Recently, Israel’s senior tech leaders gathered in an events hall on Tel Aviv’s Menachem Begin Road for a private conference. Present were prominent investors like Eran Barkat of BRM, Yanai Oron of Vertex Ventures and Avi Eyal of Entrée Capital, but all were waiting for another person to speak: Alan Feld.
Feld (61), founder of the investment firm Vintage Investment Partners, is among the oldest and shrewdest investors in the tech industry. Feld possesses knowledge and influence that apparently no one else in the local sector has. The network of funds he has founded connects the institutional bodies in Israel and abroad with a selection of top foreign funds that include Andreessen-Horowitz, Bessemer Venture Partners, General Catalyst Partners, and Accel, and Israeli funds such as Glilot Capital Partners, TLV Partners and 83North. Through Vintage, hundreds of millions of dollars are invested in huge companies such as monday.com, Wolt, Klarna, and SentinelOne.
But Vintage is not just about investing. It also assists funds, their partners and the investors backing them, in what is known in the industry as secondary activity (purchasing existing shares in exchange for cash). These days, this activity has become critical when many investors are in search of cash. Together with partners like Abe Finkelstein, Amit Frankel, Hamutal Meridor, Asaf Horesh and, more recently, Keren Terner - the former director general of the Ministries of Transport and Finance - Feld has close to $4 billion under management in 30 direct investment funds, funds of funds, and secondary funds.
Vintage’s dominant position was reduced somewhat in recent years, due to tech overhyping, when institutional investors began investing directly in companies instead of paying double subscription fees for a fund of funds, and Israeli funds - that until then had needed Vintage as investment assurance - managed to raise capital by themselves. Other Israeli funds, like Israel Secondary Fund (ISF), also pursued investment in foreign funds, but Vintage, nonetheless, maintained its position on the Israeli tech landscape as a prominent, well-connected fund.
November forecasts coming true now
Vintage has a force multiplier that is unparalleled in its sector: it knows at any given moment where each partner stands, their mistakes, successes and failures. In this way, Feld has positioned himself as a barometer of Israel's tech industry.
At the recent tech leaders meeting in Tel Aviv in November, Feld was very firm in his prediction: the number of unicorns will decrease, the volume of investments in Israel will shrink, and hedge funds will flee the giant companies. All of the trends indicated by Feld almost three months ago have, in recent weeks, come true.
Tried to warn of an industry crisis in 2021
Feld was never been a self-appointed tech industry spokesperson, and almost never made public criticisms. But at the end of 2021, as his industry colleagues were putting more and more unicorns in their portfolios, and competing over huge deals, he’d had enough. He opened a blog account on Medium and posted an article entitled "The Disappearance of Risk…?".
"Essentially, there is no risk premium for illiquidity… risk is ignored in setting the return," he wrote. "This cannot continue for long… there is a thing called gravity… and gravity in markets can be ugly in times when risk goes up in a hot air balloon."
These frank statements garnered Feld no praise and were, in fact, condemned by many, but proved prophetic. Four months later, following several weeks of declines on the capital market, interest rate hikes, and the war in Eastern Europe, the private market also reacted. In April, layoffs began at privately-held high-tech companies that then spread to public companies, and technology giants, and developed into an industry-wide crisis with layoffs of more than 150,000 tech workers around the world.
Feld, it turns out, did the opposite of most of his colleagues. In September 2021, Vintage raised a large secondary fund. But instead of investing in it, Feld and his partners froze activity and temporarily halted collecting management fees for a period of time - something that, as far as is known, had never happened before in Israel. There still remained about half the investment funds from a previous fund raised in 2019 for direct investment in tech companies. "We decided to adopt a dual policy: we were cautious and we took our time," Feld says in an exclusive interview with Globes. "We're not geniuses. I don't have pretentions of being able to time the market. But our perception has always been that it's not enough to invest in a fantastic company. The price needs to be reasonable in relation to its economic parameters and its exit horizon."
While most of his professional colleagues were engaged mainly in buying stocks, Vintage was able to sell $1 billion in shares to their investors during 2021, even before the major declines occurred. "The economy has waves, ups and downs. And just as people overstate things when they’re going up, they also exaggerate when things go in the other direction, like manic-depression. But people's pessimism can make the declines worse while they ignore the fact that it’s worth investing right now."
What did you see that others didn’t, that led you to the conclusion that we’re in a bubble? And what should we watch out for in the next bubble?
"When investors decide to invest in a company based on how much money they have to invest, and not on how much money the company actually needs; when an term comes up related to value and also to ego - like ‘unicorn’ - but not based on economic parameters; when non-expert investors start entering because they think it’s a money machine and don't understand that there’s no substitute for real work ; when people suddenly submit investment proposals without doing due diligence; when investors allow a company to operate without a board of directors - this repeats itself every time. And people who have not seen a market drop say things will be different this time. And guess what? It never happens. I don’t foresee a situation in my lifetime where the up and down cycles will end. Whoever says that rises will keep on rising doesn't know what he's talking about."
