British scientist Sir Francis Galton made a fascinating discovery in 1906: while visiting a livestock fair, he stumbled upon an intriguing contest. An ox was on display, and the villagers were invited to guess the animal's weight. Nearly 800 participated and to his surprise, the median of their guesses was within 0.8% of the weight measured by the judges. Dr. Lior Zoref demonstrated the same principal in his 2012 TED talk, coining it "Wisdom of the Crowd". Now, Oded Agam is proposing a new principal: "Wisdom of the Experienced Crowd". In this case, if the principal is proven, it may be worth a lot of money for a long list of investors. Agam told "Globes," "I’ve learned that pluralism and the combined wisdom of many diverse professionals helps make better decisions".
A year ago, Oded Agam, Yoav Hochberg, Yosi Govezensky, Ronny Korner and Ido Lapidot established a new investment group - NextLeap Ventures. All five co-founders are former senior Intel executives. What differentiates this investment group is that it leverages the combined wisdom of dozens of former Intel employees to make their investment decisions. If there is such a thing as "Wisdom of the Experienced Crowd," then dozens of former Intel employees that selected five startup companies (in two cycles) and invested their own private money, may become quite wealthy.
Here’s how the system works: the five co-founders conduct the preliminary screening, evaluating hundreds of startup companies in a variety of domains, meeting with several dozen startups in each cycle and diving deeper in their analysis, ultimately selecting the most "investment worthy" startups - five in the first cycle, seven in the second one. So far, this is much like a standard startup contest. However, what happens next is quite different and unique. The top startups come to a Pitch Night, held on the rooftop of APM & Co. - Amit Pollak Matalon Law Firm, where more than 80 former Intel employees gather.
The atmosphere is quite festive, people exchanging ideas and consulting with each other as if they were invited to the National Security Council. Oded Agam introduces the startups one after the other. The CEOs of the startups passionately deliver their exciting pitch. The guests, all former Intel employees, have the opportunity to talk with each of the CEOs. Then the voting begins. Three startups are selected by the audience, based on the wisdom and experience of the diverse group of high-tech professionals. Following the Pitch Night, the audience is given the opportunity to join an investment in one or more of the winning startups.
Agam said, "We strongly believe that the quality of the human capital of Intel employees is extremely high, in Israel and worldwide. Intel is a company with more than 100,000 employees, more than $70 billion of revenue, and more than 50 years of history. It is like a country with its own culture and language, and is an excellent school for any high-tech person. There’s a rigorous process of selecting the best people to work at Intel - almost everyone is exceptional. We leverage the wisdom and experience of the five of us to select the best startup companies to present at the Pitch Night. All of them are excellent companies, in which we feel comfortable investing our own private money. We use the "Wisdom of the Experienced Crowd" to augment the selection process. We believe that the top three companies selected are exceptional and have a good probability to succeed. Folks who worked for Intel know something about hi-tech."
Do former Intel employees know better than the average person or the average venture capitalist?
"During my many years in high-tech - 11 years in startups and 11 years in Intel - I’ve learned that one person cannot know it all and combining the knowledge and experience of a diverse group of people, improves the strategy, the decision making and the execution. Service companies are quite different than product companies. You can predict the probability of success of products, from a user-business-technology perspective, if you’ve had the experience of defining, developing and marketing winning products that generated billions of dollars of revenue and profits.
Decisions are taken by the group
The five co-founders are colleagues and friends from Intel. Yoav Hochberg led the Strategic Planning and Business Development Group. Ronny Korner led Hardware architecture and design teams, and later led business development. Yosi Govezensky led Software Development teams, and in recent years led the Strategic Outlook - a holistic view of where the world is going in 10 years. Ido Lapidot came from the manufacturing world and later became an expert leader of Inventive Thinking.
NextLeap Ventures raises funding from four sources: the co-founders invest their own money; former and current Intel employees, private family funds, and a German investment firm - Dive Digital GmbH. So far, NextLeap Ventures invested $1.5 million in five companies: GuardKnox brings cybersecurity solutions to automotive; Zuta-Core brings cost reduction to datacenters cooling, Magentiq Eye brings deep learning and computer vision to colonoscopy.; Montfort brings artificial intelligence to neurology; and TechsoMed brings improvement to cancer tumor removal through AI.
