After living for more than a decade outside of New York City — with two successful exits behind him and no pressing need for a third — serial entrepreneur Izhar Shay sat with his wife and discussed what their future should look like.
Where should their children grow up? What should they invest their time in, now that earning money was a secondary concern? The most important question for them was: where could they make a difference?
Startup Grind chapter co-director Ram Yonish recently chatted with Izhar Shay in March, to discuss his path from entrepreneur to VC investor. Izhar founded Business Layers, which was purchased by Netegrity for $42.5 million in 2003, and V-Secure Technologies, by Radware in 2005 for $15 million. In 2005, Izhar was mulling over what to do with the rest of his life; he soon found an answer.
The answer for Izhar and his family was Israel. Israel in 2005 was no longer in its seed stage, which today is Izhar’s preferred point of entry into any venture. But he moved to become the head of Canaan Partners Israel operations, which has made 10 investments over the 12 years he has headed it.
Izhar was no stranger to Israel. Sixty years earlier, his parents had made a similar move to the same land. He had grown up in Jerusalem, where he and his brothers often looked after themselves while each of his parents worked two jobs and studied toward university degrees. They taught him to work hard, to do what it takes, and not to accept excuses.
Izhar chose a position that allows him to become a force for enabling the dreams of Israeli entrepreneurs. He also started writing an often-provocative column for Globes, which allows him to express his political views. “We live in a democracy, this is the beauty of democracy, and I explain myself accurately,” he said and then added, “Part of my commitment is to speak freely and push for change, and convince others to do the same,” which he has done prolifically through his 384 columns to date.
His choice to move back to Israel also involved a desire to give back and volunteer. Izhar serves on the board of Ort Israel, the country’s largest technology education organization. He is a champion of underrepresented groups in the high-tech industry, such as Haredim (Israel’s Orthodox Jewish community), Arabs, and women. His wife also leads the Scouts movement in Israel.
Ram and Izhar discussed the Israeli startup scene at length. Izhar has an Electrical Engineering degree from the Technion, but he credited his IDF network with some of his biggest initial breaks. When he was first asked to invest in startups, he wondered aloud: “How do you invest in startups? I don’t know anything about it.” To this, his former paratrooper commander replied, “I was your commander; I am sure you will figure it out.” Izhar discussed the importance of networks and added that “In the U.S., it’s the universities — but in Israel, it’s the army.”
Izhar offered a lot of advice for entrepreneurs. He shared an important lesson from September 2001 when his company was seeking investment and had an offer on the table, but there was a lot of internal discussion about whether or not to take it. At that point, he had 250 employees with families and mortgages. He made an executive decision to take the deal and secure his company’s future despite the possibility of a better deal in the future. His company issued a press release announcing the deal on 9/11/2001 8:00AM, the morning that New York City’s financial heart, the World Trade Center, was attacked. Izhar added an unexpectedly light-hearted side note that offered a poignant illustration of his homeland’s many encounters with terrorism: Israelis were the only parents to pick up their kids from school at 3pm on September 11th “because they were used to this sort of thing.” After the attack, there was no fundraising for six months. From this, he draws a couple of lessons: have the courage to make decisions and raise more than you need.
Izhar also stressed that time “is the most expensive resource. We have to move fast. Work on the assumption time is running out.” The type of entrepreneur Izhar looks for is a bright, young, type-A personality who is an excellent networker, with a background in engineering, math, physics or economics, along with an MBA or banking/finance degree. He said entrepreneurs should go ahead and prepare a solid business plan for their own purposes but should keep it to themselves because VCs don’t read them.
He also praised Israeli VCs for being courageous. He offered the example of Waze, which in its infancy was a social mapping network without any maps — rather useless at first. Their initial seed raise was $12M. Canaan Israel pivoted about 18 months ago to focus on consumer startups with a technology edge and not just a go-to-market strategy. He doesn’t assign any value to patents, as they are only good for defense, not offense, when in the hands of startups; however, he does admit that a patent shows uniqueness.
In a few final thoughts, Izhar stressed the importance of the core team of a startup. He explained that if a startup is looking for VC investment, they have to make an excellent impression. Canaan Israel, like typical VCs, sees 200-300 startups per year and may choose only one to invest in. He noted that entrepreneurs meeting with investors should have one goal in mind during their first meeting: do what it takes to get to the second meeting.
Izhar’s parting advice for these startups? “Do not hide challenges, and do not underestimate or overestimate the investor’s ability to see them.”