Heidi Roizen (Threshold Ventures): On average our investment period is somewhere around 6-7 years. It’s longer than the average marriage in the United States. Take your VCs very carefully
26 Oct, 2020
Gigi Levy-Weiss is a business executive and angel investor who works primarily with internet, software and gaming companies. Early in his career Levy-Weiss worked with his own startup company and hold a number of management and consulting positions with various technology companies. He was Vice President and later Division President of Amdocs Limited. He joined 888 Holdings as Chief Operation Officer (COO) and then CEO. After leaving 888 Holdings Levy-Weiss worked as an investor to a number of technology companies. He first invested in Playtika later acquired by casino operator Harrah’s Entertainment. He also invested in startups such as Kenshoo, Crossrider, Plarium, R2Net, Eyeview, RealMatch, Lovelive.tv, NonoRep, Gooodjob, Superfly, SpeakingPal, Ekoloko, TradeO, Zoomd, Moovu, Moolta. He is partner in co-founded NFX Guild.
Like many people in the investment world who started by building their own companies, when I left Israeli Air Force (I was a pilot), I decided to become an entrepreneur. Like many people here, in Israel. So I built a few companies. Some of those companies succeeded. I was running larger organizations, with hundreds and thousands of employees. Something like 15 years ago a friend of mine came to me with a venture, and for the first time I decided to invest in somebody’s else venture. It was very successful – for my little money I’ve got something like 20 times more. I thought that was fun, I would be able to do it further. I decided to take all those money and reinvest in another company. And I continued to do so as my hobby, at my day-offs. After working that way for a few years a day came when I was about to take a new position in one large company. One of the companies I founded, called Playtika, was sold for a lot of money. So I thought, maybe, I should make investments as my day job instead of hobby. That was when I moved to investing full-time.
Yes. A few months ago I’ve heard one of my kids talking to his friends and trying to explain what was my job. He said: “My daddy invests in startups”. “But what exactly does he do?” My son thought for a moment then said: “It’s simple. He has a very good job. He wakes up in the morning, goes to his office, meets the smartest people that he can find, and if he likes them, he gives them money to build their companies and fulfill their dreams”. I thought that was the best definition of my job I’d ever heard. I meet the smartest people, I work with the most exciting ideas in the world, I’m always in the cutting edge of technology, so – yes, I’m very happy with my current business position.
We invest in seeds. I used to be an angel, and a few years ago I partnered with some top-investors in Silicon Valley and we created an accelerator and venture funding firm called NFX. Today all my investments are from this fund. We are a seed fund – a large one, our investment fund is around $300m. But because we are a seed fund, I look first and foremost at people, not at ideas. When you invest in a seed, till the time when a company reaches, hopefully, successful realization, the idea can change a few times. So we rather invest in people. For me, when I choose an investment, it is around 70% a team, 20% a field and only 10% an idea. It’s a bit misleading, because when people come with a very bad idea, I know that it is not a good team, it is generally like that. I look at a team and think “do I want to work with them?” When I see a team I can work with, I look at the field. In terms of fields we do almost everything – B2B and B2C. Today we are a little bit more excited about B2C. We do mostly software and hardly ever do hardware. We do a lot of network projects – marketplaces and networks are things we like most. This is a focus area of our fund.
I always say that it is much better to come to me through a warm reference, from other investors. The reason is that I get dozens of meeting requests daily – every good investor gets – and we simply can’t meet everybody! So we are looking who else is endorsing a request. If people cannot find a way to me, if they cannot get a warm introduction, I always wonder how they can get a warm introduction to their customers, how they can reach other investors? This is really important, it’s the first thing.When somebody gets in touch with me – through a warm introduction or just a cold call, I want to see a deck. Deck must talk about the market, the problem, the product, the solution a company has. I want to see why now is the right time – is this a new technology, a change in consumers’ behaviour – why now is the right time. And the team, of course, which is critical. And the competitive landscape. I don’t want to see a very detailed business plan, because they are too much emphasized at the seed stage and that won’t help me to understand whether I want to invest in that company or not. So it is the market, the problem, the product, why now, the team, and the competitive landscape.
