristics that you can only discover by sitting with the entrepreneur or entrepreneurs a number of times and examining their character.”
A team is better than one person. Levy-Weiss says research shows that a lone-wolf entrepreneur has a much smaller chance of success for the simple reason that it’s very hard to cope with the ups and downs of running a startup.
But teams that are too big are at a disadvantage, too. A team of say five starts with each getting a 20% stake in the business, but as their holdings are diluted by investors they can end up with only 2% or 3% — too little to motivate them to stay with the outfit.
So which sectors is Levy-Weiss avoiding? He says he’s not looking for a steep climb for the startups he invests in.
“If you take areas that are moving forward, like robotics and the Internet of Things, which everyone is talking about but are still at the earliest stages, these are areas where a team of the same quality has a chance to build a much larger company.” He’s also interested in cybersecurity.
And so why has he and other angel investors chosen to institutionalize their investments in accelerators or funds with other investors?
“An angel is usually an entrepreneur who made money and started investing. He eventually understands that there are limits to his model and he evolves — to found a fund, an accelerator to hook up with others. There are limitations to the angel model, and one of them is that it’s very isolated work,” he says.
“I don’t say in the morning, ‘How pathetic I am, I’m going to work without an office.’ But you do work alone. It’s great fun to suddenly connect with a group or be part of a partnership.”