Are you a venture capital firm?
"Not exactly, a venture capital fund first raises a fund and then selects the companies in which they invest. We decided to do it differently: we think it makes more sense, from the investors’ perspective, to first select the companies and then leverage the wisdom and experience of former Intel employees to select the startups with the best probability to succeed."
In the venture capital model, the investors know that 9 of 10 startups will fail. Do you believe your investors are ready for this?
"That is correct. To minimize the risk, we developed a model that combines the benefits of crowdfunding with those of an angels investment club. Former Intel employees have money to invest; however, it is not millions of dollars. Research shows that if one has a financial portfolio where they invest 5% of the portfolio in private growth companies i.e. startups, one can significantly improve the overall Return on Investment of the portfolio. Nevertheless, the variance is very high. The average time to exit is 4.5 years with an average return of 2.5x. This is the average; however, the median is a loss. This means that most investors lose their money, and the ones that succeed earn much more than 2.5x. Therefore, it is extremely important to invest wisely in a portfolio of startups that is carefully selected and not just throw darts and hope that 1 out of 10 will hit the target."
After the companies are selected during the Pitch Night, the fund raising begins. For each startup company a Limited Partnership is established, where NextLeap Ventures is the General Partner and the investors are the Limited Partners. Most decision are taken by the Managing Partners; however, some decisions require a majority vote of the Limited Partners.
In parallel, the negotiations with the startups are conducted by NextLeap Ventures. As part of the investment, NextLeap Ventures typically gets a seat on the board of the startup company, or an observer seat. According to Agam, NextLeap Ventures continues to work with the startup companies, providing them with support and consulting in all relevant areas from strategy through business and technology, as well as human resources. "We had a deep dive with one of the companies where 25 former Intel employees met with the CEO, and someone asked him: "Why do want NextLeap Ventures to invest in your company?" And the CEO pointed his hand around the table and said, "You see all the brain power here? I want you to work for me, and if you invest in us, you want your money to succeed."
Improving Return of Investment
Agam worked at Intel for 11 years. Prior to that, he worked in 3 different Israeli startups for 11 years - RADCOM, MaxPO and Discretix. The relationship he formed with Intel Capital brought him to Intel in 2006. Agam and his friends were part of the global R&D group of Intel. Agam says that during the ten years between 2006 and 2016 many of Intel’s strategies and innovations were developed and led by the Intel Israel team. "The five of us were part of the same group at Intel, and we were responsible for defining the products that generated more than 80% of Intel’s revenues globally. I was the first lead Strategic Planner for the ATOM™ CPU product line, which generated more than $1 billion of revenue in its first year. From the perspective of startups, that is very impressive; however, at Intel, that is not such a big success. Later I led the definition of the Skylake product line which generated more than $30 Billion for Intel and was a huge success, even at the Intel scale."
Agam promoted within Intel the move to SoC (System on a Chip) and led the definition of Intel’s first SoC for Smartphones. At the time, Intel was in discussions with Apple about the iPhone, however things did not work out: "The product was supposed to hit the market in 2010, and due to development hiccups, it was launched in 2012. The two-year delay made it irrelevant and this is part of the reasons why Intel does not play in the Smartphone Processor market."
During his last 5 years at Intel, Agam led the Strategic Technologies Group, which initiated incubation of "startups" focusing on disruptive technologies. His team’s methodology included developing an annual Strategic Outlook, describing how the world will look like in 10 years, and then identifying technologies needed to make this future possible. The most promising Long Lead Technologies (LLT) -domains that are both transformative and disruptive - were selected. Agam’s team helped mature the strategies and technologies, working with Intel product teams, "We basically established startups within Intel."
You’ve led very influential programs at Intel - why did you leave?
"It was a great pleasure and honor, however, I wanted to do new things. My thinking was - ‘let’s leverage our relevant expertise and experience for investments in startups’. At NextLeap Ventures, our model improves the probability of success for startups, thereby improving the potential return for our investors."
Published by Globes, Israel business news - en.globes.co.il - on December 4, 2018
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