Impact Entrepreneurship

Paul Graham sparked a furious debate over the last few days about inequality with his blog post, Economic Inequality. He points out that the focus of the dialog should shift from inequality to combating poverty and providing more economic opportunity. The power of entrepreneurship, mixed with technological disruption, is creating an "acceleration of productivity" that is leading to rapid, massive wealth creation. Paul's essay argues that we should celebrate this, not seek to suppress it, and instead focus on inequality and social mobility.
I like that Graham is sparking dialog on this important topic. He puts himself "out there", even if it means being exposed to some withering critiques
His essay caused me to step back and reflect on the fact that I am seeing more entrepreneurs inspired to harness the power of some of the forces he describes – entrepreneurship, technology, innovation and shockingly fast productivity – to make a positive societal impact. I would like to see this trend continue.  I'd like to see more Impact Entrepreneurs (a concept I first saw coined in an article in Wired Magazine by Adam Levene) not just wealth-creating entrepreneurs. Impact entrepreneurs are inspired to direct their entrepreneurial energy and skill to make a difference, help a group in society, right a wrong or turn around an injustice. Not just build the next Candy Crush Saga.
Don't get me wrong – I love wealth-focused entrepreneurs, too. As a venture capitalist, investing in and supporting entrepreneurs focused on turning Flybridge's seed and Series A investments into something very valuable is my day job. But if we want to unleash the full power of entrepreneurship and technological innovation to better society, more entrepreneurs need to direct their energy to truly making an impact. This effort can take a few forms.  Some examples and trends are:
  • Mission-Driven, Double Bottom Line - Double bottom line companies measure their success on both financial performance and social impact. They are typically mission-driven companies with founders who are passionate about the mission for its own sake rather than financially driven where the company's focus is a means to an end. One of our portfolio companies (sprung out of Paul Graham's Y-Combinator), Codecademy, aspires to teach the world to code for free. The founders are focused on helping millions of people learn to code so that they can improve their job prospects and move up the income ladder. A company I co-founded back in 2000, Upromise, is focused on helping families save money for college, a necessary ticket to the American Dream. At its peak, Upromise helped over 10 million families save over $30 billion. Both of these companies are mission-driven, bottom-line for profit companies that raised lots of venture capital money, hired great people and built businesses focused on generating profits. There are many others like them, particularly in the world of education, health care and financial services. 
  • Impact Investing – A new class of investors is emerging at the intersection of financially-driven investments and social initiatives called impact investing. I am seeing impact investing funds popping up all over the world (e.g., one from Israel came into my inbox this morning). Deval Patrick, former Governor of Massachusetts, recently joined Bain Capital to start a new impact investing fund to find a sustainable, middle ground between profitable investments and social responsibility. The field is still unproven and there are many questions to be sorted out (e.g., should the investment return target be similar to "regular" investing or consciously lower?), but this notion has led folks to talk about “triple bottom lines" for firms:  financial, social, and environmental.
  • Public Entrepreneurship - Another powerful trend is directing entrepreneurial skills and efforts to innovate in the public sector. At Harvard Business School, Professor Mitch Weiss teaches a class called Public Entrepreneurship that focuses on this area. The notion is that entrepreneurs can work with civic leaders to make a difference in the world through technology, social change, and/or political transparency. Public Entrepreneurship can be for profit or not for profit. Not for profit examples include President Obama's Open Government Initiative, which has included making massive amounts of government data available to the public in machine readable form. Google's ambitious Sidewalk Labs is a for profit effort in this area, focused on applying technology to solve urban problems. The thesis of many public entrepreneurial efforts is that if both the government and the private sector can cooperate across silos, sharing information and tools to innovate together, we can materially improve the infrastructure and welfare of our communities. 
  • Social Entrepreneurship (aka Non-Profits That Act Like For Profits) - Social entrepreneurs are non-profits that draw on business techniques to address social issues, but explicitly in a not-for-profit structure. EdX, an ambitious joint venture created by MIT and Harvard, is an an example of a non-profit that acts like a for profit. EdX hires top engineers and marketers focused on building an online learning platform that teaches college-level courses worldwide for free, radically expanding global accessibility to high quality education. Another example is, whose mission is to develop products that give nonprofits the technology or the funds they need to implement change. Since 2010, they have raised over $20 million to fight human trafficking and child abuse, which was given to multiple organizations that are ready to use the money quickly and effectively. 
Each of these examples represents relatively new models for blending innovation, technology and entrepreneurship to achieve a social good.  There are really interesting hybrid models forming, which is why Mark Zuckerberg did not create a charitable fund when he created his multi-billion dollar initiative, directing his wealth to social impact. 
To further this trend, perhaps Y Combinator, Techstars and other accelerators should be creating a social entrepreneurship track. And more business schools should be creating public/social entrepreneurship courses to inspire young entrepreneurs to take their passion for social change and find ways to create scalable, positive impact.

Human progress is often the result of multi-disciplinarian efforts. I am optimistic that the trends Paul Graham points to – and is in the midst of helping accelerate – are going to ultimately have a very positive impact on society at all levels. But it will take some inspired entrepreneurs to get us there.

Analyzing Boston’s Reindeer (Not Unicorns)

A few years ago, I did an analysis on the Boston-based companies that were worth more than $500 million in value, which I called Boston Unicorns. One of the (somewhat depressing) conclusions I made at the time was "there have been no multi-billion dollar valued tech companies founded in Boston in the last 13 years."

With the news that Hubspot has hit $2 billion in market capitalization, I figured it was time to update the analysis. Happily, I found a more encouraging picture, both in terms of the performance of some of the Boston-based public companies and the pipeline of candidates that might elevate into this level of extraordinary value creation.

