Photo taken by Ilan Porat

“Don’t look for a hot area, but follow your passion” says Rhodium, an early stage VC

Photo taken by Ilan Porat

Meet Rhodium, one of Israel’s leading early stage VCs. Rhodium is backed by the Recanati family, one of Israel’s premier business families, which played a key role in the establishment of the Israeli tech industry.

This year 4YFN takes the members of its “Tel Aviv experience” delegation to explore the cradle of the Israeli startup ecosystem, in the north of the Tel Aviv metropolitan during DLD Innovation Festival. As part of the tour we will visit leading innovation stakeholders, Rhodium, as well as the HAC Accelerator and the Amdocs-AT&T Foundry, who will share their experience and views about the Israeli tech space, and their unique approach to working with and helping startups.

Rhodium has been investing in early stage startups for many years, mainly in Israel and the US and has an impressive portfolio including exits such as Face.com/Facebook, Hexatier/Huawei, Hopstop/Apple, and Rounds/Kik and is an investor in some of the most promising Israeli companies such as Outbrain, StoreDot, Yotpo and Zooz.

We sat with the partners of Rhodium, Daniel Recanati , Yaron Kniajer and Oded Hermoni to hear their views. With Daniel and Yaron in Israel and Oded is Silicon Valley, they have a very unique perspective and so we were looking forward to this discussion.  

We will be heading to DLD for the 3rd time this year, can you give us your opinion on the Israeli ecosystem and what our international startups and delegation can expect from being in Tel Aviv and at DLD? Plus, what will our delegation expect to see during the tour at your offices?

DLD is such an amazing event, the perfect opportunity for anyone interested in Israel to experience the uniqueness of our country and its tech ecosystem, with so many startups, investors and leading companies from Israel and around the world gathering in one place.  

Though Israel is relatively a small country, the Israeli tech ecosystem is one of the most developed in the world, with a very similar atmosphere to the one we see in Silicon Valley. Sometimes it feels like every Israeli either had a startup, sold one or is thinking about establishing one. The vibe is unique, combining some of Israel’s natural characters, the willingness to take risks, to think outside the box and to go global from day one. International startups and delegations coming to Israel will feel this vibe and might even be overwhelmed with the opportunities to partner with the local industry.

As for the visit to our office, we will do our best to make it as interesting as possible, tell you about our portfolio, what guides us when working with entrepreneurs and when making early stage investments. We hope that your visit to Israel will help you in building long lasting relations with our country.

Can you tell us a bit about your experience within the Israeli startup ecosystem?

Daniel’s family is well rooted into the Israeli tech ecosystem and history, with investments in companies, which became unicorns and industry leaders such as Mobileye and Objet.

Rhodium itself was founded in 2008 with a view to continue this legacy by focusing on early stage, pre A investments in promising startups and entrepreneurs. Since then, we built a strong position within the Israeli VC and startup world and are fortunate enough to play a part in such a vibrant space. As a people-focused fund, one that many times invests in a two-person team with an idea, we are always learning new things and are super excited about meeting the new generation of young entrepreneurs and finding ways to help them fulfil their ambitions.

Which are the differences between the Israeli startup scene compared to the rest of the world? Can you tell us more about how the investor ecosystem is shaped in Israel?

From what we see, Israeli startups are very close in nature to the ones in Silicon Valley. They have no domestic market, so they must think of how they bring deeper technology and better products into global markets. The Israeli startups are many times cost effective compared to the Valley, though they still run fast. The investor ecosystem in Israel is well developed across the different stages of the life cycle of a startup, with many global corporates active here through their local R&D centres, commercial and M&A activity. It is also important to note two interesting developments with regards to our investor ecosystem, the emergence of a new generation of funds and managers, and the building of an international footprint by the Israeli fund.

Do you have some success stories from some of the portfolios you have acquired from doing business in Israel?

We’ve been fortunate to see some of our portfolio companies joining leading tech companies such as Apple, Facebook and Huawei, and to invest along some of the world’s leading funds as Sequoia, NEA, Bessemer and others.

While many of our portfolio companies succeeded in growing real and large businesses, it is also important to understand that some of the  M&A of Israeli companies are driven by the right combination of deep technology and a strong technical team. The local footprint of the leading global corporations of course help in building the needed relationships with such potential acquires.

As a fund, we are always looking for the right balance between building large stand-alone companies and exiting companies when there is a strong match with a larger, global company.

What tech is hot right now? Any advice to entrepreneurs that are thinking of starting up their own business?

Israel is an important hub for a broad range of cutting edge technologies such as security, fintech, AI, robotics, and computer vision. Take for example the recent global excitement around blockchain and ICOs, Israel, again, is playing such an important role here. With that said, it is always a challenge for an entrepreneur to “rise above the noise” and to tell a story in a way that sounds different, exciting, like something that you must take part in.

If we need to summarise it, don’t look for a hot area, but follow your passion, build an amazing team (strong focus on team, and it can be first timers!), target a large market and do your best to validate that there is an urgency for a new solution/product like the one that you are building.  

What should a European investor know or consider when investing in an Israeli startup? Are there any specific advantages?  Is there anything else that you think investors from outside Israel should know about Israel’s startup ecosystem?

The fact that Israeli companies think global from day one is a big advantage for European investors, as it means that they can find companies suitable for Europe, especially if the investor can add value such as commercial connections, HR, industry expertise, follow on investors etc. For example, you can find several fintech companies, which choose Europe as their first go-to-market.

Another important point is that there is a significant arbitrage between the valuations of Silicon Valley’s startups and Israeli startups, while the potential is similar in many cases. With that said, a European investor must make sure to have high quality deal flow, something that without a local presence is almost impossible. Having a team on the ground or partnering with local funds is something any European investor interested in Israel should closely look into.

What should a European startup consider when approaching an Israeli investor?

Israeli investors, similar to other investors, tend to invest locally. However, they would usually be open to look at European startups if there is a local lead or if the team has some connection to Israel. When targeting an Israeli investor, identify first the people who are active in Europe. Secondly, try to have a local lead before initiating the discussion with Israeli investors. Thirdly, your product should be relevant not only for your home country but globally. Finally, do your DD, speak with local startups and investors.

Any other comments:

Make sure to leave some time to enjoy other aspects of Israel, not just tech and business. Go to the markets, experience the local food, the beach, meet the people on the streets, visit the historical places. It is a small country with so much to offer.

 

4YFN will be at DLD Innovation Festival in Tel Aviv, Israel from 5 – 7 September 2017. If you would like more information on the ecosystem tour and programme, then click here.