I did a few times in the past. I’m not sure about the statistics, but a single founder have something like 40% less chance to succeed than teams of two or three. It has sense. As a founder myself I know how much pressure it is, how difficult it is – to be a founder in general. And if you’re on your own, if nobody supports you, it’s really tough. For me it is really critical to see a team. I did invest in single founders, because they were amazing, very strong and I really wanted to work with them, or because I knew them before, but in general I prefer a team.But the investment world is the world of outliers, world of anomalies. You try to find a thing that cannot succeed in theory – because it is always someone with more money or better idea – and try to make magic, to beat a company that is a thousand times larger than you. To do this you need exceptional people. If I run again in such an incredible person, I think, I will invest again even in a single founder.
NFX usually invests $2-2.5m, but if we really like a deal. Usually, when founders are senior, we can give them more to give them more solid start position. But the average is between $2m and $2.5m.
We had found out that the main way to identify great teams is to watch how fast they move, and we try to be the same. We try to be a fund that moves really quickly. The due diligence is very concise; three partners meet an applying company. We talk to people, we check things (if it’s a very early stage, there is not much to check). We do legal due diligence, numbers, check if everything is in order. But the vast majority of our due diligence consists on spending time with a team and talking with experienced people in the field. We don’t disclose our internal affairs, of course, but learning the field, getting a crash course from people we know in Silicon Valley and Israel, make us move relatively fast. So we decide whether to invest or not within 2-3 weeks, but sometimes it may be within as little as 3 days.
Last year, I think, I reviewed something like 2000 startup projects and invested in 7 of them. So the percentage is crazy low. The toughest part of my job is that most times I say “No” and I hate to say “No.”
Mostly it is either companies we have already invested in or people we know. A lot of them are just cold calls. Despite I prefer warm introduction, lots of people still do cold calls, and I review everything. Another source is marketing: we put a lot of content and marketing material helping people to learn about us.
The most important thing for me is the credibility and trustworthiness of the team. So if I fill that a team doesn’t provide all important date or is not very truthful and forthcoming, I don’t invest, even if their idea is amazing and everything else is great. To work in an environment with no trust is something I can’t accept. This is the first thing. The second is team dynamics. If it is bad, it is a great indication for me to stay away. Running a startup is such a tough thing, that if at the end of a day they won’t be well connected and won’t work well together, the thing is not worth my time to be invested in. I don’t believe that they will be better cooperators later. So I look at how they relate to each other and allow to express each other during the meetings. The third thing is when a team doesn’t know its competitive landscape, don’t show it at the deck. The problem is that they either know their competitors and hide them or simply don’t know about. If they know and hiding, how can I trust them? If they just don’t know, it’s also horrible, because how I can work with people unable to google information as I can do? Of cause, there is a lot of other things, like discrepancy in the numbers, etc., etc. I like startups of older people who don’t mind and ready to compete with younger competitors. I think they can beat younger competitors. I don’t mind if they are competing against small startups. It’s OK if they think they can beat others. But I don’t like when teams are competing against established startups. To go now and compete against AirBnB or Stripe – the companies, who are still have startup DNA, still very fast, very paranoid, but already invested a lot into people and resources – I don’t like it. These things scare me.
Of cause, many times.
The best blog right now is ours. We put a lot of effort into our content. I’m not kidding! I follow First Round Capital, they do incredible work as well. And sporadically I read a lot of things in my network. Books… There is a lot of classics, but I tend to read books increasing my creative energy, like science fiction and found out that any moment I put into science fiction makes me more creative and better investor.
I don’t like ranking. I don’t think I have full perspective. I think those are operating system companies that create ecosystems, that change our lives. Like Microsoft with Windows, then Apple with iOS, and Google with Android – they are enablers of innovation. This is a perfect network example showing how networks made a better life for everybody. Recent run of marketplaces that disrupt huge industries by unlocking inventories never available before, like AirBnB with rooms, Uber with cars, Fiverr with work force, etc. Those all are amazing companies and they stay around for years and years to come. They allow crazy innovation and disruption in the areas not disrupted for a long time. And another type of marketplaces – e-commerce, including, of course, Amazon. They made everybody’s live better by allowing every merchant sell goods much easier and much cheaper than before. I should also mention Facebook as #1 social network. Some people may argue that this impact wasn’t always positive, but this is a company impacted the world more than any other company in the last 50 years.
I looked at space companies, but never invested. Maybe it’s because Israel doesn’t have a lot of space tech, or maybe because these are very-very long-cycle companies. But I’m a huge believer that we need to move toward the stars and that it will be private companies who push this movement rather than governments. Governments care more about stratosphere, but to go interstellar it must be some kind of financial phrenzy moving people. It’s a logical evolution of Mankind, and I hope we can see quantum leaps in my lifetime. And not too late for me.