The startup nation is resting on its laurels

Gal Kalkshtein

Finals Gal Kalkshtein tells "Globes" about his career in algorithmic trading and his efforts to promote entrepreneurship in Israel.

A hip injury changed Gal Kalkshteins life, hurling him towards the world of Israeli startups and into the successful family business; from there, the serial entrepreneur headed towards the frontier of innovation, in support of the local ecosystem.

I was in the army, in Nachal, 50th Battalion, and I was injured in the hip during basic training; most of my military service was spent in hospitals, with three major surgeries and six months in a wheelchair, he told Globes in an exclusive interview.

But it was from that nadir, from the long line of treatments and the extended recovery period, which he found his calling. The military service that went awry paved the way for the young Kalkshtein to the algorithmic trading company Final founded by his father Aryeh, his brother Nir, and partner Noam Stern-Perry.

According to different market estimates, the company earns tens of millions of dollars each year and its value crossed the billion dollar threshold long ago, yet Final operates as a close-guarded secret. Gal Kalkshtein strenuously refuses to comment on figures or the companys technologies, most likely because he signed non-disclosure agreements preventing him from speaking on these matters.

Kalkshtein humorously refers to Final as the company which must not be named and rushes to explain, I was not one of the founders. My father, my brother, and their partner founded the firm not me; and, I do not speak in their names. Adapting a more serious tone, he said their road to success was complicated.

The company saved me, he said. I couldnt walk. After six months of treatments inside the army, they transferred me to seek further treatment outside of it. The company had a rule about not hiring relatives, but they still decided to let me in.

Final was the result of a crisis

My dad was an electronic technician in the textile industry, but you could not make a living in textiles in Israel by the late 90s, said Kalkshtein. He knew a bit about the stock market. At the height of the crisis when the family struggled hardest financially Final was founded in the laundry room of our house. I think the success story and the transition from daily financial hardship to the situation we have today, it is part of what shaped me, my appreciation of money, and my drive to donate and help entrepreneurs and the less fortunate.

What do you think of the algo trading market?

When people ask me if they should jump into this market, I say no. It is very difficult for private individuals to invest. I think that whether or not you succeed with your investments as a private person comes down to luck. It doesnt matter if youre a day trader. Im not talking about the people who supposedly invest after they read the reports few of those remain today. Im talking about people who want to be day traders. The people who are trying their luck they should understand thats all it is.

What about starting a company?

If you want to found a company in this field, you need to have something phenomenal up your sleeve to succeed. You need to understand the investments are very, very serious. Even before you test out your capabilities on the market, you need to be fast enough and close enough to the exchange to succeed. Thats why you need to invest large sums of money that are hard to raise.

There was once a math professor who approached me with a supposedly brilliant idea. I ran the data and I noticed he was cheating himself. He was certain he had hit on the formula, but he was lying to himself. It was a weird feeling, but thats one of the problems people have with investing. They tell themselves: I made a profit in 90% of the cases, so the loss doesnt count because

I really do not recommend that people enter this market. Thats my take.

Do the computers beat humans over time?

In most things, yes.

If I put you in front of Warren Buffett and ask which of you would have a better yield in thirty years?

Warren Buffett is an extreme example. Youre using an anomaly. Lets not look at outliers. Can we stack up a successful person up against the computer? Because I believe we have proven the computer wins.

Recently, Kalkshtein and his wife Lital have been leading the investment firm GKI, which has backed 16 companies and operates a whiskey distillery. Despite his heavy workload, Kalkshtein invests both his time and money into the Israeli startup scene. Last month, he went to the Knesset to launch the startup lobby, to be led by MKs Yoav Kish (Likud) and Yoel Hasson (Zionist Union). Kalkshtein has volunteered as the lobbys CEO.

Why do you need to add this to your plate?

I am constantly in a state of shock. I see the problems that plague our economy. I realized the entrepreneurs have the ability but not the time. It is the resource they lack the most. We realized we needed to help. I see it as an 80-20 split. That way, 80% of the effort comes from the private market and 20% comes from the state. Thats why we started the lobby; the idea was to demand of the state to be a little better oriented for this specific sector.

The country hasnt done enough for the hi-tech world?

Lets start from the top we are not high-tech. A person, who sits at home, works in his garage, foregoing a paycheck he is not an Intel employee. He receives much less from the state. Not only are the high-tech firms and the startups not part of the same sector: there are many instances in which they compete. Intel, for example, can pay much higher salaries for the same programmer that startups want.

Essentially, the startups recruit the cheaper programmers, because they can afford to pay them less. Today, everybody keeps talking about hi-tech. What we are saying is that startups are not high-tech we should also help them.

When you talk about help, youre talking about money?

