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Jerusalem Startups Learn From Shlomo Kalish and Emma Butin

Much is made of Tel Aviv and its suburbs’ startup and tech scene, but little is known abroad about the goings on in Jerusalem, whose “City of Gold” nickname is an increasingly literal term. Local tavern Mike’s Place two weeks ago played host to a standing-room-only crowd who came to listen to Israeli business phenom Shlomo Kalish and entrepreneur-journalist Emma Butin share lessons from their own personal experience. Capital J, Ruach Chadasha and SifTech organized the event.

Bira-Tech 4's audience filled Mike's Place to max capacity

Bira-Tech 4

The crowd was standing room only - another sign of Jerusalem's development as a startup hub

The crowd was standing room only – another sign of growth in Jerusalem’s startup scene

After some free time for networking, Butin began her talk, focusing on common errors she’s seen entrepreneurs make in recruiting investors, and the solutions to those mistakes.

1. Not knowing how to answer the question, “What you need the money for, specifically?”

An idea isn’t an idea unless you know specifically how to execute it, emphasized Butin. You need a problem, solution, business model AND a go-to-market strategy.

Without these details, you just have a notion that can’t be pinned down to particular financial requirements, and thus your request for financing is more risky than necessary. You may be raising too much or too little money, meaning you’re either unnecessarily giving up too much ownership or not getting enough time to execute. Either one makes for bad entrepreneur-investor relations.

Therefore, Butin emphasizes, you need a go-to-market strategy that includes your Minimum Viable Product (MVP), and your target market definition (in her words, your ‘first adopters’).

Another implication of asking for money without proper preparation is making a poor impression. Investors judge you from day one, says Butin, to help evaluate the risk/reward potential of investing in you. Investing in a startup means in part deciding that the entrepreneurs are worth taking the risk on and if you’re unprepared, that makes the risk appear greater, unnecessarily.

2. Not understanding what your potential investor’s category and motivation.

In this case, the question is what motivates the particular investors that you’re talking to? This varies with the type of investor they are, be it venture capitalists, angel investors, the government, accelerators and/or friends or family.

Angels are motivated chiefly by interest, both professional and personal. If someone lost their father to Alzheimer’s, they are a lot likelier to invest in a startup researching cures…

Other motives include giving back to the business community, which ties in to professional interest, being first to a new technology, public relations, tax benefits, and of course profit – though this is secondary.

VC Funds are generally non-ideological, and instead looking for huge markets. Besides for the potential for a huge exit, these investors care about funding teams (this decreases risk vs solo-entrepreneur).

Government – In Israel, this typically means the Office of the Chief Scientist (OCS), who really want new technologies to be developed here, as well as creating jobs of course. Butin turned aside a variety of the crowd’s thoughts on what the OCS cares about to emphasize what sounded to me like a ‘geek culture’ of the OCS – technology for its own sake. Worth knowing, but surprising for a government institution.

Accelerators feature short term programs typically lasting up to three months, and only minimal funding ($5k), albeit compensated for with working space, mentoring, networking and other resources.

Butin therefore advised people to think about what milestones they could achieve in that time, a theme returned to later by Shlomo Kalish.

In response to my question, Butin and the crowd shared that there are three accelerator programs in Jerusalem – JVP, Van Leer Tech, and PresenTense.

Emma Butin shares some common startup mistakes to avoid

Emma Butin shares some common startup mistakes to avoid

3. Not doing homework / not researching the particular investor being solicited

Even once you’ve understood what category your investor belongs to, your work isn’t done.

Emma shared the sad story of an Israeli company seeking investment who spilled their guts to crummy VCs. Those VCs then shared those ideas/tech secrets with a competing company the VCs had already invested in.

Moral: Research your potential investor thoroughly, including existing investments. This avoids heartache.

(The story is exceptional, because those VCs’ reputation is down the drain now, and others know better.)

Another example – Per Butin, a variety of funds operate on 7-10 year investment cycles. At the beginning, investments are small and in early stage companies. Later, remaining capital is dedicated to large investments for growing proven companies, be they portfolio companies or not.

So if you’re an early stage startup speaking to a VC looking for late-stage companies, don’t waste everyone’s time. Avoid pitching for investment. Instead, just ask to pick their brain and better understand your own idea.

Some crowd objections:

“There are VCs specialized in different stages! How can you say it’s cyclical?”
– Emma stuck to her guns, making these out to be a minority of the market. Late in the cycle, VCs need money to reinvest in the successes in their portfolio.

What about secrecy agreements? Can’t that cover you?
– That’s the exception, valid late in the game only. I.e. If the VCs are chasing you cuz your site/technology/business is proven. Otherwise it’s too annoying to deal with (what can we say, can’t we say?…) and they’ll just refuse to meet you.

The Pitch

Get there early. Again, you need to make a good impression from day 1.

Start with the purpose of your technology, whose pain it solves.

In emails, stay brief, to the point, polite and avoid spelling errors. There are more startups than investors, so investors will use any filter handy, including sloppy writing. (Yours truly is blogging without soliciting investors to the blog so forgive me ;).)

With that, Emma wrapped up!

Some highlights for me were confirmation of some things I understood already from a fair amount of reading on the topic – but especially the very strong impression the crowd made. From crowd responses to Emma’s questions, from chatting to them etc it was apparent that there’s a sophisticated audience in the city.

Shlomo Kalish – The 8 Startup Commandments

After receiving a warm introduction detailing a long list of his accomplishments, Shlomo took the mic.

Shlomo Kalish teaching his golden rules of startups to a rapt crowd

Shlomo Kalish teaching his golden rules of startups to a rapt crowd

He opened with a very interesting – and in my experience, true – observation that Israel suffers from an abundance of Chiefs and too few Indians. Too many people are only willing to lead, and not join others’ initiatives. (Was he talking business or politics, hehe ?)

