The Impact of Conflict on Israel’s Startup Ecosystem

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February 15, 2024

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On this week’s pod I sat down with Alan Feld, Founder & Managing Partner of Vintage Investment Partners. Vintage is a stalwart in the venture ecosystem and manages roughly $4 billion. As a result of building such an incredible venture firm, Alan has had the chance to really think about and hone in on what makes a company special. What I love about Alan’s perspective is that he uses those insights to focus internally at Vintage so it was only natural that we have a wonderful discussion about team dynamics, humility and character.

Additionally, we dive deep into how conflict is affecting Israel’s startup ecosystem. Vintage is based in Israel and Alan was kind enough to share his thoughts and updates.The conversation isn’t about who's right and who's wrong. The conversation is about the impact of this conflict on an otherwise thriving entrepreneurial ecosystem and what this will do after that.

I thoroughly enjoyed this conversation and I hope you do too. A special thanks to Alan for joining me on the pod.

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TRANSCRIPT (this is an automated transcript)::

MPD: Welcome, everybody. I'm Mark Peter Davis, Managing Partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is definitively part of that effort. I'm very excited and honored to have Alan Feld from Vintage Investment Partners on the podcast today. Vintage is based in Israel, and regardless of how you feel about the conflict in the region, Vintage is based in Israel, and regardless of how you feel about the conflict in the region, We can all agree.

It's a human tragedy. The conversation today isn't about who's right and who's wrong. The conversation is about the impact of this conflict on an otherwise thriving entrepreneurial ecosystem and what this will do after that. Alan shares a lot of really interesting perspective on those topics around the ecosystem in Israel, the impact of a wartime environment, but he also sheds a lot of light and frankly wisdom about team dynamics, humility, and character.

I really enjoyed this conversation and I hope you do too.

Alan, thank you for being here today.

Alan Feld: My pleasure. Thank

MPD: you for having me. Let's start off at the top. Would you mind giving an introduction of Vintage? Sure.

Alan Feld: So we managed a, about 4 billion. 2 billion is roughly is a little bit over 2 billion is funds of funds. We raised our 7th fund to fund 630 million last October.

But a billion dollars roughly is secondary funds. We raised our 5th secondary fund 2 years ago, and it's roughly 312 million dollars. And we also have and our Third area of activity is direct investing D rounds and above together with the managers, which were investors in in growth rounds.

And we have about a billion dollars there raised our third fund a few years ago and investing out of that. And in addition to that, we also have this free service where large corporates tell us what their technology pain points are, and we help our underlying portfolio companies in the.

Funds in which we've invested, help them meet those large corporates, potential customers. We don't take a fee for it. It's a free service, just the way we try to add value to the ecosystem, to the funds, which we've invested into companies that they've invested.

MPD: And your firm has been around for about 20 years, 20 years.

This year was our 20th anniversary. And congratulations. And you're based in Israel. Yep. Are you typically managing Israeli capital, where capital sources, are they generally

Alan Feld: US? Capital is primarily North America, Europe, and somewhat Israel but it's a global capital.

MPD: Got it. So it's for folks, funds that are capital that is interested in getting access and exposure to Israel chases to you?

No,

Alan Feld: actually, no, the, actually the majority of, vast majority of our investing. On the fund to fund side is actually in North America and and Europe. The Israeli investment portion is actually on the fund to fund side is about 15 percent of what we do on 5 percent of what we do. So actually it's, because we've been fortunate to work with a lot of great VCs globally.

And and we built very good relationships with a lot of great VCs. Also we've been identifying really interesting managers early we're big believers in seed investing. We've been investing in smaller seed funds for over 15 years and. And some of those managers have grown to be significant funds, as large funds over time, and we've continued with them.

But but on the, certainly on the fund to fund side, the majority, the vast majority of our money is actually invested in North America and Western Europe.

