Trends Watch: VC Investing in Israeli Entrepreneurs

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Scott Cohen, Founding Partner, Aviv Growth Partners.

What is your outlook for VC investing in Israeli entrepreneurs? 

We are extremely bullish. As EisnerAmper knows well, because the firm has a large presence in Tel Aviv, the Israeli entrepreneurial environment remains red hot, despite the economic reset. Israel still has more startups per capita than anywhere in the world, including Silicon Valley, and the data show that Israeli seed rounds have a higher likelihood of advancing to successful A rounds than U.S.-based companies. 

More importantly, as Alan Wink at EisnerAmper wrote earlier this summer, most VC firms are taking a more cautious approach amid the economic downturn. We agree with Alan and have seen that as well ... we also believe it is exactly the wrong position to take, especially now. 

Successful Israeli entrepreneurs who sold their companies or IPO’d over the last half decade have been enjoying high valuations and comfortable high salaries (Israeli tech-industry salaries are notoriously stratospheric). Now that those entrepreneurs have made plenty of money and are fully vested, they’re looking at the clipped valuations of their parent companies — some of which crashed as much as 85% this summer — and are saying to themselves, “Time to go off and start something new again!” We believe that venture firms sitting on the sidelines are missing out on some of the most seasoned entrepreneurs as they launch their second acts (and do so with larger rolodexes, domain expertise, built-in teams, and significant learnings). 

What are the greatest opportunities you see and why?

Well, I know that EisnerAmper recently expanded its digital health services line, so my answer will not be a surprise. Israel is the only country on the planet with digital health records for nearly 100% of the population, dating back decades. This gold mine of data creates extraordinary opportunities unavailable anywhere else, and has fueled an entrepreneurial ecosystem that few in the U.S. truly understand. Israel’s well-known expertise in artificial intelligence and machine learning, combined with its unique digital health posture, gives Israel an unparalleled advantage in health analytics and health IT. There are other significant opportunities in Israel as well, but digital health is probably #1 on a lot of lists.

How has the “future of work” impacted your investing?

I recently saw EisnerAmper’s 2020 survey, which stated that 60% of executives intended to let employees work remotely, and that “lack of team building” was employers’ biggest challenge. I think that survey was remarkably prescient, and I suspect the data still hold true, two years later. 

Our firm partners are split between Boston and Tel Aviv, so we were a Zoom-driven culture from day one. But, for sure, the lack of team-building is a challenge. Our partners have known each other for decades in some cases, and we genuinely miss being able to spend time together. 

Interestingly, because Israel is a small and relatively isolated country, it already had a “future of work” mentality, and had developed very strong muscles around remote work, hybrid work, schedule shifting, and more. As a result, it’s not a surprise that some of the most successful unicorn productivity and communication platforms — like Monday and Gusto and Gong and Papaya — were founded by Israeli entrepreneurs. It will come as no surprise that the “future of work” is another one of our investment hypotheses, along with the digital health narrative we discussed already.

What keeps you up at night?

It’s a funny question, because our fund invests in a country that’s seven hours ahead of my time zone in Boston. Which means that an “early" 6:00 a.m. video call for me is already afternoon in Israel … it’s like I’ve missed half the day! My wife would tell you it’s not uncommon for me to slip out of bed at 2:00 a.m. or 3:00 a.m. for a video call with a startup in Jerusalem or Tel Aviv, but I know that’s not what you’re asking.

So, right now, deliberations about our next fund are keeping me up at night, but mostly out of excitement rather than angst. As we’ve discussed, there are some very significant opportunities in Israel, and we believe an extremely important geo-economic transformation is about to happen. I won’t go into it in detail, as we’ve published on the topic, but we believe that the next era of Israeli innovation will create a geo-economically transformative event. Just as Shockley and Fairchild Semiconductor unleashed the centripetal force of Silicon Valley, we believe we’re about to witness a massive geo-economic orientation towards Tel Aviv. 

To benefit from that transformation, we have a few different tacks we can take when it comes to our next fund. One of those options goes a little deeper into a particular vertical. All of the options are extremely promising, but the related strategy work — the research, data crunching, analysis, charting, debating, drafting, and ultimately the codification of our strategy — is definitely keeping me up. 

But it’s the work we love, so I can hardly say it’s got me up worrying; on the contrary, I’m up at night because I’m exhilarated. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.