An investor identity formed by Black Monday
This is already Feld’s sixth economic crisis, and nothing agitates or surprises him anymore. He started his business career in 1986 as a young lawyer in the securities sector. As a Toronto native seeking his fortune in New York, Feld was involved in preparing Canadian companies for IPOs in the US. But then came Black Monday, the day when the world's leading stock markets collapsed at their highest rate since the outbreak of the World War 1, 73 years earlier. "I had ten prospectuses on the table, but as of October 19, 1987 - that number dropped to zero. I had no public offerings for two years after that."
There is no consensus about the cause of the 1987 crisis, but Feld has his own explanation, which can also serve to explain the current crisis. "It was the junk bond era, almost every company could then issue bonds relatively easily with insane interest. With the funds raised, companies made more and more leveraged purchases and pushed the prices up - every company and every buyer could raise bonds - and this pushed prices higher and higher, until things went bust."
Feld looks at the shelf of accolades he has amassed over the years for every exit or IPO. "They have a double meaning in English. They’re called ‘tombstones’ because of the resemblance. At that time, I had a lot of tombstones on the shelf from companies that had collapsed," he says. "Two were from a company that had issued bonds, and a company that issued the previous company's bonds - both went bankrupt. It's amazing how, in every crisis period, you can see the signals repeating themselves over and over again."
Feld witnessed the dot com crisis of 2001 from Jerusalem. He immigrated to Israel in 1994, and was hired by one of Israel’s earliest venture capital funds, Israel Seed Partners. Although the fund caused losses to investors and closed in the early 2000s as part of the tech crisis, over the years, its alumni - people like Michael Eisenberg from VC fund Aleph, and Jon Medved from OurCrowd - have established themselves within the most prominent Israeli funds.
"Investors make mistakes, and our job is to learn from them," he says. "In all the five or six economic crises I have encountered, I can say there are two mistakes which repeat themselves over and over. People sometimes forget that they manage other people's money. We don’t open a single meeting at our fund without mentioning this mantra - it's a huge responsibility. It's better for us if we’re careful and don’t get carried away. At our fund, we've all seen crises."
Holding the market’s most expensive databases
Feld's exposure to hundreds of funds, thousands of partners, deals and companies, as part of his work at Vintage - allowed him to build one of the largest databases that can monitor industry activity at any given moment: the fund monitors investment trends, changes in revenue multipliers, tracks the exits of companies, the amounts the funds are willing to invest, and the gaps forming between the public and private markets.
A phenomenon that Feld saw before all others was hedge funds fleeing from the private market to the public one, and large growth funds withdrawing from high-tech. This led to continuous declines in investment and value - first at the large companies, and gradually reaching the early-stage startups.
"In the short term, I'm not optimistic and I think we haven't seen the end yet. There is still a considerable gap between the private and public markets, and some companies are still investing at higher values than the stock exchanges. I see the gap starting to close, and based on the past we can assume this will happen within 12-18 months, but as soon as it does close, a period of crazy investment will begin."
"Also, the capital available to the investment funds after they have raised money, what’s known in the market as 'Dry Powder', is much less than you think. Many of the funds raised in 2020 and 2021 invested at an incredible rate. Today, they have fewer reserves, although a few did raise capital in early 2022, but most of the funds that didn’t put money back in the market will have a hard time raising capital from here on. Those that reinvested, and have experienced teams and good companies, will do well. But towards the middle of 2023 there will be much less money chasing deals, and then we’ll see the gap shrink between private and public market."
Feld does not like being pessimistic. As an investor, he sees 2023 as one of the most profitable years for investment, as compared to previous years. The technological progress in sectors such as agriculture or food is especially encouraging to him. "Corporations have started to buy agricultural land - this is good for the industry, because these are companies looking to acquire technologies for optimization, and to provide food to many more people. In the health sector, the experts predict that, in a few decades, diseases like cancer will go from being acute to chronic. This will change global systems because people will live longer, but will also be patients for longer, and remote medicine solutions and online availability of medical professionals will become critical."
Have you seen any VC funds whose investors aren’t transferring the money they’ve committed to?
"I haven't seen any, but we will definitely see more fund investors trying to sell their holdings. The really good funds will succeed, those with an experienced team and good results will raise funds, and those that don't will have a hard time."
You must have had your failures, too.
"Obviously. We didn't understand management teams well enough. We did research and discovered that 89% of companies that had gone public or were sold for over $500 million were managed by the entrepreneur, and not a professional CEO appointed to head the company. If you don't believe that the entrepreneur can make their company great, then you shouldn't invest. And there have also been cases where we haven’t understood the entrepreneurs, but at least we learned from it."
Keren Terner, who joined you over a year ago, went back to the Knesset on a one-time basis to protect funds like yours from regulation that would reduce the involvement of Israeli institutional investors.