MPD: There's a lot of GPs that listen to this pod. If someone was to say, Hey, why are you guys the right partners in LP for a seed fund?

If that's the target and in particular, what's the kind of, short pitch so they can hear it?

Alan Feld: We we have one of the highest re up rates that I know of. All we do is venture investment. So we're not going to wake up tomorrow morning and say, Hey, we don't like technology. Let's invest in, funds that invest in trees, right?

This is what we do. This is all we do. This is what we're passionate about. This is what we love. That's it, right? That's the asset we offer to our investor base. We're long-term players because this is all we do. We fo we've got a fair bit of data that we try to be helpful to the funds with about best practices.

What works, what doesn't work. And so we get a lot of phone calls from our GPs and we present ideas to them around around what's the right strategy when it comes to say, reserve management or how we should build the portfolio, et cetera. Another thing, of course that we do is we get approached a lot by companies because they know we're a fund of funds, they also know that we.

Are deep in into various kinds of technologies and they ask us. Which funds should they go through and we've we're source of deal flow for a lot of the funds as well. And then finally we're helpful to the funds companies, right? We've just give you a sense of that value plus I mentioned before.

We have generated over 200 million in revenue for startups through introductions. We've made 280 over 280 purchase orders. And we haven't taken a dime from any,

MPD: so that's a hell of a stat,

Alan Feld: It's differentiating. So what we're trying to do is we're saying, okay, just like it, I would say, almost what Andreessen is trying to do for their companies.

We're trying to do for our GP and try to be as helpful as we possibly can. So we're trying to make our money quite frankly, greener than the next

MPD: Alan, before we started recording, you and I were hitting it off, talking about firm culture. And I think you were dropping some wisdom that everyone would benefit from.

So I'm going to take you back to that. How do you think about culture and vintage internally within the team? And is it important to you? Yeah,

Alan Feld: I, it's interesting. Every time we, all of us look at companies for investment, I've been, in this, in the investment world for 35 years you're always looking at the people, right?

You're always looking, what's the dynamic. What's the founder like? What's the dynamic between the founders? We're all looking at the culture of the organization we're investing in. We don't invest enough time in looking at the culture of our own organizations. How do we relate to our partners?

How do we relate to all the people in our team? And I think one of the important things that I learned is, there's a number of funds that I have seen that, match themselves as an aggregate of a bunch of individual GPs. What we found, at least in our case, is there is a real case for 1 plus 1 equals 3.

I think we make better investment decisions when we can be honest and open with one another. I think we make better follow on investment decisions. And so what we've attempted to do is build a culture where we can speak extremely openly very candidly, but everybody knows it's coming from the right place.

So I've been looking when I was building vintage was extremely important for me that I find people whose egos are, contained and are self reflective. As I mentioned to you before, one of the things we do when we go offsite three times a year. I always start with the crappy investments I made and, fortunately there's, or unfortunately there's a lot of those.

And that allows, and then everybody starts piping in with what they, haven't what they've invested in that wasn't working. And then we have, we can look at what did we do right? What did we do wrong as a firm? And I think the importance of, first of all, taking individual responsibility in what you've done, but also at the same time on the other side of it, giving collective praise for the decision making and making those, working together on deals and feeling that you're part of the team.

I think it's also important. The other thing that I think on the firm building side as I mentioned to you, I'm just turned 62 a couple of weeks ago. And I as a founder of it, as the founder of it, it's really important both to our LPs, to the GPs and to, to the people who work at Vintage that, there be continuation and I've spoken to a lot of people, but how you deal with issues like succession, how you build the firm so that, that it survives you.

And I've spent a lot of actually wrote a blog about this 7 years ago saying when I was 55, this is what I'm planning on doing. And that's exactly what I've been doing. And so having that sense of. Hey, I'm going to make myself a relevant. And so the firm can become, can survive you is also, I think part of, and it comes from the same thing.

You've got to be able to learn how to put your ego in the right places. It's not easy, but you have no choice.

