By the age of 33, Liad Agmon had notched up two successful exits and a decade later completed the deal of his life by selling Dynamic Yield to McDonald's for $300 million. Today as managing director of Insight Partners in Israel, and as an investor he is a little less certain of himself. "Only in another 10 years will I know if I have been a good investor," he says.
"In Israel we have more than 100 portfolio companies. We have invested almost $6 billion in Israel. Over the years personal friendships have been created between partners at Insight and the CEOs and he partners in Israel, and Insight has earned a great deal of money from its investments in Israel, which were excellent. This is what led Insight's founding partner Jeff Horing, two years ago to ask me to join and lead the office in Israel. During that period there was a great deal of noise being made by the foreign funds that were here - they would fly in, write ten checks and then return home and disappear. But Insight took a decision: they wanted a presence on the ground and to strengthen their commitment to the local market."
Agmon spoke to "Globes," in the "Submarine" podcast last week, here is a shortened version of what he said.
Agmon observes that no AI company has been founded in Israel on the scale of OpenAI, which developed ChatGPT, and there probably won't be. On the other hand, France for example has Mistral AI, which is giving OpenAI a fight.
"But the fact that Mistral AI did succeed was because its founders came from the elite laboratories in the field of AI (Google and Meta), and they also happen to be French. Companies that broke ground in the field did so through entrepreneurs who are prodigies in their field - a singularity."
But Israeli tech has been able to demonstrate singularity in other areas, like cybersecurity for example. In AI there are companies that have succeeded in distinguishing themselves like Amnon Shashua's AI21 Labs, but not on a sufficient scale.
"We did not have an Israeli Sam Altman (OpenAI CEO and founder). This is an entrepreneur with phenomenal ability to raise money that ran the company under the radar for four years, without pressure from investors to produce revenue. And then when he launched ChatGPT at the end of 2022, he stunned the world. He is a rare entrepreneur and it's a super rare situation."
He says, "Israeli companies have not been able to grab a place in the deep infrastructure of AI and in the world of the large language models (LLM), but the good Israeli entrepreneur usually knows how to identify problems that require a solution. They then know how to develop the technology to solve it. Israeli entrepreneurs understand that there is a crazy tiger that needs to be ridden and we know how to solve problems in the real world. In enterprise software, in medicine and all sorts of areas, AI will be the engine.
"The question is whether they will succeed in developing companies that know how to preserve their competitive advantage over time. If a company develops a product that is simply a UI above a ChatGPT infrastructure what will prevent a rival from doing exactly the same thing."
When you say that Israel might have missed the boat in the field of AI, you in fact relate to it on two levels - the industry missed it because we still don't have major players in this field, and the country also missed it.
"Israel is missing out big-time in the field of AI. This is a crazy arms race and the country is run by people with personal agendas. AI is a great opportunity and also a great risk, and for that reason that it is the weapon of the future".
Is the idea of start-up nation still valid?
"Silicon Valley still has a lot of respect for the ecosystem and Israeli entrepreneurs. That began in the 1990s and today we are in 2024. There is a crazy startup scene in Asia, in Europe there are strong startup centers. The world has become flat and there are people sitting in villages in India and uploading code to everywhere in the world. So over time Israel's uniqueness is declining."
"Sitting on a mountain of money after not investing for two years"
Let's talk about the influence of the war on the industry. Insight Partners, where you are a partner, is a US fund and the founding partner Jeff Horing has close connections to Israel and so the investments are continuing. But Israeli venture capital funds are struggling to raise money and startups face challenges. The negative sentiment against Israel in the world is leaving its mark.
"The Israeli funds that are trying to raise money from investors around the world are experiencing a major drama, which will directly influence local high-tech, because less money will be invested here. This could be not only because of the concrete risk of the war, but also because of the damage caused to our image in the world. We hear more and more about LP'S (investors in funds) who say: I don't want to invest in Israel. Maybe I have investors from the Gulf countries, so I want to stay away from that.
"As for the funds themselves, the foreign funds among them who don't know Israel, could be deterred by the geopolitical sentiment. But there are many like Insight that are physically located in Israel, and they are not afraid of the general sentiment."
Insight Partners has invested almost $6 billion in Israeli companies in recent years and had had great success with some of them, for example, Wix, Monday.com, JFrog, and Wiz".
In the last two months, there has been an awakening in the market, which is also evident in the field of exits: this month, three Israeli cybersecurity companies were acquired for a cumulative amount of $900 million. Also, we are starting to see more companies going out to raise money. Those who went out in the last two months quickly raised handsome sums, as if we were in 2021. How do you explain that?
"Venture capital investors have hardly invested for two years, after the high of 2021. They are sitting on mountains of money. And in the end you want to invest and when you see a good company, you say: Oh, finally."
"I am not the person you would take to develop the next OpenAI's algorithm"
Agmon also speaks about the challenges he faces as an investor. "In venture capital funds almost all the profits come from 10% of the investments. It's frustrating, because your chances of hitting the spot are relatively low. Success is finding the next Wiz, the next Monday, the next Wix, when they are small.
"I have been a professional investor for the past two years. Only in ten years will I know if I was a good investor or not. Maybe I am a flop."
When I interviewed you in the past you were a young entrepreneur, 33 years old with two exits under your belt. Onigma and then Deliver. Nine more years passed and then you completed your most significant exit when you sold Dynamic Yield to McDonald's for $300 million. Your biggest concern was that as you get older you and became 45 you would become less relevant. You are 47, so how do you see things today?
