Zohar Zisapel has his office in the headquarters of the RAD company that he founded 37 years ago with his brother, Yehuda Zisapel. Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) is on the floor below, Radcom Ltd. (Nasdaq: RDCM) is opposite and Radware Ltd. (Nasdaq: RDWR) is around the corner. They were all his children, plus dozens of other startups that came from the RAD group. An academic study at Tel Aviv University seven years ago found that 56 serial entrepreneurs from the RAD group founded 111 important technological ventures. Add to this the startups in which Zohar Zisapel invested by himself with his own money, and you get a never-ending chain of startups.
Zisapel, who specialized in communications, flits from one sector to another. He expanded to cybersecurity, from where he got to auto-tech almost accidentally, and is now searching for the next technology - leaning towards artificial intelligence (AI), but is still skeptical about it. He tells "Globes" about his love for investments and learning in new areas, explains why he believes that the Israeli tech industry should be concentrated between Hadera and Gedera, and talks about his relations with his brother.
"Yehuda and I are very different in both character and appearance. He's a lot more of a marketing and sales man, while I'm better at technology. We're different in a lot of characteristics. This is powerful, because I've learned that when we both agree about something, we're usually right. Our relations have stayed good all these years. There are difficulties, of course. We decided from an early stage not to involve the family. Our wives know what's going on, but they aren't involved. Another thing that we did was to divide the work between us: each of us handles half of the companies, and even if we were both on the board of directors, one of was an adviser and the other made the decisions," Zohar Zisapel says.
Over the years, the Zisapel brothers (Zohar is 70 and Yehuda is 77) invested in dozens of startups that came out of the RAD group, which operates in the communications sector. At that time, they invented a unique model, in which RAD helped startups in sales and marketing, did manufacturing for them, and helped with human resources. The startups paid for this, but the costs were lower. "It was a model that suited Yehuda and me, because we weren't in the position of founding an empire," Zisapel explains. "Startups today don't understand what I'm talking about when I offer them help in logistics, so I feel very flattered that they want me, because they still think that I contribute."
Decisions in five minutes without analysts
Zohar Zisapel invests by himself, without analysts or assistants to examine the company ("I don't want to let other people do what I love"). He spends hours learning about each company, invests his own money, and does not sell shares along the way. "I get a lot of inquiries. Some of them I winnow out immediately, because they aren't in the field that I'm focusing on at the time. A lot of queries come to me through people in whom I invested, or through my teaching at university. People also come to me from the IDF unit I was in, which is now called Unit 81. There's a club of graduates that I founded; I meet and counsel all the people in it, and connect them to people."
"Globes": What do you look for in people who want to raise money from you?
Zohar Zisapel: "I usually connect with them very quickly - it takes no more than five minutes. Then I talk more with them, verify and ask, but I spot them pretty quickly. They have to be technology people and they have to have someone who understands business or marketing - someone who is able to manage. This is the ideal team. If they're strong in certain areas, but lack one of the elements, I still invest, and then fill in what's lacking. After I make an investment, I'm an active investor. I'm a member of 13 boards of directors, and I'm thinking about which I can leave."
Zisapel invests in the auto-tech field, and has invested in companies such as Innoviz Technologies and Hailo Technologies. Another company he invested in is Argus Cyber Security, which developed cybersecurity for the auto industry and was sold to German company Continental for over $400 million. Zisapel raked in tens of millions of dollars on the sale.
"Argus is what actually made me move from cybersecurity to the auto industry. They were three entrepreneurs (one was Ofer Ben-Noon, son of Rachel Ben-Noon, Zisapel's life partner). They had a problem - it was one of the cases in which the entrepreneurs knew the sector too well, so they ruled it out prematurely. They hurried to develop an application, but I have to say that I'm not good in this field. None of the ideas sounded good to me. I've never invested in an application. It always sounds the same to me, and you don't really know what will succeed. In my opinion, had they come to me from Facebook, I still wouldn't have invested. I at least understand why that succeeded, but I don't understand WhatsApp even in retrospect. So they tell me that this is the group and so forth. I don't know.