MPD: I want to just yes, and share with you we're cut from similar fabric. It seems I'm a member of YPO. We do a lot of EQ or going to like programs in that where you're trying to really get vulnerable in a quick way, which is very hard for people.

I don't know if it's as common in other cultures, but for Americans, I think generally it's very challenging to break through the barriers. there's an exercise called a lifeline where an individual will get 15 minutes uninterrupted to tell their personal life story, the best thing and the worst thing in five year increments.

So that usually encompasses all the trauma, like the literal worst things that people do not discuss. And our retreats as a, in our core team, our partnership, we do lifelines. And usually it results results in actually some of the people crying. Because they're talking about parents passing away, cancer all sorts of traumatic abuses and I think you can't just show up one day and say, Hey, we're gonna have a culture where people share.

You have to have a baseline of trust, but if you can get to that vulnerability really builds connection. And then when you get to things like making a bad business decision. Who cares, right? Did you do your best? There's a baseline,

Alan Feld: It's interesting you mentioned it because a few years back this past year was my, my father had passed away when I was 11 and this past year was 50 years since he passed away.

And I, I always said to myself, wait a minute, that must have affected who I am as a human being. And I decided to do some research a year ago that I was going to, that I decided to interview venture sorry, venture backed CEOs who had been very successful to ask about their lives before they were 18.

We tend to, we, a lot of cases when we meet entrepreneurs, all right, where did you go to school? Tell us about your work is I think what really has a massive impact on an entrepreneur is actually, how did they grow up? What was the dynamic? So I did this survey and I'm in process of completing it, but yeah, did you have a traumatic experience?

How did you deal with it as a child? Did you grow up rich? Did you grow up middle class? Did you grow up poor? Did what number child were you? Birth order has a big influence. Did you play competitive sports? Was it team sports? Was it individual sports? Did you have, did you work as a kid?

All sorts of questions. I had a list of about 15 or 20 questions and it was fascinating. Yeah. I've, I've got to do the control group of the guys who didn't succeed, but of the ones who did succeed. Over 80 percent of them had a traumatic experience in their childhood that was incredibly important in defining who they are as human beings, and I, and the message that I got from all this, and I shared it with my partners afterward was.

I don't think we're doing the right thing by only talking to people like life doesn't begin at it. And how that, who that person is and what's molded them is probably even more important than what school they went to and more important even sometimes than their work experience, because look, it's not easy to be enough.

It's hard and, in my 35 years of investing, I don't remember a seed company that I ever met that was exactly the strategy that they ended up having, executing on. In other words. There was constant pivot. There was constant things that were thrown at them along the way. And it's interesting to see, do they have the, does he or she have.

Take all these things that are thrown along you and thrown at you along the way and adjust accordingly and seeing what they did before they're 18. You learn a lot about that issue.

MPD: I'm pretty sure I interview at least 500 people a year for hiring, for roles that we're hiring for. And I use the same interview questions and I have been for the past decade and I try to keep them very secret because I don't wanna give anyone a cheat sheet.

But again, another similarity. One of the things I actually ask people is who were they in high school? If I bumped one of their friends in high school and I was like, who the hell, who the hell is Steve or Sally? How would they describe you? It's fast. It's far more fascinating, right? And you can start to pattern match too, right?

I don't know if you found this, but I found that there was a lot of people when I first started in business. It was like a, it was like learning how to walk again. I set aside all my predispositions and assumptions and cultural expectations. And was stumbling through it and then the light bulb went off and I realized that the same social cues I could use in high school and college applied in talent decisions on teams.

And so when you get childhood stories, it helps you find a narrative to figure out, this person faced adversity and succeeded through it. The same kind of narratives we were inspired by socially.

Alan Feld: Absolutely. Absolutely. And I think that's so crucial and I don't think people put enough emphasis on at the end of the day, it's almost a marriage.