I felt compelled to move away from the oft-used unicorn label and I really just wanted to focus on multi-billion dollar companies because these represent the future anchor companies that Boston so desperately needs, as identified by this recent MIT study on Growing Innovative Companies to Scale that I participated in. Because it is the holiday season, and because I was able to find nine of them, I'll coin a new label:  Reindeer (pop quiz for my readers: can you name all nine of Santa's reindeer? I'm Jewish, so I confess that I had to look that one up). By my definition, Reindeer are tech companies founded since 2000 that have created more than $2 billion in market value. They're mythical creatures, just like unicorns, but very special when found.

Public Reindeer:  Nine

To get a sense of the future anchor companies in the Boston region, let's first look at the public companies. Two years ago, I pointed out that there were only three companies that had achieved > $1 billion in value in the tech sector founded since 2000 (i.e., excluding life science companies). Happily, there are now five companies founded since 2000 that have achieved > $2 billion in value and another four founded since 1990. Those companies can be seen in the chart below (complete with Christmas colors that would make Starbucks proud), reading left to right in terms of total market capitalization:  Demandware, Fleetmatics, Hubspot, Vistaprint, Wayfair, athenahealth, Nuance, Akamai and the new king of the Boston tech scene (with EMC's demise), TripAdvisor.


Contrary to popular myth, big business to consumer (B2C) companies can be created in Boston as four of the nine Reindeers are B2C. It is also encouraging to note that 2015 was a pretty good performance year for these companies. Seven of the nine companies saw price gains (as of 12/15) ranging from 6% (athenahealth) to 134% (Wayfair). Only two of the nine companies saw their value decrease: Demandware (11% decline) and Akamai (18% decline). Pretty good performance as a whole compared to other tech stocks that have gotten pretty beat up (e.g., Yelp is down 49% YTD, Box is down 41%, Hortonworks is down 24%).

Reindeer Pipleline:  Ninety-Nine

The next piece of analysis is to look at the high-flying private companies and examine the pipeline of companies that could become reindeer in the coming few years.

In order to do this, I used data from my friends at Mattermark (my firm, Flybridge, is an investor) to look at all the companies that have raised over $25 million in total capital in the last 10 years and whose last round was greater than $10 million (thereby filtering out down rounds/sideways situations). I was pleased to find a robust 99 companies that met those criteria in Boston. Of those 99 future reindeer candidates, 53 are from the tech sector, including 11 companies that have raised over $100 million in private capital:


Of those 11 companies, only one is a B2C company: DraftKings. The others are all B2B, including a few perennial IPO watch list companies who are believed to be unicorns (i.e., private valuations > $1 billion) like Acquia, Actifio, Affirmed, Veracode and Simplivity. Amazingly, three tech companies who have raised > $100 million were founded since 2011: the stealthy Altiostar Networks, DraftKings and OnShape.

Bottom Line

The conclusion of this analysis:  the Boston ecosystem is looking pretty robust, with nine solid anchor tech companies who seem to be performing well and over 50 private companies that have a shot at becoming future anchor companies in the years ahead.  So keep your eyes on the skies this Christmas Eve and you may see a few Boston reindeer overhead (meanwhile, I'll be at the movies and eating Chinese Food).

Thanks to Nicholas Shanman for his help with this analysis.

The Secret Weapon to Scaling: Sales Operations


I was speaking at an event last night and met a young woman at a large public tech company that was thinking of moving into startup land. She wanted to know whether her skills would be valued in a smaller, growth company. I asked her what role she was currently playing and my eyes widened when she replied, "sales operations". "Holy crap!" I exclaimed, "You'll be the most valuable hire a growth stage company could ever make." When the people around us looked puzzled, I realized that not everyone appreciates that sales operations is the secret weapon to scaling start ups.

One of the largest friction points to rapid scaling is the sales force. Very few companies have a business model that enables frictionless revenue growth because of their successful implementation of a freemium model – e.g., Bettercloud, Cloudflare, Dropbox, MongoDB – and even those that do eventually hire a sales team to move up the ladder on deal size and improve upsell, cross-sell and renewal rates. When you begin to scale a sales force, you desperately need to create a sales operations function.  Here's why:

  • You need to hire, train and make productive a lot of new salespeople – fast. Your sales directors and VPs find it hard to take the time to sit with internal and external recruiters and write job descriptions, screen candidates and develop the systematic training and monitoring and coaching programs for new sales recruits. The difference between ramping a productive salesperson in 3 months versus 6 months could be life or death for a scaling startup. That's the role of sales operations.
  • Your VP of Sales is a great leader, but not a great operator.  Most VPs of sales are strong leaders of people, recruiters and individual "rain makers". But they don't typically love staring at spreadsheets, analyzing metrics and working out optimal compensation systems that align incentives with strategy. That's the role of sales operations.
  • Sales and marketing alignment is important – but hard to execute in the trenches. The sales directors and VPs are too busy chasing deals and coaching their reps in the field to be back in headquarters walking marketing through the latest in competitive intelligence. The field staff struggles to be patient enough to explain and identify what sales tools are lacking as well as tracking what happened to certain cohorts of leads to improve lead generation. And wrangling over the latest in pricing and packaging schemes is never fun – and not something you want your sales team distracted by. That's the role of sales operations.
  • The insights from your sales CRM system is strategic, but cumbersome. Having an in-house whiz at is required to develop those fancy pipeline reports, prepare for the weekly sales calls as well as report to the executive team and the board on a weekly, monthly and quarterly basis a snapshot of what is happening in the field across all territories and all sales teams. That's the role of sales operations.
  • You want to invest in technologies to make sales efficient, without slowing down sales during technology implementation. Sales organizations are full of technology that need to be mastered – CRM, dialer, email platform, analytics tools – and asking each sales rep to develop proficiency in each tool and provide the IT team with feedback on how to optimally configure each tool is a distraction for them. That's the role of sales operations.