"Later, they developed a security solution for smartphones, and after they finished developing the product, they decided that it wasn't a good idea, because there were too many like it. Incidentally, I don't think that they were right even retrospectively. I got the idea of a cybersecurity solution for a car in a meeting on a different subject at Samsung in South Korea. They were immediately enthusiastic, and then I realized that a connected car has 100 computers, which means that the security problem is 100 times as great as with one computer.
"During that period, I invested in many cybersecurity companies, and then I started looking at the auto-tech sector. They say that it's conservative, doesn't change, is hard to enter, and its processes take time. That's all true, but there are also three revolutions in this field: autonomous vehicles, shared vehicles, and electric vehicles. When a sector undergoes revolutions, it doesn't matter how conservative it is and what the players inside think - it's an opportunity for startups."
In your opinion, how much of Argus's value is technology, how much its team, and how much the hype in the sector?
"I don't think that there's hype there. I think that the need is real, and that it will happen. It's true that the auto manufacturers are trying to ignore it, but it won't help them. The problem is very critical, and will be in every vehicle. When you take into account that there are a billion vehicles on the road and that this will be in every vehicle, it's worth it. It hasn't happened yet."
One of the challenges is reaching the market too early. Aren't you afraid to invest in a field in which startups may not survive long enough for it to mature?
"I'm careful. I don't invest in something that's only an autonomous vehicle, because I agree that it will take more time. That means a car that will travel independently wherever it wants. There are autonomous vehicle applications, such as fixed routes and high-speed roads that will gain momentum earlier. But an electric car, shared transportation, and connected vehicles are already here. You don't need an autonomous vehicle for cybersecurity solutions."
Don't you think that there is a bubble in the auto-tech sector?
"Not yet, but there will be. It's developing."
Eventually, very few cybersecurity companies for the auto industry will be needed, because they sell to Tier-1 suppliers, and there are not many of those.
"I think that there really are too many companies in the sector today, and some of them appeared after Argus was sold, and it's already too late. This is the kind of mistake that many young entrepreneurs make. They see something succeeds, so they say, 'OK, if it succeeded, I can also succeed.' That's not necessarily true. Timing is of decisive importance."
How can we deal with the development of a bubble, and how do we know when to get out of a sector?
"First of all, you have to know how to avoid believing too much of your own bullshit. Bubbles enable you to raise money, but that doesn't necessarily mean that you have to spend it. They usually develop in any sector in which there is a real growth opportunity. There's a very clear process. The first to know about it are the insiders, who tell specific people about it, and then more and more circles get into it, and then you've got a bubble.
"How do you know that there's a bubble? When I hear my friends working in real estate starting to talk about the sector, I understand. You feel it when there are 30 more startups like you, some of which were founded before you and some after you. If you see money being raised completely wildly at crazy valuations for companies with nothing, then it usually won't last."
So I have a feeling that you should start looking for another sector.
"I'm always simultaneously looking for a new sector. I love learning. I read a lot and talk with people. The world today is very open. There was a time when you had to chase exhibitions. My moving from one sector to another was frequently via the previous secdtor, such as in the case of Argus."
What sector are you thinking of now?
"AI interests me. I'm not sure that it's ready, but AI has fascinated me ever since I studied at the Technion. At the time, 50 years ago, it wasn't serious; AI was pretty stupid. There was a breakthrough a few years ago, resulting in a situation in which for the first time, AI, can do things and replace people and natural intelligence."
Are you concerned about ethical issues?
"Not really; it will be solved. This question is raised whenever there's a new technology. In movies, they always talk about a computer loving and hating, but that doesn't really exist. There's still a risk in AI, however, in building a machine that can make decisions. They might build an AI machine defined for a purpose that will go too far. I'm given you a ridiculous case, but it's like defining a machine to cure cancer and telling it to use all means, so it kills people. If I take a robot that has to feed children at home, and not food in the refrigerator, it will decide to cook the dog. It doesn't understand the dog's mental importance in comparison with its importance as food. This is an extreme case that's fun to talk about and use to explain how an AI machine can go to places that you didn't think that it would."
