Business Sense – OurCrowd Returns
By Al Shams
Jonathan Medved visited Atlanta two years ago and introduced crowdfunding to some select investors. He discussed how his firm, OurCrowd, has provided capital to a number of Israeli startups.
Medved is one of Israel’s best-known venture capital entrepreneurs and was prominently mentioned in “Start-Up Nation.” The Washington Post considers him one of Israel’s leading high-tech investors.
Medved has been deeply involved with more than 100 startups, 12 of which achieved valuations of at least $100 million. He has often appeared on CNBC and other business programs.
What Is Crowdfunding?
In general, it is a process by which an entrepreneur will place some information about an investment on a website and invite people to invest. This process is an alternative to traditional angel investors, venture capital or public offerings to raise capital.
Crowdfunding is a largely unregulated process, and situations can range from responsible to insane. Many abuses with crowdfunding have arisen. Unless you have significant knowledge of and confidence in the promoter, you should be highly skeptical.
Israeli Startups
Israel is No. 2 as a location for startups; Silicon Valley is No. 1.
Israel has 91 Nasdaq-listed companies.
The past 10 years, 3M, General Electric, Twitter, Oracle, Cisco, AT&T, Apple and Google are among more than 40 companies that acquired at least one Israeli company.
In 2015, approximately $5 billion was invested in Israeli technology companies, while $9 billion was generated from the sale of Israeli companies to outsiders.
Clearly, the entrepreneurial spirit in Israel is strong and vibrant, producing jobs and economic growth.
OurCrowd Approach
Historically, it has been difficult for outside passive investors to participate in the dramatic returns earned by Israeli startups. Usually these opportunities were limited to hedge funds, pension funds, wealthy individuals and institutional investors able to invest sums too large for most individual investors.
Audrey Jacobs, an OurCrowd partner, provided insight into the firm’s history and success during a recent visit to Atlanta facilitated by Conexx. She is responsible for the firm’s activities in the Americas. She has an extensive background in finance, has been an entrepreneur for more than 10 years and was OurCrowd’s first employee outside Israel. She thinks Israeli startups can be financed for less than comparable companies in Silicon Valley.
OurCrowd’s prime goal is to democratize venture capital fundraising so that unique opportunities are available to a much larger investor group on terms comparable to what institutional investors receive.
The past three years, OurCrowd has raised more than $220 million from 12,000 members (investors) in 110 countries for 95 portfolio companies with 50 follow-on rounds and has had six exits.
Co-investors in OurCrowd-sponsored transactions include Microsoft, GE, 3M, Sequoia and Khosla Ventures.
In June 2013, OurCrowd became the first fund to require its Israeli companies to commit a portion of their equity to a charitable cause. Through a partnership with Tmura, the contributions are made on the closing of any financing. The idea is to share the startups’ good fortune with the community.
3 P’s
OurCrowd brings people, process and product to the table:
- People — A highly experienced team of more than 90 professionals who have participated in all phases of the venture capital business.
- Process — A well-defined, deliberate and comprehensive due diligence process that screens more than 2,000 prospective deals and selects 1 percent to 2 percent.
OurCrowd initially invests its own capital, then makes the transaction available to members on the same terms. After a company has been funded, OurCrowd monitors operations and reports on progress.
- Products — Three investment platforms are offered to investors.
Two prospects being reviewed are Biocatch, which aims to detect fraudulent activities by analyzing human behavior and cognitive responses, and Zebra Medical Vision, which wants to teach computers to detect and diagnose various medical conditions.
This article seeks only to describe a method of raising capital for small high-risk venture capital startup companies. It does not constitute a recommendation or solicitation. Any reader who wants to take this process further should conduct due diligence.
I recently made a small, nonmaterial investment in one of the OurCrowd startups. I have not received any form of direct or indirect compensation for preparing this article.
I cannot conclude this article without mentioning another “Our Crowd,” a tremendous book written in 1967 by Stephen Birmingham that tells the history of the great Jewish families of New York. I heartily recommend it.
Al Shams is a Sandy Spring resident, a former CPA and an investment professional with more than 36 years’ experience.
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