"On the spectrum of risk-aversion to risk-seeking, I am more on the risk-seeking side," says Sarit Firon, a leading investor in Israel's technology industry, who now heads a new VC fund - Team8 Capital. Her record, which includes exits worth a cumulative $4 billion and personal angel investments estimated at several million dollars, clearly shows she does not belong with the faint of heart.
I may be stereotyping, but women are believed to be more on the risk aversion end. Is that correct? There aren’t many women investors in the high tech industry, either.
"It is true that there are more women who are averse to risk than there are men. It may be due to the fact that women have a more realistic outlook, with both feet on the ground. They want to provide security for their families and maintain the family unit, which often translates into ensuring economic certainty.
"Why do I like risk? That’s just how I am, I can’t explain it. Looking back, I don’t think I took risks that could have caused everything to collapse - my risks have always been calculated. At the same time, I feel comfortable with risk, and I’m not devastated when it becomes clear that a certain risk is more significant than I previously thought. I even enjoy the adrenaline that comes with it."
It is possible that Firon likes risk-taking because her first angel investment, $140,000 of her own capital, turned out to be a very worthwhile risk indeed. In 2012, she invested in Datorama, a platform that analyses the effectiveness of advertising budgets for advertisers in a range of media channels. When Salesforce acquired Datorama in 2018 for $800 million, her investment grew overnight to $14 million. In other words, 100 times her initial investment within just a few years.
She says the idea behind Datorama attracted her right away. "I understood the massive potential of the idea, which resolved a major problem that didn’t have a solution at the time. The effectiveness of digital advertising was not clear at all in those days. It was not even clear what a company needed to do to create a digital presence: should it advertise in print? Banners? Social media? Digital advertising is carried out in different countries, currencies, campaigns, products, and branding. The idea was to automatically integrate all of these channels and to try - with lots of artificial intelligence (AI) - to identify a common denominator for all of these variables, and so to provide a clear picture for clients' decision-making."
And yet, before then you hadn’t invested in companies. How did you all of a sudden decide to go for it?
"I didn’t even think about it. I knew the founders, and I saw a team that knew this world inside out. They were smart, hardworking, and very resilient - and founding a start-up is a rollercoaster that definitely requires resilience. When I talked with the team, I realized that I had always been a kind of investor, only that I hadn’t invested with money, rather I had invested myself in choosing where to work. When I talked with the team, I realized that I had always been a kind of investor, and that I had deliberated in the same way as an investor would when choosing where - or where not - to work.
"At some point in our conversation, I told them, ‘if you accept angel investments, then I'll invest too.’ Two hours later, Ran Sarig who was the CEO (and co-founder along with Efi Cohen) called me to ask, ‘Were you serious?’. I even surprised myself and said, ‘Yes.’ I decided to invest, as well as work with them as an active member of the board. The money was a by-product. I worked with them as I would want an investor to work with a company. After all, I have been raising capital from investors for many years, and usually we wouldn’t get any help from them, we were just happy they weren’t interfering."
$140 thousand is a substantial investment, especially for a first investment as an angel.
"True. Initially, I talked with them about investing $50,000, but the more we talked, my intuition - or in other words, my experience - told me it was the right move to make in all respects. In retrospect, I’m sorry I didn’t invest more, but it scared me, after all it was our own money. At some point, my husband asked me, ‘are you sure?’ and I said, ‘Yes. I don’t know why, but I am.’ He went along with me. Maybe I would have put in more had he been more enthusiastic about the whole thing."
Firon’s confidence must have been contagious, since it was she who brought the other investors to the seed round. The ensuing rounds also included two big venture capital funds, Marker and Lightspeed. Then came the offer from Salesforce. The software giant offered $800 million, making Datorama, which until then had attracted only $50 million in investment, into one of the fastest and most impressive exits of the past few years in Israel.
From Herzliya East to Herzliya West
The interview with Firon takes place at a time when offices are still mostly empty because of Covid-19. We met at her home, on the west side of Herzliya. She says that it’s only as she looks back that she realizes how symbolic this full circle she completed really is. She grew up in Shaviv, a poor neighborhood on the east side of Herzliya, whereas today she lives in a beautiful house in the western part. The works of art in her home, however, are not nouveau riche acquisitions, but sculptures of her own creation, mostly of female figures.
Asked about her childhood, Firon does not rush to describe her family as disadvantaged. "As a child, I did not notice it very much. I only realized it at a later age."
Her father, who worked in delivering gas cylinders to people’s homes, came from a Hungarian family, which Firon described as "distressed". At a young age, he was sent to the Shfeya Youth Village. Her mother grew up in a family of five children, lost her father when she was two years old, and came to Israel from Egypt along with her five siblings and mother, who remarried a widower. He too, had five children, and they all lived in Pardes Katz, a poor neighborhood in Central Israel.
