At the age of age 27, Eran Bielski found himself at the board meetings of several interesting and promising high-tech companies. Having been recruited to investment bank JP Morgan as a young apprentice financier a few years earlier, Bielski (now aged 35) became one of the youngest partners in the Israeli venture capital industry, often finding himself the youngest person in the room. "People may see me and think, 'Who is this kid?' But as soon as I open my mouth, people say to themselves, 'Okay, now I understand why he's sitting here.'"
Now, after Check Point Software Technologies announced its acquisition of cyber company Perimeter 81, which secures employees’ remote network connections, Bielski has marked one of his first exits as a senior partner in VC fund Entrée Capital. Despite its size, the deal is a sort of bittersweet victory, as the company’s estimated value in June 2022 was $1 billion - double the amount at which it was acquired.
Like the company’s founders, Bielski will still not divulge details of the acquisition, but in an interview with "Globes" he does give his point of view the current situation in a high interest rate environment, and explains why, given these conditions, even selling at 50% of the estimated value is a good deal.
"When interest rates are low, it pushes institutional investors to invest in riskier areas," explains Bielski. "A situation was created in which a great deal of money was poured into venture capital funds, which led to people raising much more than they needed with much less of a track record. Today, unlike in the past, a business that has $2 million revenue and is valued at $950 million, can’t raise money at a multiplier of 450. So, they’ll lower the valuation, and that’s okay.
"Sometimes people talk about this as though all hope is lost, but that’s the way of the world - it happens in cyber as well, and that's fine. This is still a good result for the investors and founders. There are also deals that are less good, and also companies that will close, but I don't see anything here that is out of the ordinary. You have to remember, most startups fail, that's the reality."
Bielski also notes something unique to the Israeli cyber scene. "We have talent here like nowhere else in the world, and also many R&D centers for major companies, like Microsoft for example, so we have dozens of potential buyers here."
"Semantics aren’t important - the numbers are"
Bielski had an unusual path to the heart of the venture capital scene. After graduating with a bachelor's degree in business administration and finance at Reichman University, he was hired by multinational banking corporation JP Morgan, the largest bank in the US. After training in London, he returned to work at the branch office in Israel.
At this point, Bielski felt that he was not fulfilling his calling. The change came after a chance meeting between two women with South African roots : the wife of Entrée Capital founder and partner Aviad (Avi) Eyal , and Eran's grandmother. The latter was proud of her talented grandson and the rest, as they say, is history. At the age of 35, Bielski already sits on the boards of several well-known companies.
Although he refuses to go into the particulars of the deal between Check Point and Perimeter 81, Bielski does talk about the two entrepreneurs behind the company, Sagi Gidali and Amit Bareket . "We’ve known them for a long time. They’re the kind of entrepreneurs I really like. At the previous company they founded, SaferVPN , they managed to reach $2-3 million without raising any money at all. They financed the entire beginning of Perimeter from their profits, just like it used to be."
In July 2022, Perimeter 81 was proclaimed a "unicorn", but Bielski’s attitude towards the concept is lukewarm. "It's not the semantics - it’s the numbers themselves. Some unicorns have never reached a $1 billion valuation, yet they’re called that. There are companies where I’ve invested that are reported as having reached a value of $1 billion, and I know it’s not - it’s $900 million. Many companies that have reached that value, but won’t go on to become unicorns.
"It's a matter of marketing. Everyone wanted to be a unicorn, everyone aspired to the title. But a true unicorn is a company with revenue or breakthrough technology."
"The best time to be an investor with money"
The huge funding rounds with sky-high multiples, and the unrealistic valuations that characterized the last few years, have raised questions about the accountability of venture capital funds and investment banks. "It is clear that they played a part in this situation," explains Bielski. "It’s impossible to hide the fact that when a company goes public, the funds and the banks make a profit. Although for us, the funds, the process is a little more complicated. We’re also players in this arena, and if we float something and within a month it collapses - we don’t make any money."
It seems that today venture capital funds are considered the least hot commodity.
"I actually think otherwise. When interest rates are high, it’s better to put money in less risky places. Also, many funds did not correctly evaluate the assets in their portfolio. As I see it, the good funds will still make good investments.
"By the way, just now, because less experienced capital is flowing into this industry, not everyone can raise funds, and so there’s time to evaluate assets properly. The best opportunities come at times like these, and the best companies are established. This is the best time to be an investor with money in hand".
"Israelis will establish amazing companies, the question is where"
You must have seen many recent financial reports with particularly gloomy footnotes about the local tech industry. When do you think things will look up?
"‘Prophecy is given to fools,’ but what’s important is that there are strong companies here that will continue being strong. I can say with a very high level of confidence that amazing companies will be founded by Israelis, but it’s possible that, because of the current situation, that some will choose to establish the company in the US, or move it early".
Are you perhaps encouraging entrepreneurs to set up their companies abroad?
"The world is not black and white. There are many investors and institutions that have decided not to invest here. By the way, our local industry has been boycotted in the past as well. For example, the Norwegian sovereign wealth fund boycott. A month ago, I was at a dinner with a senior manager of a European fund, and he told me that if the Israeli government continues on its current course, the fund will withdraw all its resources and close down activity here.
"As an Israeli, this is very painful to hear. But he said that if we reach a situation similar to what is happening, for example, in Poland, the fund will shut down operations in Israel. To what extent this process is happening now and how much will it continue to happen - I don’t know. It depends on what the government and the opposition decide.
"At the moment, we’re not raising another fund, but I can say that, ultimately, Israel is an attractive country with attractive entrepreneurs. I believe our investors will continue to trust us, that we know how to make the right investments, and bring them the returns they want."
Published by Globes, Israel business news - en.globes.co.il - on August 27, 2023.
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