"I think I'm less sharp than I was in my 20s. I'm probably not the person you'd take to develop the next OpenAI algorithm, because there are 22-year-olds faster and smarter than me. But what makes up for my decline in speed and mental acuity is the more experience and abilities and more softness in my personality."
Are you still afraid of being irrelevant?
"Yes, I'm still afraid of it. But when you talked to me 14 years ago, the fear of losing relevance was also related to financial anxiety. The fear was that no one would want to hire me and I wouldn't be able to make ends meet. Fortunately, I made enough money, so I have been freed of that fear."
After earning such major amounts, from where do you get the hunger to continue working?
"This is a real problem. It would be easiest for me to found another startup, but if I did that it would be an escape, it would be to do the same thing. I'm trying to develop in other directions. I lead groups and give retreats, which are a combination of meditation and group sharing. It's work of body and mind. It's work of body and mind. The complete opposite of high-tech."
In 2020-2021, Insight Partners was the most prominent investor in Israel tech industry, elevating several companies to "unicorn" status, such as Wiz and Lightricks. But Startup Nation Central reported at the beginning of the year found that Insight has declined from funding 40 investment rounds in Israel in 2022 to only 11 in 2023. A few months ago, the "Financial Times" reported that Insight's new 13th fund managed to raise a few billions, much smaller amounts compared with the past.
"What happened is that the best companies all over the world, including in Israel, raised a lot of money in 2021 and in the first half of 2022, and they simply weren't out to raise money," Agmon explains. "In 2023, I think you can count on two hands at most the number of good Israeli companies, which are growth companies, which went out to raise money. They had money, they knew that the market was in a difficult situation and the values would be lower, so they just waited. In the near future, the market is going to get very hot and Insight is super-active in Israel."
Talking about the 13th fund, Agmon says, "I don't deal with raising funds. The fund will probably won't be as big because the market has changed. In high-tech investments are for the long-term, we don't look at a year or two and say, 'something here is broken.' Since 1995 there are not many entities in the world that have produced the kind of returns we have shown. As someone who leads the investments in Israel, I feel confident in the continuation of our investments here."
What are the parameters you look at when looking at investing in companies?
"First and foremost, the company has to pass a threshold that indicates that it has Product Market Fit. That is, the product has a market and customers who are willing to pay for it. To test this, you have to talk to customers and ask them, for example, why you chose this product and if you replaced a previous product with the company's product. If the company doesn't have 15 customers that I can talk to, it's probably too early a stage for us to invest. There are customer retention metrics that are even more accurate than talking to customers like 'gross retention' and 'net retention'. They look at how many of the customers stayed with you over time and for every dollar you have at the beginning of a period, how much of it is left after a few years. Regarding 'net retention' it could mean that 20% of your customers stop using the product in a certain year, but the existing customers increased their spending by 40%."
"Companies are preparing a contingency plan for emergencies"
If we get back to the impact of the war on the industry, we have seen Israeli companies that have moved various teams abroad for a long period to allow continuity at the company.
"Yes. There is a startup that I know that told 12 of its employees, 'leave Israel and we will finance your stay in a European capital. Move with your families. We cannot take a chance that you won't be available.' Because of the escalation on the northern border and concern about national infrastructures being damaged, many startups have built contingency plans for a situation in which they would need to survive without electricity for two weeks. There is genuine fear about this.
"Do you know the number of employees that I employed over the years that relocated to the US and they didn't come back? About 5%-10% of my employees over the years no longer live in Israel."
"I unfortunately live with the awareness that my grandchildren won't grow up here. From my perspective Plan B (emigration from Israel) is happening. The question is when."
Are you doing anything about it?
"I am Israeli and my wife is Israeli (the TV presenter and producer Shaily Shindler), my children are Israeli and we love living in Israel. Our roots are here. To be an immigrant is a tragedy."
What is the red line after which you say 'I'm leaving'?
"At some point life here will become so unbearable that we'll have to make a decision as a family whether we stay or not. When will that be? I don't know. Humans have a psychic ability to adapt. You probably know the story about the slowly warming frogs. A big part of my family perished in the Holocaust. They were heated over a small fire and they didn't notice until it was too late. I think every Jew has a collective trauma of the Holocaust that makes him ask: when is the moment when you have to pack your bags and escape?
"If before October 7 we still said: we will live with all the fratricide and politics, suddenly the external threat becomes more tangible. Sometimes people simply act out of panic.
As somebody in contact with people abroad and who even studied at an international high school in Italy, Agmon identifies anti-Semitic sentiment abroad. "Antisemitism is often latent and people aren't always aware of their biases. Recent events have re-opened the antisemitism Pandora's box and it's scary. I don't think that the good people who live in Israel deserve this, but I do think that the actions of Israel's elected government have contributed to the current negative sentiment. Israel's government does not think about the country and its society as a whole. It is pushing the Israeli high-tech engine, which is an important part of Israel's GDP, off the cliff, and it will soon curtail the government's ability to spend".
But Agmon also has an optimistic view point regarding the high-tech industry in Israel:
"The ability of Israelis in the high-tech industry to deliver technology at a very high level and very quickly is something inherent in the DNA of the local industry. While I am pessimistic about the direction that the state of Israel is heading, I remain optimistic about the ability of the Israeli industry to continue growing companies that will be super-interesting and will lead in their field and globally."
Published by Globes, Israel business news - en.globes.co.il - on March 31, 2024.
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