VentureIsrael News

VCing the future? Early-stage start-up hunters share their secrets

VentureIsrael News
As Israel’s venture capital industry continues to break its own records, the competition among investors to find and fund Israel’s next big exit is vicious. What does it take to find an all-star start-up before everyone else jumps on board? The Jerusalem Post spoke with a few of Israel’s leading early-stage investors to learn their secrets.

“The job of a good early-stage investor, in my opinion, is to find a new trend while it is still in diapers, undiscovered,” says Gadi Isaev, Managing General Partner at VentureIsrael. “Once the company has created a buzz, it is too late. You have to look at the markets and evaluate where they are headed.”

Seed- and early-stage investment funds seek to invest in technology companies long before they have a product that is ready for market. The risks at this phase are greater than for established growth companies, but the potential payout is also much more significant.

Israel’s venture industry has been red-hot in recent months, with a record $1.44 billion raised by Israeli firms in January 2021 alone, according to Start-Up Nation Central. And while industry observers frequently complain that there is a shortage of seed funding available for early-stage start-ups, a recent report by Ground Up Ventures found that the number of Israeli seed investments actually rose by nearly 30% in 2020.

VentureIsrael, an early-stage technology specialist launched just six months ago, has six portfolio companies, but Isaev, a nine-year industry veteran, says the process of discovering these companies began years ago.

“The biggest challenge is to find entrepreneurs and get to know them early,” Isaev said. “Three years ago, I realized that quantum computing was becoming a hot topic, and Israel didn’t have anything, so I found out that Hebrew University had a quantum lab and I walked in and asked the professors if they knew of any entrepreneurs doing interesting work. From there, we started to get to know the people in the department and build relationships.”

That helped VentureIsrael land an investment earlier this year in QuantLR, a quantum cryptography start-up developed by Hebrew University physicists.

The company’s other investments came from similar long-term outlooks, Isaev says. “Three years ago, I understood that cybersecurity for maritime ships would become more important, and we started developing relationships with a company called Cydome, which we recently invested in.

“One of the fields I believe strongly in right now is neuroscience. I believe computers will be able to read our thoughts and use them to generate actions. We recently made a significant investment in CorrActions, another Jerusalem-based company that is developing a noninvasive brain–computer interface platform that can identify a person’s cognitive state in order to prevent human errors in real-time.”

The key, Isaev says, is to identify important upcoming technologies, and then build relationships with the people in the industry so that both sides are ready to make a deal at the right time. “But you have to get there early,” Isaev says. “Once people know about it, it is too late.”