What makes a venture capitalist?
Venture capitalists are elusive beings. The path to VC Partnership, if that is the end-goal, is almost never the same for this elite pack of investors, so what can we learn from a single career? Dan Drach, MBA2016 and Co-President of the LBS Venture Capital Club, sat down with Gil Dibner for an intimate fireside chat to explore all things venture capital, life and the courage to pursue your convictions. He asks – what makes a venture capitalist?
Today, Gil is a well-known early-stage venture capitalist amongst the Israeli and European tech start-up circuit. How he got there is a story that traverses technology, venture capital and entrepreneurship with stops in Israel, New York and London.
This is his story.
From Humble Beginnings to Life in the Fast Lane
I started following Gil after stumbling upon a blog post he published featuring a quarterly summary of all the VC deals made in Europe and Israel. Gil was very generous when I contacted him and proposed to interview him for the LER and it was exciting to learn that we were neighbours. We met at Aubaine, one of his favourite Marylebone spots for a bilingual conversation - I asked my questions in Hebrew and he answered in English.
Gil grew-up in Boston, but as son to an Israeli mother he spent many of his summers in Israel developing a deep connection to the country. Despite his current focus on technology, Gil explained he was not smart enough to study engineering so he studied economics at Harvard instead.
“In 1999 investment bankers were practically venture capitalists”
Upon graduation Gil started working as an Investment Banker in the Technology team of CIBC Oppenheimer in Wall Street, during the heyday of the tech bubble…the first one that is. It was the gold rush of start-up IPOs and bankers were in the know of everything happening in tech. “Companies that today would be trying to raise venture capital were going straight to the public market attempting to IPO,” Gil recalls. Goldman Sachs was the next stop on his journey to becoming a venture capitalist. He covered internet infrastructure companies as part of the Equity Research technology team.
“Analysing fundamentals is key for success in venture capital”
“When the bubble burst and companies began to struggle, only those analysts who were diligent enough to scrutinize the cash flow dynamics of their portfolio companies could separate winners from losers”.
Gil reflects on his years as an Equity Analyst, recognising them now as being formative to how he analyses deals. His advice is to always carefully examine the economic fundamentals and drivers of a business - the rule he followed when he successfully invested in SiSense and Jfrog. This lesson is just as true to start-up founders who are indoctrinated to pitch by using comparisons – there’s only so far that “I’m the Uber for X” pitch can take you.
The Break Out Years
“I knocked on every door until finally someone said we’ll give you a try”
Between 2002 and 2004 Gil lived in Philadelphia whilst pursuing his MBA from the Wharton Business School. He spent his summers in Israel as he had done since childhood. He recalls cold calling all the Israeli venture funds asking for a job. They all turned him down.
Not taking no for an answer, he flew to Tel-Aviv and visited all the local venture funds until finally Genesis Partners, one of Israel’s most prominent VC funds, offered him a summer internship, which later led to a full-time offer. Gil joined Genesis as a Principle upon graduation and moved to Tel-Aviv.
Like many MBA students, Gil faced the harsh reality of the VC world – only a dozen junior positions open up every year in London and there are only one or two funds which offer a partner track. Gil’s conviction towards his career reminds me of the bullish optimism often found in entrepreneurs. His advice for MBAs who want to pursue a career in venture capital is to do “whatever it takes” to get in the door. Never give up.
Reflecting further, Gil offered the following advice to aspiring venture capitalists: “…when you’re young, you don’t have the experience to pass judgement quickly – so you need to stay humble. Humility is the secret weapon of junior venture capitalists in both the pitch meeting and the board room.”
Finding Diamonds in the Rough
“While talent is evenly distributed around the world, entrepreneurial success is highly concentrated in the Silicon Valley and Israeli tech communities."
Gil worked with Silicon Valley VCs and start-ups during his years on Wall Street, then spent five years investing in Israeli start-ups before he moved to London to join Index Ventures. In 2013 Gil became a partner with DFJ Esprit (now Draper Esprit), visiting all the important European hubs in search of opportunities in “deep tech” - Gil’s description of innovation that involves defensible and highly technical inventions.
Gil offers interesting insights on the differences between innovation hubs around the world. “You can find bright minds everywhere in the world,” he says, which is why the rawest form of innovation – disruptive ideas - can also be found anywhere in the world. Successful start-ups on the other hand, require a unique eco-system to flourish.