The best sales operations leaders allow the sales team to spend more time selling and less time worrying about reporting, cross-functional coordination and operational management. Sometimes known as the Chief Revenue Officer's chief of staff, the mole for the CEO to figure out what's really going on in sales, the executive who prepares all the board reports on sales – whatever you want to call it, that role is the absolute secret weapon that every company needs to rapidly scale sales.

As an aside, here are a few job descriptions recently posted for directors of sales operations at rapidly scaling startups that I liked on LinkedIn to help bring the position to life:

Your LTV Math is Wrong

There has been a lot of good stuff written over the years on the topic of calculating customer lifetime value (LTV). Thus, it amazes me how many times I discover faulty thinking when I talk to entrepreneurs regarding their LTV math. One portfolio company executive confessed to me last week that he knows he is doing it wrong but he just didn't have the time to research the best way to do the LTV calculation.

Since I see a few common patterns of mistakes, I thought I'd add to the LTV literature and point out the top three reasons many investors roll their eyes when they see entrepreneurs present inflated, poorly constructed LTVs:

1) Your churn rate is understated

One important component to an LTV calculation is the churn rate or cancellation rate. Many blogs suggest you simply divide 1 by your monthly churn rate to get to a number of months of duration that you can expect to collect revenues from your customer. Thus, if your average monthly churn rate is "c", the number of months of revenue you will receive over the lifetime of a customer is 1/c.

The problem is that many early-stage companies have no idea what their average, long-term churn rate really is because they are simply too young. When they have 6 month or 12 month or even 18 month cohorts, they extrapolate from those cohorts and come up with an absurd time period for their customers to stick around generating revenue. For example, if you have a 2% monthly churn rate in your first year, then some folks will extrapolate their monthly revenues out 50 months. A monthly churn rate of 1%? Then multiply that monthly revenue by 100.

As Jason Cohen points out, it's just not realistic that in a wildly competitive, dynamic technology market, a company can expect to hold on to its customer on average for 8-10 years. And, in my experience, you are so hyper-focused on satisfying and servicing your early customers that extrapolating your early churn rate just isn't going to be accurate.

To fix this potential issue, I recommend you pick a fixed cap number of months – conservatively 36, or three years – and recalibrate your LTV math accordingly. Your new expected months of revenue (N) would now = [1-(1-c)^36]/c. For example, if your churn rate is 1%/month, instead of assuming 100 months of revenue, you calculate 30 months.  Anything beyond 36 months just doesn't seem credible – and shouldn't even matter that much when you think about the next issue – a start-up's cost of capital.

2) Your cost of capital is too low

Ask an entrepreneur about their cost of capital and you'll likely get a blank stare. Cost of capital is the rate of return that an investor who provides capital expects from investing that capital. Today, the United States government has a cost of capital of nearly zero – for example, it can borrow money for 10 years and pay only 2% interest. 2% per year is the expected return that an investor in US treasuries requires because the risk of holding an IOU from the US government is so low.

For a start-up to raise capital, it must sell equity to venture capitalists or other investors that expect an annual return more like 30-40% in exchange for the high risk that the company will never be able to pay back the investor and the investment will be written down to zero. Thus, the cost of capital for a start-up (and the dilution a founder faces in exchange for that capital) is very high. Therefore, back end loaded cash flows are not nearly as valuable for a start-up as front end loaded cash flows.

That's a bit of context as to why start-ups need to highly discount future cash flows when calculating their LTV. I suggest 3%/month which results in a roughly 30% annual cost of capital. Thus, if you are receiving $100 in recurring revenue, you should value next month's $100 in revenue as $97 and month 2 as $94. In practice, combining this point with the one above, take your number of months of revenue (say, 30) and use the 3%/month discount rate to calculate the value of the months of revenue = [1-(1-3%)^30]/3% = 20 months of revenue – 1/5th what you would have calculated if you had simply used 1%/month churn rate with no time limit and no discount rate!

3) You forgot about Gross Margin – and you're probably overstating them.

I recently received a board deck from one of my portfolio companies which treated revenue as the numerator in their LTV calculation. Entrepreneurs sometimes forget that a dollar of revenue isn't worth a dollar in incremental contribution. Instead, there is real cost to produce this revenue:  a cost of service, processing, data, storage, media, overhead whatever.

Many early stage companies don't yet have experienced CFOs who can help them with precise gross margin calculations, so they assume a gross margin that is too high. SaaS companies think "mature SaaS company margins are 80%" so I'll just use that. But you are not mature. Your executive team spends more time selling and servicing than you account for. Your engineers spend more time servicing customers over time and addressing issues and bugs and feature requests than you account for. Thus, your COGS (cost of goods) are understated and your gross margin is overstated. has a gross margin of 75% with their scale of $6 billion in annual revenue. Can yours really be the same or even 5-10 percentage points better? And are you sure your gross margin calculation is factoring in all variable costs not related to customer acquisition or are some costs sneaking "below the line" into, say, SG&A?

To fix this one, the rule of thumb I suggest you use is to discount an additional 10% points beyond whatever your finance head says your gross margin is. Thus, if you think your gross margin is 70%, assume for LTV calculation purposes 60%. So, in the example above, instead of summing up $100 revenue over 20 months (factoring in a shorter time horizon and a higher cost of capital), you would sum up $60 over 20 months.  Add all three factors together, and instead of multiplying $100 in monthly revenue by 100x for an LTV of $10,000, you would be multiplying $60 in monthly contribution margin by 20x for an LTV of $1,200.