As mentioned, Firon grew up in the Shaviv neighborhood of Herzliya. "We didn’t learn anything about business at home," she says, "But my mother instilled in me a certain sense of feminism and modernity." She says that despite the difficult economic situation, her parents bought any encyclopedia that they could find for the kids, who liked to leaf through the volumes. "It gave us a feeling of an educated home, despite everything. We had a great deal of respect for those books. Every Passover, we would make sure to dust and air them, then put them back on the shelf."
After a few years in Shaviv, her mother decided that it was not a good neighborhood for raising children. The family took a loan and bought a flat in Ra’anana. "All my life, I've experienced a shiver each time I hear the word ’mortgage’. It was because of the mortgage that we could not afford clothes or pay for school outings. But we lived in a nice neighborhood and I did not feel any different from my friends. The social parameters were different then. Ra’anana had an atmosphere of an agricultural community, and children were not judged by the finances of their parents. I was a good student and an outgoing child, and was a leader in a youth movement.
"I also attended every afterschool activity I could, paying the fees with money I earned babysitting or cleaning the lobbies of residential buildings. Before every youth movement camp I had to work and save money, and when we had school outings I would ask the school to allow me to pay in installments. But it never made me feel embarrassed or ashamed. I did what had to be done. It was only later in life that I realized what an economic gap there was between my family and my friends’ families."
Firon was drafted to an electronics job for her military service but found herself in a unit with civilian employees of the army. "And I came there to meet young soldiers, not 40 year olds who then looked ancient to me." She went to officer training school. During her service as a human resources officer in the Ramat David air force base, she met her husband, Shaul Firon. Following military service, she worked as a waitress, cleaned houses, and gave private lessons in math and physics to save money for academic education as well as to go on a one-month trip in Europe with her husband. She enrolled in physics at university, but soon afterward switched to accounting and economics. "I didn’t even know what accounting was, but all I knew is that my mother used to tell me that accountants make a lot of money and are always financially secure."
Upon completing her degree, she started her internship at Kesselman & Kesselman (today PwC Israel), only to discover that a career in accounting was not for her. "I was very bored. I felt as though the days were going on forever," she says. Towards the end of her internship period, she gave birth to her first daughter, and started looking for another job. One of her strongest memories from her job search then was an interview she had in a job placement company. "A woman interviewed me, and after I introduced myself, she asked me, ‘How can I offer you as a candidate with a 2-month-old baby?’ I went home with tears in my eyes." Eventually, she saw an ad for a corporate deputy financial controller for RAD (one of the companies founded by the Zisapel brothers) - and there they did not mind that she had a baby at home. Without knowing it, Firon had started on her high-tech career.
Since RAD is a group of companies, she also became the financial controller of Radcom and Radvision, and at one point, she was transferred to Radcom. Six months later, at the age of 31, she received an offer to become the chief financial officer of the company, which was on the brink of its IPO. "Motti Ben Arie, the CEO, and Zohar Zisapel, gave me my first chance, and I am grateful to both of them to this day." After a few years at Radcom, the CEO told her about ‘a company that is planning an IPO and is looking for someone who has previous experience.’ The year was 1999, and that company was P-Cube, founded by Dr. Giora Yaron and Yuval Shachar. P-Cube developed a technology for prioritizing network traffic. Firon met Shachar. "We had excellent chemistry. When the conversation ended, he said, ‘Oh, I forgot to mention - the job is in the US.’"
On the way home, over the phone, Firon and her husband decided that they were going for it. "Many of my most significant decisions were made within a minute while a decision about a pair of boots can take me days," laughs Firon as she recalls the event.
The Firons relocated to Palo Alto together with Yuval Shachar’s family. It did not take them long to discover that they were late to hitch a ride to the dot.com bubble and launch an IPO of $1-1.5 billion. "The bubble burst and it became clear no IPO was going to take place", recalls Firon. "We were not sure what would become of the company."
But P-Cube survived. According to Firon, this was because it was not a typical bubble company, but one with a deep technology. But there was a difficult atmosphere in the industry. "Silicon Valley gradually became a ghost town. We too had no choice but to send home some of our people to keep afloat. However, we did so in a very humane way and were very generous about it. We extended the period in which the employees could exercise their options, so if everything worked out after all, everyone could enjoy it."
P-Cube was eventually sold to Cisco in 2004 for $200 million, a significant amount for the post-bubble era. As they were finalizing the sale, Firon gave birth to her third daughter. She remembers discussing the deal over the phone with Shachar from her bed in the maternity ward, still under the influence of an epidural shot.
Were you happy? This was your first exit.
