Inexpensive money and mind-blowing exits have consolidated Israel's positioning as the Startup Nation, as the yearning for financial stability has driven many Israelis with a dream to become entrepreneurs. While the success statistics are not promising, the entrepreneurs in the venture capital industry continue to overlook the risk and focus on the vision instead.
A comprehensive survey conducted by the investment company Plus Ventures, tries to outline the profile of the typical Israeli entrepreneur of 2016. The survey conducted for “Globes”, using an online questionnaire, encompassed 550 Israeli entrepreneurs, of whom 75% are the leaders of pre-seed and seed companies and 25% run mature companies that have had at least one significant capital raising round (Round A or an advanced round). The “average entrepreneur”, according to the survey, is a secular male who lives in central Israel. He is married with two children and unsurprisingly, dreams of an exit.
Plus Ventures chairman Yossi Moldawsky says, "Around 1,000 new startup ventures are founded in Israel every year. We see the Israeli entrepreneurs joining new trends, acquiring deeper technological knowhow, new investors entering the market and unusual fund raising volumes, but the “production” of entrepreneurs has not changed dramatically. In fact, more than anything else, Israel is an outstanding producer of entrepreneurs. The most significant change shown by the survey involves the aspirations of the entrepreneurs: the huge successes of companies like Outbrain, Taboola, ironSource and Kenshoo has caused a conscious change in the Startup Nation: the entrepreneurs want exits, but are dreaming of becoming a unicorn company [a company valued at over $1 billion, I.R.]
The survey also looked at the gender and age of the Israeli entrepreneurs. Women are clearly underrepresented in this group with 86% of the entrepreneurs being men and only 14% are women. The survey further reveals that startups are for the young generation: over half the respondents (52%) were 25-35 years old; 29% were 35-45 years old; and only 12% already had celebrated their 45th birthday.
7% live in Southern Israel
The survey which further looked into the marital status of the entrepreneurs shows that most of the respondents (56%) are married, 39% are single, 4% are divorced and only 1% are widowers. Half of them (48%) do not have children yet, 12% have one child; 19% have two children and 21% have three children or more.
While the high tech industry is based to a large extent on knowledge, some well-known entrepreneurs never completed their academic education, including Bill Gates and Mark Zuckerberg. Academic education, shows the survey, is not a prerequisite for becoming an entrepreneur, with 24% of the entrepreneurs reporting to have completed only high school education. Most of the entrepreneurs (51%) have a first degree, 23% have a master's degree and only 2% have a Ph.D. or a professor status.
The survey also looked at geographical distribution and found that the majority of the Israeli high tech scene is concentrated between Gedera in the south and Hadera in the north. 79% of the entrepreneurs reported they live in central Israel, compared with 14% in the north and 7% in the south.
Is a military career in specific units (primarily Unit 8200) correlated with becoming an entrepreneur? Surprisingly, only 27% of the respondents did their military service in technological units, whereas 33% served in field units and 4% did not serve at all.
"This information is a surprising finding," says Duby Lachovitz, head of the Explore Incubator which is owned by Plus Ventures and 2B Angels. "It is commonly believed that the technological units of the IDF are the producers of a large portion of the entrepreneurs of the high tech industry. This demonstrates that the startup dream is not reserved only for the graduates of these units. Based on my experience, leadership, persistence, execution and similar qualities are just as important for the startup's success as technological excellence."
Funding is a critical aspect for any business and even more so for startups, which have no revenue in their early stages. How difficult is it for startups to raise funds these days, a time considered as one of the best periods for Israeli high tech? The respondents to the survey, which included those who succeeded in raising the funds, draw a pretty optimistic picture: approx. 40% raised the seed capital within only three months period; 41% got the check within six months period and only 19% needed more than 12 months.
21% get the family to help
Fund raising plays an important role in the future of the startup company. One important aspect is how deep the investors' pockets are and whether they are capable of injecting more funds down the road. When asked what their preferred sources for capital raising are, only 7% preferred the VC fund option. 32% preferred the individual angel; 29% preferred distributing the risk on several investors, 21% preferred to take money from friends and family and 11% said the Chief Scientist is their preferred source for funding.
Commenting on these findings, Duby Lachovitz says, "The low interest rate environment drives the investors to seek alternatives for the money and has brought many investors into the domestic industry. There is plenty of money available today for the entrepreneurs and the recent exits by Israeli companies boost the investors' confidence. We see that startups in their early stages prefer raising the funds from an individual angel or few angels or from their close friends. This is due to the obvious fact that it is more difficult to raise from VC funds in the earlier stages. More mature companies, however, need to raise the funds from VCs because the amount of funds involved is much larger."
One dilemma faced by successful companies is the need to choose between growth and a relatively quick exit. What do the entrepreneurs prefer? 41% would like to distribute the profits; 30% hope to sell the company and 29% are aiming high, dreaming of an IPO. The survey examined the level of optimism of the respondents and found that 59% believe they will make it to the exit.
The findings also show that most of the younger (up to 25 years old) entrepreneurs dream of an IPO whereas the 55 years old and above prefer an exit (40%). Moldawsky says it seems like the industry is maturing, "While a fast exit was the entrepreneurs' first priority a decade ago, things have changed: we are seeing quite a few entrepreneurs who are looking to build an industry in Israel and are in no hurry to sell."
A dozen new investments every year
Plus Ventures is one of the most active investment companies in Israel in the venture capital industry. Specializing in early-stage companies in the areas of software, mobile, new media, Big Data, cyber security and IoT, Plus Ventures operates with three investment arms: Plus Express, with investments of up to $100 thousand in pre-seed companies within a time frame of 72 hours; Explore, Dream, Discover Incubator which invests NIS 2 million in young innovative ventures, and Plus Seed, which invests in young ventures prior to their entrance into the market.
Plus Ventures' portfolio comprises over 35 companies, including YOTPO, WSC Sports, CallVU, Meerkat and more. Over the past year, the company invested in 12 new ventures (excluding additional follow-up investments), including in cybersecurity companies DocAuthority and Hermetic. The company has invested also in Articoolo, which develops a technology that leverages artificial intelligence to simulate the writing process of a human writer and generates original textual content on any area; Mobila TV which helps journalists on the field to capture events in broadcast quality and GetJob, which arbitrates between employers and employees with an application, and more.
Published by Globes [online], Israel business news - www.globes-online.com - on February 16, 2016
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