Israel has had an amazing track record of producing startups and raking in returns– better than most countries many times its size. The problem is the returns have fallen off dramatically in the last ten years as industries Israel excelled at have become mature. Meanwhile, it’s failed to generate many big consumer Web hits, aside from MyHeritage and a few others.
I’ve traveled to Israel several times and met dozens of entrepreneurs, investors and startup boosters. In my experience, there are generally two kinds of Israelis: Those who blindly talk up everything Israel, going rabid if you dare point out the obvious decline in returns, and those who have a clear grasp of the country’s strengths and weaknesses and actively play to the strengths to combat the weaknesses.
Yaniv Golan and Avichay Nissenbaum are the latter. They have no illusions about the challenges to starting a big tech company in Israel, as industries have changed and globalization has shifted many VCs’ focus to bigger, sexier markets like India and China. But they still believe in their country’s entrepreneurs. TechCrunch last heard about Golan and Nissenbaum in 2007, when they sold their Q&A site Yedda to AOL. Now, the two are launching a new micro-VC firm called Lool in hopes of filling a gap in the Israeli funding market, and help entrepreneurs with a good idea get a little further.
Lool is Hebrew for “crib” or “hatchery” and the idea is that this will be more like an incubator, heavy on the mentoring. And Nissenbaum an Golan have the cred to mentor. Nissenbaum was the former country manager for AOL Israel, and before Yedda he co-founded and sold a company called SmarTeam. Golan has been a Web developer since the mid-1990s and is well liked in the Israeli scene. Both have been active angel investors, funding or advising 15 companies.
Index’s Saul Klein is an adviser to the firm and calls it “Israel’s first credible micro VC.” “Increasingly this talent is looking to work with experienced entrepreneurs who have been there and done that,” Klein said. “Yaniv and Avichay have real entrepreneurial, product and general management credentials, they are very embedded in the community and they have great access to the US.”
Like a lot of micro VCs in the US, the firm is focused on Internet and media and expects most of its companies will have rapid exits of less than $50 million. The firm will provide seed and series A funding and a lot of added services like discounted legal and accounting services and in-house product and user experience experts. “We’re trying to create unfair advantages for the companies in our portfolio,” Golan says. Lool will focus on helping a handful of the best companies it can find.
It’s a dramatically different approach from Israel’s most famous angel investor Yossi Vardi who’s more of a Ron Conway-style investor, coming in very early and spreading his investments widely and providing less one-on-one time with each entrepreneur. As the Valley has shown, a rich startup ecosystem can support both.
Anyone who reads my posts regularly knows I’m not a big fan of funds set up just to help companies flip. I don’t buy that they’re sustainable long-term in what has always been a hit driven business. But like it or not, these quick flips have become the bread and butter of Israel’s Web scene, and Internet companies are what aspiring entrepreneurs want to build, whether the country has a good track record at it or not. I applaud these guys for taking a new approach and working to make entrepreneurs more successful at the game they want to play.