When you invest in a, in an entrepreneur, you're going to be with that person for at least, chances are for at least a decade, and it's amazing to what extent we don't understand who they are as human beings. We focus too much I'm not minimizing the importance of product and I'm minimizing the importance of market, but.

I don't think we focused nearly enough as investors on who that person is. I look at, again, I mentioned I've done a lot of lousy investments in my career, but if I was to pinpoint where I made my mistakes, it was because I got the people wrong and I didn't understand them and their ability to to adjust and to listen to, I, there's no question.

And I think we don't, as an industry, we don't put enough emphasis on it, by the way, as I mentioned, we got also look in the mirror and apply it to our own firms, right? Are we recruiting the right people? Are we recruiting people who can also adjust? Every venture fund is also going through dramatic shifts and ups and downs in marketplaces and, the market conditions, et cetera.

We also have to be recruiting people and partners who can adjust and be, true, true partners, even in difficult times.

MPD: Alan, we're going to talk today, obviously about the conflict between Israel and Hamas. I couldn't have thought of a better, a more beautiful way to set up a little bit of getting to know you.

Before we get into something so delicate than to hear the way you think about empathy and the EQ, just in micro interactions in your life. One of the things I think a lot of people don't know about Israel is it's actually a fairly diverse society. It's not entirely Jewish people. It's 10 to 20 percent Arab.

If I believe it's correct, it's 20%, 20%, right? Pretty significant chunk of the population. Before we move into the broader paradigm that's happening with the conflict and how it's affecting the startup community out in Israel. Can you give us a little bit of a microcosm, with a population that's 20%.

Arab, 80%. I'm assuming that most of the rest is just, I know there's some Christians there as well. What does that translate to on your team at Vintage?

Alan Feld: One of the things that that I, first of all, I'm a big believer in diversity, period, right? Not diversity where you're You know you're trying to put a check mark on having a person from a certain background, but equality of opportunity and in every time we're recruiting for somebody, we're always trying to make sure that we're taking candidates and looking at candidates from multiple areas.

So 1 of the things I'm proud about vintage is we have a number of people on our team who come from the Palestinian Israeli community. And I did that on, I thought that was extremely important rather. And I even helped create an, a recruitment firm on a philanthropic basis.

That would help bring people from the Palestinian Israeli community into the high tech industry. I also started a nonprofit called power and diversity Israel for that purpose. And I'll tell you why, first of all, I think our firm is better. I think firms are better that you have more diverse populations, but.

Frankly, I have another, which is I would rather people look at this person is my friend from work and not my enemy. And I think 1 of the, amazing opportunities that we could we could see here is if we could do much more effort around integrating people from the Israeli Arab, Palestinian, Israeli community into the high tech industry as a way to break down some of those barriers.

And I've been spending the last 10 years, Actually, I've been probably 25 years, I should say, working on, I think it's extremely important. One of the, one of the most impressive people I've ever met in my life is a man called the elbow. You shouldn't, I would recommend you.

Interview him at some point. Eyal was the founder of a company called Melanox, which was bought by NVIDIA. And, built it into a hugely successful business, 7 billion in revenue. Eyal consciously built R& D centers in Gaza, Ramallah, Hebron, and Nablus. And it was because he wanted to say, I want to give people an opportunity.

And I believe that if we can strengthen that business, strengthen economically, those communities it will help through, it will help break down some of these barriers. Unfortunately, Al's daughter was killed on October 7th. She was at the peace party and she was, she and her, a fiance or future husband were murdered on that day.

And he, and. Probably the one that was moving experiences, I can remember was being at that funeral and a y'all standing over the grave of his daughter and his future son in law saying, we have to get rid of Hamas is, a huge obstacle to peace. But when Hamas is gone, I want to go back down to Gaza to help rebuild, and I think about that, right?