"There is always something sad in an exit - it's a kind of grief. At P-Cube, I experienced a sort of personal crisis. I spent several months at Cisco to help with the merger and felt like the branch I had been sitting on was cut from underneath me. P-Cube was swallowed by a large corporation, they bought us for the product. They offered me to be in charge of the internal audit department at Cisco, which did not interest me at all. So, in an exit you win the lottery, but you also lose something."
"What I really wanted is to lead deals"
After parting with P-Cube and Cisco, Firon thought for a while about what direction to take. "All of my energy had disappeared. Four months later, I found myself starting a new job at a Sequoia Capital company called Olive Software. Olive’s technology involved the digitization of all kinds of content, such as magazines and books. At one point, Olive was on the verge of being acquired by Google, which backed out at the last moment. That was very discouraging for Olive’s employees.
From there, she came to MediaMind, a developer of technologies for online advertising campaign management. MediaMind was looking for a CFO with IPO experience. "It was a bit of a step up for me in terms of the size and the complexity of the company," she recalls. "They had dozens of offices across the globe and sales of millions of dollars, and a great group of people."
To help with the IPO, Firon and her family moved to New York City at the end of 2007, "Just to discover myself in the eye of the storm of yet another crisis, this time with the global financial crisis of 2008. MediaMind was a strong, healthy and growing company, but we didn’t know how the crisis would impact us and our customers and it became clear that there was not going to be an IPO since the market was completely closed."
One or two tough years later, MediaMind went through with the IPO. In 2010, with her husband and daughters already back in Israel, she was alone in the US. "I went on a three-week roadshow in private jets, flying all the time and without a home. I no longer had a home in New York and did not yet know my new home in Israel. I felt like Tom Hanks in The Terminal, cut off from the world." A year later, while Firon was already back in Israel, MediaMind was sold for $517 million to DG Corporation.
Following several more management roles in high tech companies, Firon found herself sucked into investments. In 2014, she was approached by Ofer Katz ("a colleague of 17 years"), who told her about a unique investment fund he wanted to establish and asked her to sit on the investment committee. The fund, called Cerca Partners, sought to create joint investments: large funds that would collaborate with industry figures who usually enter the investment at the seed stage but lack a platform to reach all companies, let alone participate in the later investment rounds.
"When he proposed that I should join the investment committee, I didn’t think of becoming an investor yet - I just wanted to see how things worked in an investment fund, after having made several private investments of my own." Needless to say, Firon quickly found herself drawn into the investment world.
By the time Cerca established its second fund, Firon was a managing partner, and had a stake in the investments in companies such as Armis, (acquired by Insight for $1.1 billion), Alooma (acquired by Google), Demisto (acquired by Palo Alto Networks for $450 million), Dynamic Yield (acquired for $300 million by McDonald’s), and Fiverr, one of the most successful Israeli IPOs of recent times, which is now traded in New York at a market cap of over $2 billion.
"I think we did a good job," she says. "Out of 25 companies we invested in, ten reached an exit, and there were other wonderful companies in our portfolio."
So why did you leave?
"Cerca has a great model, but on a personal level, I really wanted to take the lead in investment rounds. When you hold only a fraction of the company’s equity, you have little ability to make an impact, and I regard myself less as a financial investor, and more as someone who brings operational value to the table. I want to provide value, as I did with Datorama."
"There is nothing patronizing about Team8"
The new fund that Firon leads is the outcome of yet another crossing of paths between her and serial entrepreneur Yuval Shachar, whom she met at P-Cube, and who today is a partner and executive chairman at Team8. Just over a year ago, they met for coffee as they often do at the neighborhood cafe. She told him how she had been itching to establish a fund that wouldn't co-invest, but would lead investments. He responded with, "That's exactly what you'll do, but with us." Firon, as is her way, did not need long to think it over, and decided to go for it. The fund was launched only a month ago, but it has invested in three companies and is examining a fourth.
Does the fact that Team8 decided to switch to the "old-fashioned" model of investing in existing companies rather than build new companies from scratch mean the original idea has not succeeded as expected?
"Not only is it succeeding, it’s exactly what allows Team8 to now step into the older world and make it innovative and differentiated."
Team8 is often perceived as patronizing, the ones who tell companies what they need to do, how to run their company, and how to develop their products.
"I think this is an inaccurate perception of them, because there is nothing patronizing about Team8 - not in the people and not in the model. The idea at the time was that there are very big problems in the world that are not receiving enough attention, and on the other hand there are entrepreneurs - sometimes with incredible capabilities - who are wasting their energies on a product that is either too small or unnecessary. So Team8 went to the large corporations and asked them: what are your pain points, what are you missing? And in fact the initial investors in Team8 were large enterprises from a range of disciplines, such as Walmart, Microsoft, and Cisco."