Its obvious everyone wants money, but thats not the fight I want to pick. The goal is not to ask for funds but to ask for tools. We are talking about government sponsorship lets allow the chief scientist to invest not only in existing products. Lets look, in another example, at the app market there is a global demand which the chief scientist is avoiding.

We have an organized plan. Our goal is to examine the market and see where it hurts. There are lots of weak spots in this sector like the need for information. Even if the data exists in a government office or the Central Bureau of Statistics, it is difficult for entrepreneurs to retrieve.

What type of information?

The polls and surveys conducted could be more accessible. Working with the Office of the Chief Scientist is a difficult chore. It is something the entrepreneurs complain about. Its not that the state doesnt provide support, but the entrepreneurs need to be shown it and provided it. Startups face serious competition from funds that do it every couple of months, and they do it well; theyre essentially taking a paycheck from the entrepreneur. It is much more difficult for an entrepreneur, who goes it alone, who doesnt have lawyers he could work with. Many people say it is a difficult and exhausting process.

We are not saying, come and give us more money. Thats not fair and its not right. If we do that, its after we proved that we know how to get a greater return for the company.

Should the government invest in small companies of 5 or 10 employees?

Of course we want to have big companies here, and I think the chief scientist has been doing a good job overall. Our point is that the startups are the engine of the economy, or so they say. So we want to improve our standing in Israel and abroad. Many startups are founded here, and we want companies like Waze that will grow into large enterprises. Even a massive exit is good as long as the taxes are paid in Israel.

There are countries around the world, like Ireland and Singapore, which chose to help the local startup sector. We see them improve every year. Israel had a lot of luck, and we have reached a good ranking in the world when it comes to startups; we are sort of resting on our laurels. It scares me as a Zionist who believes this is our relative advantage.

Let me tell you an anecdote: startups live in now, from day to day. It takes a whole week to open a bank account. That hurts the startups, which are only trying to open an account because a backer wants to invest or they need to pay salaries. We intend to meet with the regulator to craft some sort of regulation for startups to solve these problems.

Another matter is the angel law we are exploring the possibility of the legislation addressing the entrepreneur. No one talks about the entrepreneurs contribution. He may only put in NIS 50,000 but that money costs a lot more then the million dollars the investor put in; and, no one every considers whether the entrepreneur gets their investment back.

We want companies that note the angel investment for tax purposes also recognize the small amount the entrepreneur put there. The cost to the state would be minimal, but these things matter to the entrepreneurs. If their company is balanced they should be able to get their money back. Obviously, if they manage to exit, then that amount doesnt matter, but not all companies successfully exit. Some only break even or post small profits. It is important to us that the government recognizes the entrepreneur and that he sacrificed a paycheck and worked for free for a period.

A shortage of programmers

Another topic close to Kalkshteins heart is the shortage of personnel. One example is the Russian immigration which brought many engineers at a time when there was a worldwide demand for programmers. It brought us a lot of excellent workers. And we also focused a lot on cyber. Its a hot topic. Though the reason for it was security.

The state assured that Unit 8200 would succeed.

Yes. The global demand for cyber was insatiable and it turned Israel into the startup nation. Its because of the army and the Russian immigration. Neither of these was intentional. We need to understand that and start planning ahead. There is an incredible shortage of programmers.

What should we do?

There are not enough people studying five units of math, and the result is the lack of engineers. We need to deal with it. Lets focus on that. Let me give you the most important figure in my mind we found it difficult to reach women who were starting or had led a startup. It is a disaster. I look at companies all the time women contribute much to these places. Women are an important part of the workforce. Women think differently than men, and it is beneficial to the companies that hire them. Im talking about senior managers and executives. I see how women influence companies, including the ones in our portfolio, and make them much better.

We are talking about a startup nation, but not everyone is on board. If I walk into a class in Tel Aviv and ask who has a brother or father or friend working in a startup, virtually all of them would raise their hand. If we go out into Israels periphery communities, the answer would greatly differ. You cannot call yourself The Startup Nation in this situation. There are places in the periphery where they do not teach basic computing skills. There are kids who do not work on a computer even once a week. Let us no live the illusion of being a startup nation let us become the startup nation.

Have you considered making a foray into politics to promote this agenda?


More than lobbying

Alongside his new role as a lobbyist, Kalkshtein also leads a philanthropic organization, Startup Israel, which collects and stores data on the large number of startups operating in Israel. Our goal is to have a personal meeting with each of the companies that agrees to see us. We know this means thousands of meetings and we know it will be difficult. But we need a real database of companies that can communicate with each other. There are a number of organizations that have such databases, but they are financial institutions with a vested interest. We are investing a lot of money into it, and we realize it is money we are investing in the industry and we wont be getting back. Its to improve the sector.

Published by Globes [online], Israel business news - - on December 4, 2015

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Gal Kalkshtein
Gal Kalkshtein
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