All of these factors – time realism, appropriate cost of capital and accurate gross margins – discount your LTV as compared to simpler methods. Sorry, but that is the reality of LTV math. If you have a business with strong network effects, there can be a reason to believe that your metrics will meaningfully improve over time. But another reality of LTV math is that absent strong network effects or other large benefits of scale, many times your metrics get worse with scale. I cover this phenomenon in another blog post and so will simply say:  make sure you don't overstate early metrics with rosy extrapolations.

A mentor of mine is fond of saying that every business plan contains the same word in relation to its forecasts:  "conservative". It is better to be truly conservative – or, dare I say, accurate – rather than letting a savvy, cynical investor do it for you.

Humility in Entrepreneurs


This past week was the Jewish holiday of Yom Kippur, also known as the Day of Atonement where you fast and pray in synagogue all day and atone for all your sins over the past year. Our rabbi delivered a powerful sermon that took a page from David Brooks' "The Road to Character", emphasizing the importance of "eulogy virtues" (e.g., character) as compared to "resume virtues" (e.g., competence). Rabbis have the opportunity to go to a lot of funerals where they deliver – and listen to – many, many eulogies and so his message was particularly poignant. One of those eulogy virtues that he emphasized was that of humility, defined by as:  "having a modest opinion of one's own importance or rank".

There is great power in humility, something I have observed in many entrepreneurial leaders. In fact, I find that the entrepreneurs I enjoy working with the most are those that are authentically humble. The day before Yom Kippur, I had two board meetings with two of my most humble CEOs. Both are running startups that are growing, profitable and on a track to make their investors and employees a lot of money. Neither thumped their chest in the board meetings. Just the opposite. Here is how many of their sentences started: "It took me too long to figure this out, but…" or "I'm struggling with the issue of how to…". Rather than cover up mistakes or weaknesses, the humble leader draws attention to them and rallies the group to problem solve together.

Sometimes executives who lack a deep self confidence try to over-compensate with bravado and promotion. As I get older, I find I have less tolerance for this style of operation. That's not to say that there aren't plenty of amazingly successful leaders who are pretentious and overbearing. But for my money, I'll take the humble leader any day. Yes, they need to be exceedingly competent and skilled, but when they can blend competence with character and humility, it is a potent combination.

Jim Collins describes this potent combination in his famous book, Good to Great. Collins frames the five levels of leadership (see pyramid above), which culminate in "Level 5 Leaders" who are humble but have a huge amount of will to succeed.

Thinking about this style of leadership reminds me of a famous speech by General Norman Schwartzkopf, delivered to the graduating class at West Point. I was introduced to this speech by HBS leadership professor Scott Snook (himself a West Point grad). Start at minute 3:08, where Schwartkopf declares:  "To be a 21st century leader, you must have two things:  competence and character." 

Schwartkopf could deliver the Yom Kippur speech at my synagogue any day.

What Makes The Boston Startup Scene Special?

Every fall, I deliver a presentation at Harvard’s iLab, open to the community, on what makes the Boston startup scene so special. It has become a nice opportunity to step back and appreciate all the rich resources entrepreneurs have at their fingertips in the Boston community. Here is this year’s version (which I’m delivering this afternoon), complete with a lot of updated content and data on our local tech hub:

The Playbook for Scale Up Nation

Israel - Start-Up Nation

This post was co-authored with Omri Stern and originally appeared in Harvard Business Review.

Israel has been branded the “startup nation.” For good reason: A tiny country of only 8 million people — 0.1% of the world’s population — has more companies listed on the NASDAQ than any country in the world save the United States and China. Frequently cited as one of the world’s most vibrant innovation hubs, Israel boasts more startups per capita than any other country in the world.

That’s the good news. The bad news is that Israeli startups are struggling to scale. Only a handful of so-called unicorns — companies that have achieved a valuation of over $1 billion in the last 10 years — come from Israel, and only one Israeli firm, Teva, ranks in the world’s 500 largest companies by market capitalization. As a result, tech-sector employment has declined as a percent of the workforce, from 11% in 2006–2008 to 9% in 2013. That’s disappointing for a country with so much potential. But is all of that changing? Are Israeli companies on the verge of developing a repeatable playbook to scale their companies and become market leaders, not just acquisition fodder for the Silicon Valley giants?

We think so.

Decades ago, the thesis of Yossi Vardi, a prolific technology entrepreneur who has invested in 75 Israeli startups, was that Israeli entrepreneurs should seek quick exit opportunities through global corporations interested in buying a window into Israeli talent and technology. Today, this thesis is less relevant. For the first time in history there are Israeli companies scaling up successfully as global market leaders, and the ecosystem is evolving to support them. Indeed, the pattern of scaling seems to be changing meaningfully in recent years. In 2014, for example, 18 IPOs raised a record-breaking $9.8 billion, compared to just $1.2 billion in 2013.

So how do Israeli ventures scale up? What are the challenges and lessons of scaling up? To answer these questions, we built a database of 112 Israeli companies founded between 1996 and 2013 that have met or exceeded $20 million in revenue. We selected this benchmark because it reflects the phase in which companies have proven product viability, achieved initial product/market fit, and are now expanding sales and growing more complex operations. We also interviewed over two dozen Israeli entrepreneurs and the investors from these companies — the leading thinkers in the region — to determine the playbook that these startups are executing in order to scale.

Here's what the data say about Israeli startups:

  1. They’re Israeli-run but with global footprints. Eighty-two percent have global offices, and yet 91% are still run by Israeli CEOs, as opposed to foreign executives hired from the outside.
  2. American VCs are critical. Ninety-one percent of the firms have received funding from foreign (mainly American) VCs.
  3. The founders have started companies before. Sixty-three percent of startups currently scaling up are run by Israeli entrepreneurs with prior founding experience.