"The strong shekel is having a negative impact on technology"
Zisapel expects the success of Israeli technology to continue, citing approvingly its flexibility and ability to stand out in a different sector each time. He does warn about the strong shekel, however. "There's no getting around it - our economy is strong. The startups are less affected by it, because they're raising so much money, but it's having a negative impact on Israeli technology - on the companies with sales, whose profit margins are being eroded."
What about the proportion of people employed in high tech, which hasn't risen for many years?
"You know the figures better than I do, but I see other positive things in the market. In the past, engineers and computer science graduates were employed in the technology sector. Today, you can see people who studied software somewhere working the technology sector, and also marketing and sales people employed in technology with no formal education in computers and electronics.
"At the same time, this is definitely not enough. Israeli technology is growing faster, and it's a fact that it's hard to find people. They're going to subcontractors in Romania, Ukraine, and so on. One solution is to bring Arabs and haredim into it, and I'm doing as much in this as I can. I think that the haredim should simply be forced to study mathematics and English. Let them study Torah as much as they want, but what's happening is that tens of thousands of people are studying in yeshiva, and 99% of them aren't studying; they're doing all sorts of other things.
"The main role belongs to the government. It should have decided that they get their support on condition that they teach mathematics and English. In any case, whether we do it or not, the Internet, social networks, television, and computer are even penetrating the haredi sector. The Arabs are a problem that has been solved in terms of training. The proportion of Arabs at university is already the same as their proportion in the population. There was once a security problem, but the companies today are civilian. I also invested in a recognized company of Arabs in Nazareth that is in Nazareth, Gali Software, and a young company of Bedouins in the south. Both of them are doing subcontracting work, and Galil Software will soon have products. Subcontracting work is a good way of getting know-how and developing."
What do you think about the efforts to disperse the technology sector around the country?
"I have no strong opinion that the industry should be dispersed. Silicon Valley is also no larger than the area between Hadera and Gedera, and there are more companies there. There's an advantage in density, because people move easily from one company to another, and their knowledge also moves and isn't wasted. It's important to me that if people in a town in the north want to work in technology, I have to save the people, not the town. I don't mind giving them an opportunity to study at the Technion; then they can work wherever they want. There can be more than once center, and today you also have Beersheva, Jerusalem, and Haifa, which are also centers to some extent."
Startups worried about the trade war
There are two issues that have grabbed the attention of the global technology industry in recent months, and which are also affecting the entire economy: the power of the technology giants and the trade war between China and the US. "The technology giants have enormous power. I won't compete with them, but I don't think that they have more power than Microsoft, Intel, and Cisco had in the past. If you go back a while further, there was IBM, which had 50% of the market and had much more power, because it dominated the entire computer and communications field. I'm willing to bet that in another 15 years, not all of these giants will still be dominant. They'll make mistakes, like Google did when it allowed Facebook to develop. I do think that action should be taken against them. They benefited from an absence of regulation for a long time. The regulators treated AT&T, Verizon, and other communications companies, which are in a pretty wretched state and barely make a profit, with a heavy hand, but they aren't going after companies like Google and Apple and taking all of their business away."
As far as the trade war is concerned, Zisapel says that Israeli startups are beginning to feel the effect. "I think that Trump made a big mistake, and I'm starting to see how this is affecting global growth, but I see that they're hesitating about whether to accept a Chinese investor and whether to cooperate with Chinese companies. There's no doubt that we're still on the side of the US. I even find myself having to calm people down, because some are saying that we shouldn't sell to China. But I say, and also to the US, sell to them; don't get confused. It's just that people are hesitating before they do something with China - it has a big effect."
Place of residence: Tel Aviv
Education: BSc in electrical engineering from Technion - Israel Institute of Technology and MBA from Tel Aviv University
Position: Founding partner and president of RAD-Bynet group and an investor
Prominent investments in startups: Argos (sold), Hailo, Innoviz
Something else: academic study showed that dozens of startups came from the RAD-Bynet group founded by Zohar and Yehuda Zisapel, including public companies Radcom, Ceragon, and Radware.
Published by Globes, Israel business news - en.globes.co.il - on August 18, 2019
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