As mentioned, the new fund has already invested in three companies (whose names are not yet disclosed),one in enterprise software, one in fintech, and the third in insurance-related big data and data analytics. Firon is currently working on an investment in a cyber-company.
Do you see any changes in high tech investments as a result of the Covid-19 crisis?
"We're seeing hardly any investment because we are still in the midst of the crisis, but we expect VC funds to invest massively in cloud infrastructures, remote working capabilities, and automation. Also a lot in cybersecurity, because you are more exposed when you work remotely."
Some people say Israel is a cybersecurity bubble.
"Cybersecurity looks as though it is here to stay, but there are many segments within it, and it’s true that there’s a herd phenomenon, with many companies being founded to address the same issue that seems attractive at the time. I’m more interested in looking for cyber companies that are doing something new, and not something that ten other companies are doing."
You talk about a fund that gives entrepreneurs added value, for example with research infrastructure and connections. What happened to the "old-fashioned" VC model?
"All VC funds are trying to give more value than just money. The industry has evolved; first and foremost the discourse has changed. There isn’t a VC fund today that will say they are only financial investors. Even in the past, while this wasn’t something that was said, that’s how it was. Today, many funds are guided by these same principles, and the question now is who does it better? Until recently, capital was flowing in the streets, so to speak, so the entrepreneurs were looking for added value beyond money."
The money is not flowing in the streets anymore and everyone talks about the upcoming recession. How will the world of technology investment look?
"I don’t think there will be a shortage of money. Money is being lost in certain places, but there is a great deal of capital waiting to be invested. The problem will be a different one: in past years, when there was a lot of capital to be invested, money would go to companies that weren’t necessarily worthy of being financed. Funds were investing because when things are on the rise, every company has a chance of making it to exit.
"Companies with real technology, that address real problems, will be able to survive the crisis. But if it’s just another cool or trendy technology that only has a chance of succeeding during a bubble period - now it will go 'poof' and disappear. Having said that, in three to five years, even the trendy companies will be able to raise capital again. The history of crises shows us that, in the long run, no one remembers the lesson."
Responding to the needs of Walmart, Microsoft and Cisco
The Team8 model attempts to combine the requirements of the mega-corporations and the capabilities of small startups.
Team8 is a group that founds and invests in technology companies that focus on enterprise software, data, AI, and cybersecurity. It was established in 2014 by co-founders Nadav Zafrir, Israel Grimberg, and Liran Greenberg, along with Yuval Shachar, who led the company’s first fund raising round. Today, he serves as a partner and chair.
Among the strategic investors in Team8 are global giants such as Walmart, Microsoft, Cisco, Barclays, Softbank, and Moody’s. Since its inception, Team8 has invested in and founded 11 startups, including Sygnia, which was acquired by Temasec for $250 million, and Claroty, which has raised $100 million to date.
Team8’s unique model is run by a team of about 40 people in New York and Tel Aviv, who focus on building companies via research, ideation, marketing, business development, and human resource recruitment. And there is the Team8 Village, a community of hundreds of executives from leading organizations across the globe. The idea is to use the discourse between the two groups to identify and understand the real problems and needs of large enterprises, and by doing so to create significant business opportunities for startups that have the right solutions or ones founded especially to address them.
As mentioned, the group is now expanding with the launch of a new venture capital arm, Team8 Capital, which Firon will head together with Team8 co-founder Liran Greenberg, and she will be responsible for seed investment rounds in data, AI, cybersecurity, and enterprise technology startups.
Firon says that the first fund is expected to invest $5 million on average in each of the fifteen companies it will identify and "In the future, I assume that we will raise our next fund ."
Firon's golden tips
Six tips for startup entrepreneurs experiencing the crisis
1. The quicker the reaction, the less painful it is. A prompt cutback of 20% on expenses is the same as cutting back 30% weeks later and even 50% or more at a later stage.
2. Entrepreneurs need to ensure a cash runway for the next 18-24 months of operation. This is the minimum necessary when there is still uncertainty about when the crisis will end and its future impact.
3.Prudent financial conduct is critical not only during a crisis. Change your cost structure and be determined to invest in the things that will yield results, not in passing trends.
4. Raise capital when you can and focus on creating a safety net. Don't focus on equity dilution optimization.
5. Adopt a healthy business discipline. Growth is critical, but not at any price. The availability of capital before the Covid-19 crisis created a situation in which many companies could exist without any good justification. Had these companies acted more carefully, they could have weathered the crisis and remained stronger for their employees and investors.
6. Remain optimistic. Crises do end. It’s crucial to brave them in a way that does not put out the fire of creativity or depress the drive of the employees.
Published by Globes, Israel business news - en.globes.co.il - on July 9, 2020
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