This evolving model is being supported and encouraged by the local Israeli VCs. According to Izhar Shay, a general partner at Canaan Partners, “The investment community has matured to recognize they need to plan for scale. They are seeking to build companies so that they are attractive to late-stage funds.” And the late-stage global funds are swarming in, from Accel to KKR to Li Kai-Shing’s Horizon Ventures.

This post outlines some of these patterns, seeks to characterize them, and draws out patterns in the data.

Pack Your Bags Early.

Despite hosting a rich startup ecosystem, Israel is simply too small a country for entrepreneurs seeking to build big companies. As a result, Israeli entrepreneurs need to begin immediately thinking outside of Israel since their primary market is often the U.S. The common approach is to incubate the business locally in Israel with a small development team, prove early product/market fit, and then build a sales and marketing organization abroad, usually in the U.S. In the old model of Israeli startups, many Israeli executive teams would hire a vice president of sales in the U.S. to assist with the local go-to-market approach. More recently, Israeli founders are themselves moving to the U.S. to build the satellite office and to personally oversee the recruitment and management of American executives who can lead the sales and marketing efforts.

However, waiting to move to the U.S. until the late-stage go-to-market phase may be too late. All of the risks inherent in launching a startup are exacerbated by the geographic distance between Israel and the U.S. Hiring talent and gathering customer feedback are even harder when teams are so physically far apart, and this separation can make it harder to build culture, forge partnerships, and raise capital.

So how early should the founders pack their bags and ship out to the U.S.? Our analysis and interviews suggest the prevailing wisdom has shifted toward a simple answer: as early as possible. Although the technical team often remains in Israel, many of the executives interviewed recommend departing for the U.S. as early as a year or two after founding. A move allows the business to get close to the customer, learn their pain points, and adapt accordingly. Understanding the market and establishing product/market fit is a critical seed-stage milestone.

When Udi Mokady and Alon Cohen launched CyberArk — the darling of the cybersecurity industry, with a market capitalization of nearly $2 billion — the founders abandoned the local strategy early on. “We began selling to local Israeli companies but had a strong feeling we were developing a product and go-to-market strategy that was missing the larger opportunity,” said Mokady. As soon as CyberArk raised Series A funding, they set up a U.S. headquarters, in Massachusetts, to immerse the team in the American market. “At the time, moving close to the market was not a given, and venture capitalists did not have a clear playbook. Nowadays the argument is very clear.”

Similarly, when Yaron Samid launched BillGuard, his team debated whether to build an enterprise or a consumer company. One-and-a-half years after founding the company, Yaron moved to New York and discovered that consumers, rather than banks, were the primary customer of BillGuard’s service, which helps customers identify fraudulent credit card charges. With the development team based in Israel, Samid shuttles between New York and Tel Aviv, where he shares weekly insights garnered from conversations with partners, consumers, and investors in the market. Viewing this as the typical challenge of running a global company, Samid believes there is no substitute for the learning that comes from being close to the market.

The second reason to move early is to hire the absolute best sales and marketing talent. Again and again, the most challenging issue we heard about from entrepreneurs and investors is finding and retaining exceptional talent, a problem exacerbated by geographical and cultural distance. According to Modi Rosen, general partner of Magma Ventures, “The challenge of scaling is primarily in hiring for the sales and marketing front. Having the founder [locally] present for this process can be the difference between success and failure.” Companies should strengthen the Israeli management team with local talent who understand how to define the market, how to sell into it, and how to gather feedback. Furthermore, companies need particular executives to serve as the primary liaison between the sales and marketing team in the U.S. and the development team in Israel. There are many Israeli professionals who have worked in the U.S. and have gained management experience at large organizations such as Google, Microsoft, and Amazon. There are also American executives who have experience working with startups with R&D in India, China, and Israel. Both cohorts can bridge cultural and geographical gaps.

In CyberArk’s case, Mokady admits the team faced major challenges in hiring talented and seasoned American executives. “We had a rough start,” he says. “As an unknown Israeli company breaking in to the U.S. market, we were not able to attract A-rated sales and marketing professionals. It took some time to gain momentum and learn how to attract local talent.”

One of the key lessons CyberArk learned is to partner with VCs in order to source top talent. Mokady believes that partnering with a Boston-based VC would have helped CyberArk address its talent problems more effectively because the VC would have vouched for the company. With that said, the founding team had big dreams of becoming a global company from the beginning. Although their investors were not local, CyberArk still benefitted by partnering with foreign VCs that helped them make the leap from Israel to the U.S.

Think Bigger.

This takeaway surprised us. After all, Israeli entrepreneurs are known to be tenacious and eager to tackle complex technological and entrepreneurial challenges. However, in our interviews with Israeli venture capitalists, we learned that around the board room, Israeli entrepreneurs tend to become overly preoccupied with the product and core technology. This fixation generates a short-term view on the potential of the venture to expand beyond the immediate product line. Of course, almost all entrepreneurs are preoccupied with near-term priorities, but our interviews uncovered a pattern of Israeli companies putting too much focus on the product at the expense of building a broad vision for growth, even after achieving product/market fit.

Scaling up begins with thinking about how you build a bigger story and a bigger vision once the company is expanding. Alan Feld, cofounder and managing partner of Vintage Partners, cautions Israeli entrepreneurs not to define their product category too narrowly. “The big idea is to think as a potential industry leader rather than a one-product company. Think of where you want to be in five years and begin building a product pipeline to get there.” For Netanel Oded, of Israel’s National Economic Council, the critique is more poignant: “In Israel, nobody is saying ‘I’m going to completely disrupt transportation.’ Israeli entrepreneurs are first and foremost focused on applying technology to create a business, not necessarily on disrupting big markets through the use of technology.” This subtle difference risks limiting the scope of the opportunities Israeli entrepreneurs are chasing.

