Serial entrepreneur and investor Jon Medved is the man who has led the OurCrowd investment fund - something between an angel-investor club and a crowd-funding project - for the past two years. This unconventional model has proven very successful and is succeeding in raising impressive sums for Israeli start-ups, primarily for young companies. The idea is to turn to private investors, not venture capital firms, and enable them to invest, practically directly, in a range of companies. OurCrowd’s business model is based on relatively small investment sums, from thousands of investors. Medved says that the fund’s potential is not yet close to being realized.
Medved recently received the Nefesh B’Nefesh Bonei Zion Prize, a prize that is awarded to olim (immigrants to Israel) from English-speaking countries who have made a significant contribution to the state of Israel. Medved received the Entrepreneurship & Technology prize.
Since 2013, OurCrowd has invested a total of $120 million in 70 start-up companies in various fields. Medved believes that in 2015 alone, $120 million will be invested through OurCrowd, and his ambitious goal is to reach investments totaling $1 billion annually. Today, 80% of the money is invested in Israeli companies, but in the future, with growth in investments, Israel will collect 50% of the money.
Active in biomed
A fund that invests $120 million each year is a very significant player in the local venture capital landscape. The large funds in Israel generally raise between $100 million and $400 million, which is invested over a seven-year period, or longer. A report on the biomed market, which was published in honor of the IATI Biomed 2015 conference, indicated that OurCrowd has, in the past year, become one of the most active investors in biomed, in terms of the number of investments. The fund’s portfolio already includes twelve biomed companies, including ReWalk Robotics Ltd.(Nasdaq:RWLK) (which recently held an IPO and whose shares were distributed to OurCrowd investors as a dividend, of sorts), TheraCoat, HIL Applied Medical, ElMindA, Consumer Physics, and others.
The fund is open to investments by “eligible investors,” in other words, any Israeli who has NIS 8 million of equity, or an annual salary of at least NIS 750,000. In the US, investors are eligible if they have $1 million in assets, or an annual salary of at least $200,000. In both cases, investors are in the top decile.
“Despite the fact that the group of potential start-up investors in Israel includes tens of thousands of people, only one percent actually invests in them,” explains Medved, “It may seem like we know a lot of angel investors, but in Israel, it’s a community of just a few hundred people. The rest invest in stocks, or just put their money in the bank, or invest in real estate and oil. They don’t want to, and can’t, bang their heads against the wall trying to become private angel investors, and they don’t have the necessary capital to become venture capital investors.
“Despite all the excitement about ‘Start-up Nation,’ investment in these companies was a discipline that was clearly defined and limited to a very specific community. We are breaking down these walls. We open opportunities for the entire group of eligible investors, while their initial commitment is just $25,000.
“The investor is the one who decides which companies to enter. We are the ones who guard the money, who select the opportunities, about 2% of those we see. Each company that’s included in our portfolio defines its desired fundraising round with us, and first gets 5% from OurCrowd itself. The rest of the investment round is open to our community of investors, who make investments in NIS 10,000 increments. The opportunity is open to for one week, and those who ask first receive priority, though there is also allocation. The investors receive a business plan from the company, our analysis, and a video presentation made by the company’s CEO, with a Q&A session.”
The community of investors currently includes 8,000 people, from 110 countries. The majority of investors are from the US and Israel.
“I have been on both sides of the fence in my life; I’ve been an entrepreneur, and an investor. I founded a company called Meret Optical Communications, which was sold to Amoco in the 1990s. After that, I took part in founding Vringo, which had an IPO on the NYSE (and which currently has a market cap of $61 million), and as an investor I have been an angel investor, as well as founder and general partner of Israel Seed Partners from 1994-2006, through which we invested in 60 companies, such as Shopping.com, MobileAccess, and Compugen. I started OurCrowd two years ago,” explains Medved.
OurCrowd works with the companies just like any other venture capital firm. OurCrowd may invest alongside other funds or angel investors, may lead an investment round, and, on rare occasions, may be a sole investor. The total investment is not necessarily small - investment in a single company can reach $12 million.
Mentors to companies
One of the fund’s top goals is to encourage the investors to be active friends in the connection-network for the start-ups. The community consists of 8,000 well-to-do, well-connected people, and the goal is to be able to send out a question like ‘Who do you know at Medtronic?’ and reach various parties in this manner. The investors may also serve as mentors for the companies.
“We asked ourselves how to incentivize the investors to help in this way, and decided to do this by, among other things, offering preference in new investments to investors who offer a lot of help.”
Most of the companies that OurCrowd has invested in are still small and unknown, and after two years of activity, it’s hard to estimate its success or the fund’s yields, though Medved says that more than half of the companies have already held second investment rounds. “We, of course, hope for exits, but we have no limit on when it should happen,” he says.
The fund itself has 70 employees, which is a lot for a fund. “I am happy to be both the founder of the company, and the investor. In effect, in this model, I am both investing, and building something new. I am proud of the fact that I am responsible for the creation of 70 new jobs in Jerusalem. Our activity is based on the strength of the Israeli start-up community. As a Zionist, it’s important to me to build a public offering, based on Israeli start-ups, that no investor in the world, Zionist or not, can say no to.”
Published by Globes [online], Israel business news - www.globes-online.com - on May 27, 2015
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