“Network effects play an important role in determining the success of a start-up. You must be close to your market and your clients”
When I asked about the health of the Israeli tech scene Gil commented that because the Israeli market is so small, many engineers, academics and businesses were developing strong ties to the US. As a natural consequence many Israeli start-ups build their businesses to target US clients from day one. The evolution of a tech eco-system starts with a breakthrough which then breeds the next generation of technology. This is why a handful of Israeli companies in the 1970’s which developed technologies for enterprise clients, including the military, in spaces such as semiconductors, network communication and security, later bred an entire eco-system which today is predominantly focused on B2B applications.
When I asked him how he finds the European tech scene, Gil claims that “…today all companies can reach all markets” and that he is open to interesting opportunities regardless of the home country of its founders. He wisely muses that the world is very different from the one in which he started his professional life in the late 90’s.
“The best deals are hiding in plain sight, but it takes a certain mind-set to spot them”
If start-ups can succeed anywhere, is it the investors who are different across geographies?
Gil speaks about his transition to Europe, joining Index Ventures as a principal in 2012:
“There are differences between investors but at the end of the day there is no need to reinvent the wheel - VC is a global game and the Silicon Valley model proved itself. London is a natural hub for innovation in the financial services space, and a centre for fashion and ecommerce. Consumer facing products are more intuitive to understand and so those are the deals most investors chase. I found myself sourcing deals like an Israeli VC, looking for technically innovative start-ups. The deals I am interested in are off radar for most European investors – especially at the early stage. There is nothing preventing multi-billion dollar exits originating from European deep technology companies, but many investors here just don’t have the risk appetite to support highly technical research and product development.”
Gil explains that analysing investment opportunities is about pattern recognition. After 10 years screening thousands of business proposals involving “deep technology” the patterns that Gil is trained to spot are usually an extension of similar technology-based start-ups he has followed since the late 90’s. When you have such an intimate understanding of an industry, you learn to identify the right business models, solutions and teams that can interact and integrate with the older generation of companies. This makes spotting promising start-ups much easier.
Stepping Out: on the decision to go independent
Since joining a VC firm in 2005, Gil has put together an impressive track record of early-stage investments. Two of his early investments resulted in quick, profitable, acquisitions. His first investment, Yedda, was acquired by AOL. A later investment, The Gifts Project, was acquired by Ebay. Other prior VC investments include SiSense, Innovid, JFrog, Flok and others. His angel investments include Siemplify from Israel, Resin from the UK, Front from France, and several others.
Like most VCs, Gil won’t talk performance numbers with me, but he did reveal that several of his investments have “more than returned” his entire portfolio. What is public knowledge is that many leading global VC firms have invested into companies where Gil was an early backer.
His list of co-investors is indeed a veritable “who’s who” of leading VC firms: Battery Ventures, Bessemer Venture Partners, Canaan Partners, DFJ, Index Ventures, Sapphire Ventures and many others. I ask him how many of his two dozen investments have failed completely, “only one,” he says. “Only one so far, but I expect more failures. If you don’t have enough failures, you aren’t taking enough risk to drive returns.”
It was in late 2014 that Gil made the decision to go “independent” as a venture investor using the AngelList platform. AngelList, a San Francisco-based company and a start-up itself, is perhaps one of the most powerful forces for change in the way venture capital is done. The AngelList platform allows investors such as a Gil to serve as “leads,” aggregating other investors into “syndicates” that invest together in deals that the lead identifies and selects.
While the traditional VC model requires investors to commit money up front to a firm, the AngelList model allows a more ad hoc relationship, with investors deciding on a deal-by-deal basis which investments they want to support. In just over a year, Gil has assembled the largest such syndicate on this side of Atlantic, and has already made four investments totalling over $900K. In line with Gil’s global perspective, one of these investments is in a UK company from Newcastle, one is an Israeli company, one is a German/Italian team in London, and one is an Israeli team operating across the UK and Israel.
“I see myself as a nano-VC"
Gil bristles when people refer to him as an “angel.” “I see myself as a nano-VC,” he says. “Nano because my check sizes are small, but a true VC because I’m investing on behalf of other people and with a professionalism and a focus on large exits that is rarely associated with angel investment.”
On this side of the Atlantic, Gil’s early adoption of AngelList as a platform is an interesting endorsement of the AngelList approach. He is joining an increasing cadre of venture professionals who have established a track record and are using new platforms such as AngelList to access investor capital and funnel it to start-ups. This is, perhaps, a sort of quiet revolution in venture capital.
Gil publishes up to date statistics about VC deals in Europe and Israel in his blog: http://yankeesabralimey.tumblr.com/ and his deep tech syndicate is open to backing: https://angel.co/gdibner/syndicate
The LER would like to thank and acknowledge Rob Yule (MBA2016) and Graeme Burns (MBA2016) for making this article possible.