Once startups begin to scale up, founders need to ask long-term strategic questions such as: How do I support growth in human capital? How do I strengthen my market position through acquisitions and innovation? How do I prove the unit economics to justify raising a growth round that will let me expand more rapidly? These are also questions that will concern late-stage investors who provide the companies the opportunities to scale and, eventually, go public.

Partner with Foreign VCs

Israeli entrepreneurs are becoming more focused on getting foreign (mostly American) VC partners in the early stages to help them pursue these opportunities from the onset. American VCs have a significantly wider network and have a capability to access management talent, data, partners, and customers to help a company scale. American VCs think about scale from the start, because their large fund sizes necessitate bigger returns. They spend more time on strategy, go-to-market, business development, and financing.

The data reveal how dramatically foreign investors impact the growth of Israeli companies, as measured by annual sales and number of employees. Israeli companies funded solely by foreign investors generated more growth than those funded by both Israeli and foreign VCs and significantly more growth than companies funded by Israeli investors alone. (One caveat: This may not point to causation, as some investors are better than others at picking rapidly-growing companies.)


But American VC partners might not always be the right choice, especially in the earliest stages. Many entrepreneurs and investors argue that Israeli VCs are more frugal and that this discipline is an important early attribute for startups. According to Ori Israely, investor and former general partner of Giza Venture Capital, “There is more fit between [an] Israeli entrepreneur and [an] Israeli investor in the seed stages. Israeli funds often know how to work better with the early stage companies because they provide efficient capital, not necessarily more capital.” Israeli VCs seek to invest relatively smaller amounts—not to squeeze out the entrepreneurs, but to help them be more efficient in the early stages.

The extra runway from an American VC can come with strings attached. Once entrepreneurs bring in an American VC that typically invests at higher valuations, there is greater pressure to hit bigger milestones, move to the U.S., and pursue larger outcomes. So the decision on when to bring on an American VC is an important and strategic one.

Lead Your Company to Scale.

A decade ago, the traditional model for building up Israeli companies was to hire an American CEO. Our interviews and analysis suggest that this model failed. Today, companies reaching scale are run by Israeli founders and/or Israeli CEOs. Studying the liquidity events of Israeli firms valued over $150 million, Vintage Partners found that 81% were run by Israeli founders, while half of the remaining 19% were run by professional CEOs who were Israeli. In short, Israeli entrepreneurs are leading their companies to scale.

This conclusion is an interesting one. On one hand, Israelis need to continue to lead their companies to scale effectively. On the other hand, they need to attract foreign VCs to help them do so — typically by moving to the U.S. and recruiting a U.S.-based executive team.

So how can Israeli entrepreneurs effectively lead their organization to scale? Our interviews suggest Israeli founders have worked hard to mitigate the risks associated with a move to the U.S., developing techniques to effectively manage distributed teams and cut through cultural barriers:

  • Focus on culture from day one. Startups are incredibly fluid early on, and these early days are critical to building teams that can communicate and function effectively in geographically distributed circumstances. Over the course of 2–3 years, the product, the value proposition, and the competition will change dramatically. Yahal Zilka, of Magma Ventures, emphasizes that for the company to be aligned in multiple locations and react effectively to rapidly changing circumstances, employees need to develop a culture of trust and respect that transcends continents.
  • Place one founder on each continent. If the founding team contains more than one person, an effective formula that we’ve witnessed is placing one founder in Israel and one abroad, where he or she will recruit the management team. Typically, these founders know each other very well, have a deep mutual trust and respect, and can communicate seamlessly, often from years of serving in the military together. Alon Cohen, cofounder and former CEO of CyberArk, moved the company headquarters to Dedham, Massachusetts, just one year after founding in Israel. Cohen said that moving the headquarters to the United States had been talked about for some time after the company was founded, in 1999. Shortly after the move, the company hired 25–30 people in the U.S. while maintaining R&D in Israel. Fifteen years later, CyberArk employs more than 500 individuals worldwide and serves more than 1,800 customers, including 40% of Fortune 100 companies.
  • Get a mentor with a solid track recordIt may sound obvious, but unlike in Silicon Valley, there are not many entrepreneurs from Israel who have built unicorn-sized companies. “Over the growth stages in particular, Israeli entrepreneurs need access to mentors that can deliver contextual insights and ask tough questions about scaling up in the United States,” says Dror Berman, of Innovation Endeavors. The mentors who serve this role in the U.S. know how the entrepreneurial game is played, know the relevant growth-stage investors and investment bankers, and are adept at navigating exits at different stages. There are also more institutions and infrastructure for training managers, such as MBA programs, executive education, and certification programs. Most Israeli entrepreneurs have not been through this whole cycle at scale. Those that have are gold.

Israeli entrepreneurs are influenced by the success stories of their past. From 1995–2010, the Israeli startup ecosystem was not focused on creating big companies. Things have changed dramatically in the past two decades. What was once the story of ICQ’s $287 million exit to AOL is now the story of MobileEye’s NYSE IPO and $12 billion market capitalization. Years from now, Waze’s $1 billion sale to Google may look like merely a solid outcome, rather than the canonical case study of Israeli entrepreneurship that it is today.

It is time for more Israeli entrepreneurs to swing for the fences. Building big companies means Israeli entrepreneurs should pack their bags and move to a large market early, partner with American VCs, continue to lead the company through the mid-to-late stages, and focus on building a culture.