The top rule Shlomo wanted us to learn that night was:

1. Pass The Value Test

You need to provide more value than you take (i.e. price you charge). This is true even for luxury products (who knew?!), Shlomo emphasized. To do this, you must understand who is the customer and what his problem is.

2. Love Your People

Today’s job market is highly flexible, so people must enjoy working for your company – or they’ll leave. Money matters, but it’s just a baseline. Involve them in decisions, management. Empower them.

A leader is someone with followers.

These words reminded of this video:

3. Focus

Business newspapers write up success stories (in contrast to the political sections…) but not about failures. So we hear about mega-companies like Google with tentacles all over the place… and forget that success first comes from doing one thing well.

Find your niche, and don’t get distracted.

4. Be Flexible To Weather The Storm

At times, unforeseen events occur and you need to pivot. A market dissapears, competitors surprise you…

Kalish shared the story of Galileo, a tech company he’d invested in, who made computer chips for the photocopying market.

Galileo discovered that despite having great technology, the extremely long sales cycle in the photocopying business wasn’t allowing them to start generating revenue. They pivoted to a different use for their chips, in a market with shorter sales cycles, and made a killing.

[How does this mesh with focus? Focus means choosing one thing to do, not refusing to change what that one thing is if necessary. So you can change your core activity – but still you must keep to one core business, as a startup.]

Further to this dichotomy, Kalish drove home his point: Keep your core value inhouse, outsource everything else.

Both Kalish and Butin gave engaging talks, and it showed in the attention they got

Both Kalish and Butin gave engaging talks, and it showed in the attention they got

5. Avoid Dumb Money

Don’t get your own, family or friends’ money involved. You as the entrepreneur are an optimist, while your family are investing for emotional reasons. If the money dissapears – they’re upset and you screwed up a key relationship.

By dumb money, Kalish said he means money that bothers you. Investors you can’t live with.

By default that means friends/family, because you won’t be able to live with them if things fail, as they do for most startups.
It’s a term with wider application however, including to angel and VC investors. The key question is how do they behave?

Check with previous companies they invested in. People they worked with. Investment’s a partnership, and you should check references. Some people with money are troublemakers, unfortunately.

A common question Shlomo gets: What if family and friends are the only option?

In that case, Shlomo said, you want to rethink the business. If pros won’t invest, perhaps you need a better plan or team.

Also, ignore what people say about having “skin in the game” (investing in your own company).

[My interpretation of why he said that: It’s nice to see for investors, but not essential, while it’s dumb from your perspective.

[It’s dumb from your point of view since you’ve presumably got limited funds (otherwise why raise?), whose loss will be a burden. You’re not an investor like a VC who is playing the odds by making multiple investments, losing small bets but making it back on the big wins.]

6. Raise Smart Money

This is money coming from investors who you can live with AND have a value-add. Don’t trust what investors say about themselves – again, check references re: value add.

You’re looking for connections, advice etc.

Note: Don’t get stuck on valuation. It’s better to have a small piece of a big pie, than a big piece of nothing.

7. Raise Money When You Can (Not When You Need)

What you raise depends on your cashflow. Assume you will spend more and earn less than projected, and raise accordingly.

How much should you raise? Base yourself on milestones – raise enough to reach the next one and overshoot it.

You WILL take longer, so raise more than projected necessary, when you can raise.

8. Manage Expectations

Don’t tell investors, “just trust me, it’ll be fine.” Israelis get it (somewhat), but no one else does.

Admit problems on the way, explain steps you’re taking to fix the issue, guesstimate a time until it’s fixed.

ALWAYS underpromise and overdeliver.

Never create bad surprises. Can’t meet payroll? Tell employees, explain why, when money is coming, from where…

That seems to have been all the commandments I got, but if anyone’s got 2 more (i.e. 10), I’d love to hear it in the comments. Shlomo?

After his speech, Kalish took the time to speak to audience members individually

After his speech, Kalish took the time to speak to audience members individually

Q&A With Shlomo Kalish

– How to persuade investors to invest if you want some profits to go to charity?
A: He’s part of an org that encourages exiting companies to give 1% of exit to charity. Generally though, investors won’t like this. FYI: Tzedaka is a personal obligation.

– What are you looking for in entrepreneurs?
A: Honesty, good character. Traits your mom wants you to develop. (Missed some of the answer.)

– How do you make J’m a center of innovation?
A: Develop engineers and scientists in local community.

– How do you raise $ elsewhere if can’t here?
A: Depends why you can’t raise here. If it’s cuz of foreign market few here understand (ex.: Japan, S. Korea), raise funds there – applies only to later stage companies though. If it’s not for a good reason like that, improve your plan/team etc. [Pass the Value Test for investors.]

– How do you enter VC work?
A: Raise money ;). Realistically that’s hard today, because Israel as a country isn’t raising enough money as we invest more capital than we draw into our funds from outside sources. I.e. Deficit investing. So limited work opps.

Yours truly (Gab Goldenberg), in blue, with Kenny Dukofsky, Founder of Star3DMe, a game-personalization tool that inserts your image into the game you play

Yours truly (Gabriel Goldenberg), in blue, with Kenny Dukofsky, Founder of Star3DMe, a game-personalization tool that inserts your image into the game you play

If you liked this post, you’ll also like Jerusalem is Frothing about Jerusalem’s startup scene, and my review of Running Lean HQ by Ash Maurya.

Pics from the evening:

Posted in Business.

One Response

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  1. Shimi Dolberg says

    Great post, Gabriel! Looks like a great event

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