The Father of Israeli Venture Capital – Interview with Yigal Erlich
Internationally renowned as the Startup Nation, Israel has taken a role in recent years as a global venture capital superpower. In October, 2015, the Shoresh Institute published an encouraging report highlighting several points about this trend.
The team, led by Professor Dan Ben-David, found that a few of the ingredients leading to this status as a financial superpower are; the country’s entrepreneurial instinct, the adaptability and resilience created by a nation of immigrants, a security situation which led to an advanced weapons industry, and a high-level of university research.
Another reason, no less important than the ones above, is the fact that the venture capital industry in Israel was created in the 90’s thanks to government support in the form of Yozma. Yozma was the creation of the Chief Scientist of the Infrastructure Ministry at the time, Yigal Ehrlich, with backing provided by the Treasury Minister, Moshe Nisim, and subsequently, Avraham “Beyge” Shohat.
The program attracted the attention and funds of well-known international investors in VC such as Advant and CMS-iMVP from the US, the Van Leer group and TVM from Europe as well as Aucstin, AVX, and more from the Far East.
The majority of Yozma funds were developed on a model allowing the client to buy-out the government’s portion. In a few short years this proved to be a very successful model and created a supportive climate for Hi-Tech. Israel become a global leader and was imitated by countries like New Zealand, Russia, South Korea, and more.
Ehrlich, who now works globally in the field of VC, was strongly behind this growth which eventually led to Yozma becoming a private fund.
The industry in Israel has changed its form and now foreign funds compromise more than 80% of the market. Still, Israel carries with pride the title of “The Startup Nation”, which Ehrlich believes is just as fitting today as ever.
“There are no other examples of a situation like this,” he said. “I give a lot of credit to the media for creating the country’s brand. Startup Nation became a strong brand, and we are still worthy of it because we create startups and sell them. We are a creative country of startups for sale. With our geopolitical situation, and the Israeli characteristic that gets things off the ground but is less interested in ongoing management, I don’t see this changing soon.”
Ehrlich, who has been called “The Father of Israeli Venture Capital,” is modest about his accomplishments and points to two significant factors that help every entrepreneur – identification and timing.
“In the early part of the 90’s, there was no VC in Israel. There was technology infrastructure, and there were companies that tried but didn’t succeed. There was entrepreneurship, there was government support via the OCS, and there was an understanding that this was the most important thing for Israel’s economic growth. There was a good foundation.
“On the other hand, companies didn’t succeed. The media claimed that we’re unsuccessful by nature. That we know technology but don’t know how to market products or run companies, that the OCS gives money but gets no return.
“Therefore we searched for something that could make the whole thing more efficient. Many people say that what was done with Yozma was the correct process but something that would have happened anyways. The question was when it would have happened? The big advantage in my mind is that Yozma sped up the process. And ‘timing’ is a synonym of luck.”
Three Key Points of Success
Myth vs. Fact
Ehrlich says: “Work in VC sounds magnificent, but it’s a bit different than the way it’s understood. In VC there is the stage of raising funds and chasing after investors. The moment you’ve raised the fund, you transitions to the opposite side, when people chase you, and there you have to get involved in protecting investments, processes that are not always simple vis a vis the entrepreneurs or other partners, and managing your risk in the business.”
Is VC Relevant to young people?
“This is a field that requires seniority, experience, and the ability to remain calm; otherwise things do not go well. Don’t chase financial success, which is important – but from the moment you’ve succeeded you need to build things differently.”
What makes a nation take on an entrepreneurial character?
“First and foremost, the willingness to take risk and the fact that the public is willing to accept the failure of those that take risks. The Koreans like to say that the most prominent Israeli characteristic is “Chutzpah.” They mean the positive Chutzpah. But a situation where a child cannot disagree with their parents, or an employee cannot argue with a boss, is a situation which suppresses entrepreneurship. An entrepreneurial innovator must, among other things, be tough, not lose track of the goal, and work to get to it by finding out-of-the-box solutions. In Israel there are many people who have a high-percentage of these characteristics.”
Carmit Sapir Weitz is Media Director for AlmaLinks, a global network connecting outstanding CEOs and executives to the Israeli business community.