In our data set, we found over 100 companies that have the potential to become unicorns and decacorns. We look forward to watching that list grow and evolve.

Many thanks to all those interviewed as well as Walter Frick for his help in editing.

Giving and Taking in StartUp Land


I have been wanting to read Give and Take since the New York Times article a few years ago described the author, Wharton Professor Adam Grant, and his research on "givers", "takers" and "matchers". I finally got a chance to do so this last week while on vacation and was not disappointed. I'd rank the book up there with Drive and Thinking Fast and Slow as one of my favorite popular business books written by academics.

Grant's basic thesis is that being a giver – being motivated solely by your desire to give back, independent of a payback, without keeping score or expecting anything in return – can correlate with professional success. While this conclusion may seem surprising in the self-centered, materialistic, dog-eat-dog world that many think is emblematic of the business world (cue Elizabeth Warren), I thought Grant's conclusions reflected what I have seen as a somewhat recent cultural change in the world of entrepreneurship – a cultural change I am hoping will continue. 

I have written in the past that there is a religion of entrepreneurship, with its shared beliefs and cultural mores. One of those shared beliefs that has emerged in recent years in Startup Land is to be a giver, not a taker.  Recently, even venture capitalists are competing now on who is more entrepreneur friendly, who contributes more to the ecosystem (e.g., disseminating free knowledge and insights, launching diversity initiatives) and who can be most meaningfully "pay it forward".

Some VCs and entrepreneurs are clearly taking these actions out of pure self interest – in Grant's language, they are "matchers":  they give with the expectation that they will get something in return. But many VCs and entrepreneurs that I work with day in day out have adjusted their behavior to becoming pure givers. Giving their time, their resources and their networks without expecting anything in return. And many of these "givers" are very successful professionals – building or  investing in the best companies. Yesterday's news that one of these explars, Sundar Pichai, is becoming CEO of Google, one of the world's most powerful and valuable companies, is touch point in this trend.

Sure, "givers" in Startup Land have to make sure they're not being taken advantage of – they could spend 12 hours a day helping people and not getting their work done – but I like what I am seeing as "nice guys/gals" are emerging in our ecosystem that are not just nice, but also wildly successful. I suspect that this is one of the factors inspiring others to model this positive behavior.

Being a Business Leader Amid Historical Events

There was an overwhelming torrent of news last week. The two Supreme Court decisions and the response to the tragic church shooting in South Carolina are among the most indelible events of our time and all three will be memorialized in history books and discussed for decades to come.

Last week, a CEO friend (Jen Medbery of Kickboard) asked me a series of great questions that I've been thinking about these last few days:

How do I address current events within my own company? Do I bring it up at all? How do I invite dialog with my employees? How are other companies talking about this, especially ones that struggle to build a diverse team, and certainly don't have [the appropriate training and] practice discussing very sensitive topics like prejudice and institutional racism?

In the wake of Ferguson, Baltimore, South Carolina, ground-breaking SCOTUS decisions and much more, I imagine she is not the only business leader struggling with these questions and so I thought I would share a few thoughts to address them.

Context: Facing History and Ourselves

Before addressing these questions, I have to provide a little context. In addition to my venture capital and teaching activities, I co-chair the board of trustees at Facing History and Ourselves, an educational non-profit that trains educators how to teach pivotal moments in history (e.g., the Holocaust, Civil Rights, Apartheid) and connect these histories to the lives of their students in order to improve civic discourse and create a more humane society. The organization provides teachers with valuable pedagogical resources, such as how to teach To Kill a Mockingbird and talk about the Little Rock Nine. They also have a blog that provides pointers on topics like how to talk about race with your kids. I took a Civil Rights history trip with my family last year using an itinerary that was modeled after a series of board trips that the organization has led.  So, my advice to business leaders will draw on Facing History's nearly 40 years of work with teachers and adolescents.

Careful, Your Politics Are Showing

More than ever, business leaders are engaging in current events. They are natural leaders and role models and thus their opinions are sought after.  I have been an advocate of this for years, particularly having innovation community leaders engage in civic work, and so have been thrilled to see business leaders take public stances and lead public discourse. Many CEOs do this by being active on Twitter and Facebook, playing the role of mini-celebrities or media personalities.  Business leaders are cautiously engaging in this new role as they don't want to seem overly political and spark controversies, but when some current events – such as this week's – loom so large in the minds of their employees, business partners and customers, they naturally feel compelled to address them.

Business leaders see many of their colleagues who run the country's most admired companies take corporate action or make statements in response to current events.  After the South Carolina shooting, Amazon, eBay and WalMart loudly announced they would stop selling the Confederate Flag. Shortly afterwards, Apple announced that they would ban all apps that contain the Confederate Flag.  Tim Cook tweeted the following:


When the Indiana state legislature passed the controversial Religious Freedom Restoration Act last March, there was an uproar in the business community. Some tech CEOs, such as's Marc Benioff and Angie's List's Bill Oesterle spoke out publicly and declared that they would be reducing their investment in the state.  Others communicated more privately to their employees. One of the CEOs I admire greatly, Kronos' Aron Ain, sent out an email to his entire 4200 person staff stating plainly,

We fully support freedom of religious beliefs. At the same time, Kronos will always treat every employee and every customer in a welcoming, respectful and understanding manner, regardless of where they come from, how they worship, or who they love.

Suggested Strategies to Approach the Issue

Tim Cook and Aron Ain run large companies with billions in sales, thousands of employees and high profiles.  How should other business leaders, less heralded, approach these events, particularly (as Jen cited) issues of racism in a diverse workforce environment?  I suggest using the following framework as a starting point, inspired by decades of research that Facing History has done to help teachers address these issues in the classroom (known as the "Scope and Sequence" framework). In effect, it puts the business leader in the role of teacher and educator – a natural role that they are finding themselves playing.