His daughter has just been, this is 2 days after she, she was slaughtered, right? Yeah. There's a, I think a lot of us in high tech, in particular, feel very strong that we have to find a way to live together in this region. And we believe that technology, that investment, that partnership is a really great way to do it.

We've done it internally in fintech, but I You know, I believe that it's something we have to do at a country level with the Palestinian Israeli community much more intensely and second to to do it regionally. One other project that we, that Vintage together with a well known family from the Arab community, we started a an incubator to train Palestinian Israeli entrepreneurs to be entrepreneurs to help get them going.

I. I think that economic empowerment that bringing people together is what the future of what should be the future of this region.

MPD: I don't have a full sense of it from the outside. I encounter a lot of Israeli entrepreneurs have the, has the Palestinian, Israel, Arab, Israeli community broken in to the tech cycle?

Yeah.

Alan Feld: So 22 percent over 22 percent of the which is a much bigger percentage of the population of the students in engineering and tech, which is Israel's leading technical, technology university come from the Arab Israeli community. On the contrary, I think what's happening is we're seeing more and more people from that community getting into the high tech industry.

You see it, you see them at Apple, you see them at Intel, et cetera. And again, we made sure that they've got opportunities at all of our companies. Cause we think that's fundamental. So I think there's a big change. And I think one of the nice things, again, that has happened in the last 10 years and during a difficult period is the beginning of this integration.

MPD: Alan, this is a loaded moment in time for everybody on all sides of this conflict or people not even involved. It's very loaded. Just to get some context as we go a little deeper, has your family or any close friends been directly affected?

Alan Feld: Yeah, I've, unfortunately I friend of person who I'm very close with two of his sons were killed on October 7th.

I have another friend whose son was killed on October 7th. I have other friends whose kids have been killed since. It's not a simple time. It's a hard time. And on a personal basis. Look, at the end of the day, as I say, we've got to find a way to lift them. And I believe that, if we can succeed in a mass out, but also at the same time, some of the very extreme people that we've got and put them to the side and start working together on, on a genuine solution.

I think there's room. I think, the, It's not a simple thing. I don't think people understand how complicated the A, this region is and the whole conflict, but I, I'm hopeful that that this very difficult, especially this very difficult couple of months. We'll knock a bunch of heads together and say, okay, folks, let's try and figure out a way to make this work.

And we're all

MPD: hoping we, we get very different media in the U S than the Israelis are consuming. I consume a little of both in an effort to understand this conflict. Is there an Israeli view right now on how long the conflict's going to go

Alan Feld: on? Yeah, no one really knows. At the day look, I think it's fundamental.

And it's absolutely critical that Hamas be removed from power and the hostages. There's nothing more, that is the fundamental issue. If Hamas was gone tomorrow in and. The hostages were released, this conflict would be. It wouldn't be happen in the 1st, right?

I. Genuinely believe that's the 1st stake and I think. Going once. That happens, and I wish it would happen somehow through negotiations that Hamas leaves the region and gets out of this whole thing. We have to think about how we rebuilt the Palestinian economy. A lot of people don't realize also that, southern Israel's been decimated by this.

Unfortunately in Lebanon Hezbollah has taken advantage of what's been going on and has been firing on northern Israel. There are 250, 000 people displaced in the northern part of the country. And we have to get the conflict over, get people back and start rebuilding. And I think it's rebuilding here also because the south of Israel was literally, the the Moss people really destroyed, a good chunk of the border communities.

And we have to also start rebuilding at a gasp and in a positive. So I'm hopeful that, we can figure out partners on both sides and both sides have a lot of work to do to make sure we get the right people together to get to the next day.

MPD: So just shifting this to impact on the startup community for a bit, because very important part of the Israeli economy is the tech sector.

Yeah. I'm reading a book about the water industry there as well right now, but yeah, let's focus on tech. What percentage, it's unique country in that. We don't have a mandatory conscription in the U. S. where you're 18, you're in the military that exists for male and female in Israel.