"I think that, given the current market conditions, there will be excellent opportunities to invest in troubled debt funds and real estate funds - but you need a lot of experience to invest in these areas, experience that can only be found at these sorts of funds. Why limit managers from taking advantage of the best opportunities just because they exceed the third-party commission budget? As an investor, I’m not looking for the lowest commission, but the best net return. The allocations made by Israeli institutional investors in alternative assets are far below those of the leading pension funds in the US and Canada, like CalPERS, for example. The reason for this, in my opinion, lies in the fact that Israeli institutions, which employ people no less talented and experienced than their US counterparts, are limited from making investments that maximize returns in the long term because of the third-party commission ceiling."
Post-heart attack soul searching in Japan
The global economic crisis, the tech sector downturn, and perhaps also the Israeli election results took a heavy toll on Feld. About two months ago, shortly before his 61st birthday, he suffered a heart attack, was rushed to the hospital, and underwent a stent placement that saved his life. He used a planned lecture in Japan as an excuse for a long vacation with his wife LeeOna, which lasted several weeks and included quite a bit of soul-searching.
His family background may have prepared him, to some extent, for this event. His father, Dr. Ronald Feld, died of a heart attack at the age of 40, and young Alan, who was only 11 years old at the time, together with his mother, were the ones who discovered his body. What happened after that was a tough battle for survival for a young widow with three children, left to pay the price for the deceased father’s big dreams.
Although his father had been a doctor, the Feld family were not rich. While studying medicine, Alan's father scrimped and saved, working nights as an inspector for the Toronto sewer system, and also supporting Alan's impoverished grandmother and aunt.
Ronald had mortgaged most of his assets to fund an ambitious idea: an innovative nursing home that would provide activities and entertainment - much like the nursing homes we know today. But his untimely death put a damper on the dream, and his business partner, who was also from the Toronto Jewish community, drained the Feld family bank account. Financial and legal struggles then compounded the family’s grief. "I don't need a wake-up call to understand how short life is," Feld says. "This year will be 50 years since my father's death, and as time goes by, I understand how much this experience had an effect on me, on who I am."
This feeling, that life is short, is expressed in the long process of passing the torch at the fund that Feld has been planning for several years, even before turning 60. After seeing the founders of many veteran Israeli funds, including Gemini Israel Ventures, Genesis Venture Partners, and Evergreen Venture Partners, failing to hand the reins over to the younger generation, Feld decided - after consulting with about 20 North American funds - that the process should happen as soon as possible. "Everyone told me we must start a decade before the transition," he says. "You need to build a strong team, from several different generations - younger and older - and start the transfer of power. It's a process that can't happen all at once."
One new rule the fund established is that partners will not take part in raising a fund whose investment period begins after the partner has passed the 62 years of age mark. Therefore, the $631 million fund that was raised in October may be the last in which Feld is a full partner. "I'm staying here, I'll manage the money I committed to manage until I return it to the investors, and I take it very seriously, but it's important to me to clarify the process to the investors so there will be no surprises."
When he turns 65, Feld intends to slow down, work part-time, and let the other partners in raise the next funds. "The key is to build two generations ahead, and recruit people who are smarter than you," he says.
Foreign investors and the new government
Feld was born in Canada and raised with Zionist values. For almost 30 years his mother, the musicologist and activist Judy Feld-Carr, planned and executed an extraordinary clandestine mission to rescue Syrian Jews. "Miss Judy", the code name she adopted, developed connections in Syria, operated her own network of agents, raised funds, paid bribes, and employed smugglers. By the end of the 1990s, she had managed to rescue more than 3,000 Syrian Jews. "It affects me to this day," says Feld. "In 1974, after we almost lost our house, my grandfather helped us a little. We rented an apartment in Jerusalem on Hehalutz Street in Beit HaKerem, and I fell in love with Israel. From the age of 12 I told myself that I had to come back here." His connection to Israel was probably what inspired him to sign the tech workers petition stating that the coalition agreements and, in particular, the judicial reform promoted by the new government, will cause foreign investors to stay away from Israel.
Have you heard questions or misgivings from foreign investors?
"What’s happening now is that it is very easy to sell hatred, and instead of trying to find a common language, we’re doing exactly the opposite. We received support from US Jews because they viewed us as having common values. But what we’re projecting today is the opposite of those common values, and this extremism alienates most of the Jewish world, which is also beginning to wonder about us."
Can you give an example of the questions you get?
"A Jewish investor active in the community said to me, 'Listen, if this is how the State of Israel treats Conservative and Reform Jews, then why should I continue investing in Israel?' And you know what? I expect we'll get more questions like that. [Menachem] Begin, the father of the Likud, wrote amazing things against the tyranny of the majority, the trampling of minority rights and religious coercion. It's amazing to read what he wrote."
You are a religious person; your [Orthodox] sector is identified with the right-wing bloc. Do understand them?
No. As a religious person, I think coercion makes people hate Judaism. Mixing Judaism with politics is also bad for Judaism. I know many ultra-Orthodox folks who are more concerned with the mitzvot between people, and less with the mitzvot between man and God. I also know many ultra-Orthodox who aren’t concerned with the mitzvot between people. So, are they any less Jewish? If people want to build relations with the US solely through support from the evangelicals - good luck to them."
Published by Globes, Israel business news - en.globes.co.il - on January 29, 2023.
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