  • Begin with identity – it's ok to make it personal.  Many of these issues are centered in your personal identity and that of your staff. Therefore, don't be afraid to speak about your personal history and how it shaped your personal values and views. Identity is the lens through which everyone views these issues and so you shouldn't shy away from putting it out there.  One of our portfolio company CEOs, who is openly gay, joked with me the other day with pride that his executive team looks like the cast from Glee.  If you can share your childhood stories of what your identity means to you and how it affected your upbringing and values, the authenticity and honesty can be very powerful and serve as a model for behavior throughout the company. Readers of my blog know that my father's experience as a Holocaust survivor, war refugee and ultimately American immigrant have had a profound impact on me, inspiring my civic work in social justice.
  • Establish ground rules that create a safe place for discussion. To start off, it is critical to make sure you create an open, safe place for discussion where mutual respect and trust are central principles. In all company communications and forums, make sure you create an environment where your staff is comfortable with an open dialog where everyone is allowed to voice their point of view – not speeches and lectures where dictates are being passed down. Perhaps kick off your next all hands meeting with a few personal perspectives about the latest news. Discuss it with your senior staff and encourage them to discuss it with their staffs. The classroom analogy is a useful one. When teachers teach the Facing History curriculum, they are instructed to rearrange the students' desks into a circle rather than a classic classroom configuration to signal the open forum. 
  • Know the history.  Every one of these events has a historical context. The South Carolina church shooting is inextricably linked to the 1963 bombing of a church in Birmingham, Alabama, which is inextricably linked to the Civil Rights movement, which is linked to centuries of slavery and institutional racism. The Supreme Court gay marriage decision is linked to the landmark case in Massachusetts in 2004, which was linked to a broader LGBT rights movement, which is linked to the Civil Rights movement and so on. Conversations about these topics are richer when you can bring in the full historical context. I recognize this puts a burden on business leaders to be amateur historians. That isn't the point. The point is that history informs and contextualizes the current events.  Historical case studies also make it easier to reflect on current events in a less charged fashion. Business leaders can use the history as a tool to educate and frame these sensitive issues.
  • Admit that you don't know everything.  CEOs have a tendency to want to show mastery and confidence in the workplace. For these situations, vulnerability may be an even more important leadership tool.  My friend, Katie Burke, Hubspot's head of talent and culture, did a post related to diversity and then set up follow-up sessions to solicit ideas from employees on how to talk about diversity and current events.  By signalling this openness, you show it's not just about pushing your opinion or agenda, but connecting to a broader cause alongside your staff.
  • Choosing to participate. In the end, employees will want to go beyond dialog. They will want to take actions – and see your company take actions – that reinforce the values that you espouse.  Maybe those actions link to the events, as Aron Ain and Tim Cook did.  But those actions may not be relevant for most companies.  Maybe the actions are internal ones – such as making sure your marketing materials reflect a diverse and inclusive work environment.  Try other small gestures, such as sponsoring a non-profit you admire, attending a service day (e.g., TUGG gives back), or hosting a civic leader, politician, or candidate for public office and use the forum as an opportunity to hold a discourse on civic issues. If you don't provide a forum for actions to back up the words, you run the risk of being accused of being someone who speaks loudly but carries no stick. 
  • Get outside help. There are experts in all of these fields – local professors, church and civic leaders and many non-profits with amazing resources.  Consider hosting a brown bag lunch with a local historian or expert.  Consider creating a book club and assigning a few of the classics (To Kill a Mockingbird, Uncle Tom's Cabin) and then hosting a discussion forum. Be willing to explore the issues intellectually and openly. Even consider creating a company committee to lead in this area, just as you would for any internal project that has cultural importance.  In the end, the outcomes themselves may be less critical than simply the intentions and the dialog itself.

What I have found in my decades of work with Facing History is that people crave dialog on these topics. CEOs are making a mistake if they don't create a work environment that encourages it.  And if they remain silent, they are sending a message that these topics are not important.  Further, they are missing the opportunity to create community and loyalty, never mind speak out and provide leadership on matters that are important to them.  In the end, the "leader" portion of "business leader" must receive equal weight and attention.  Times like these require it.

The Emotional Co-Founder

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There is a bias against solo founders in Startup Land. The conventional wisdom is that being an entrepreneur is so difficult that you shouldn't embark on it alone. Many of the top accelerators, like Techstars and Y Combinator, won't accept founding teams that have solo founders. Jessica Livingston, the lesser-known co-founder of Y Combinator, put it well in a Wall Street Journal article a few years ago:

“We believe being a single founder is one factor that makes it more difficult to succeed… [because] there is just so much to do at a startup. Also, the moral weight of starting a company can be very hard to bear alone.”

I was at an entrepreneur event the other night talking with a friend (Mark Lurie of Lofty) who is a solo founder. He coined a phrase that I love, and so will repeat here (with his permission), which is that having a co-founder to help get stuff done (the first part of Jessica's statement) is less important than her second point:  having, in effect, an emotional co-founder.

The emotional co-founder may or may not be in the company – in fact it can be better if they're not – but they are the sounding board, therapist and support system that the founder needs to get through all the painful ups and downs.

The emotional co-founder can be a spouse, a classmate, a best friend, even an investor if there is a high degree of trust (usually established with one of the earliest investor – i.e., one of the leads behind the seed round or the Series A). One of my portfolio company founders lives with his co-founder and the two serve as very strong emotional co-founders for each other. Admittedly, that's a little extreme.

But if you find yourself a solo founder, don't despair. Just make sure you find an emotional co-founder to help you get through the roller coaster ride.