Not for everybody, but for most what percentage of folks in the economy right now are on military duty, right? Is it?

Alan Feld: I don't know the exact percentage, but I can tell you that a lot of people are serving in reserve duties in some capacity. Whether it's, yeah. Protecting the border up north or, filling various roles or medical rules or whatever.

Obviously reserve duty in the South. But I, I there's no question that has the impact. But one of the things I think is amazing is this country is very resilient and I think what people have done is they're doing a lot more with actually a lot less. So even though you have people, we have people who, have been called up we're still, so you work hard just to get stuff done and make sure everything is completed and everything's.

Working and everything's effective, et cetera by the way, just, the other thing I don't, a lot of people don't realize that of the people that were killed on October 7th and it, there's this perception again, it's, Israeli Jews who are 46 of those people were Muslim, were Israeli Muslim.

And some of the people who are hostages are also Israeli Muslims. This is not, only a, Jew versus Moslem. This is something that we as Jews and Moslems within Israel are experiencing. Similarly, there's a number of people from the Bedouin community, which is a Moslem community, and the Druze community, which is not a Jewish community, who are serving in the army, in the Israeli army, also defending the country, right?

So They too are, have been called up as part of the service. So it's not, it's not just quote, some people have characterized this as a battle of religions. It's not. It's a bunch of people living in this country trying to defend it.

MPD: Framing the startup operations for a second.

So if you guys are on night shift type situation. Absolutely. 80% of people are at the office. Everyone's kind of their sleeves

Alan Feld: and doubling down. Yeah everybody's resilient. Look,

MPD: the venture has, it felt like the economy's kind of slowed down a little bit, or trends are still running on time are still

Alan Feld: happening.

Deals are still happening. By the way, just as an aside, I can tell you this past year, if you look at the m and a this year as level of MA activity relative to the year. On a relative basis, say, to the decline we've seen in M& A in the UK, sorry, in the U. S., and the decline we've seen in M& A in Europe the decline in M& A here is not anywhere close.

In other words it's actually, companies are being bought there have been several very large deals I, in 2006 when We had this war with Lebanon after two soldiers were kidnapped from the Israeli border. There was literally a war, and Warren Buffett bought Iskar, which was 10 kilometers away from the border.

I, this is a credibly resilient country. Foreign investors continue to invest companies continue to be bought, sorry. Yeah, you can companies continue to be bought, and it's it's not a things have hardly come to a stop

MPD: now having said all that, you still have bizarre to hear that when you're seeing the pictures on the outside,

Alan Feld: I don't want to, I also don't want to, paint a picture that doesn't exist, right?

It's difficult, right? Everybody here is, and this is a small country, right? People have, right? Lost people. They've got people, in, in harm's way. You still do get rockets. We're still getting rockets today being fired. But this is an incredibly resilient population that says.

We're not giving up. We're not, and frankly, we have nowhere to go. So we're here to make it work. We want to work, find a way to work with our neighbors and work with our fellow citizens and make this what it should, which is, could be an example to, to have a, how people work together and live together rather than the conflict we're in now.

MPD: So I think the Monday after October 7th was the 9th. Yeah. Obviously the world changed. Yeah. What's the. What's the message you were disseminating or folks were disseminating out to CEOs? So someone's running a startup after a crisis. What's the lesson learned or how do you operate in the expected austerity that comes after that?

Alan Feld: I think, it goes back to what we started off with the beginning of the conversation, right? We talked about how some of the best entrepreneurs are people that have had challenges. When they were young we're just, they call us the startup nation. Same thing.

We have to pivot. We have to figure out despite everything that's going on. How do we make. Life go on. How do we make life go on for our families? How do we make our economy continue to be a successful? What do we do to make frankly, the world a better place? I don't think as hard as October 7th was, and it was a traumatic day.

It was a huge watershed moment in this country. It is really unbelievable to see how people went back to work right away. How despite everything people are doing whatever t