Israeli Startup Chips Away at Venture Capital's Ivory Tower
Jon Medved knows the inside of Israel's exclusive venture-capital circle. He's been on both sides of the table in pitch meetings, as a co-founder of a mobile-video app maker called Vringo and an early investor in Shopping.com before it was sold to EBay for about $620 million.
Medved's latest mission is to blow up the exclusivity around tech fundraising. He started OurCrowd as a way for entrepreneurs to raise capital online from a diverse group of investors. Since the site's debut about six months ago, 25 startups have raised $18.6 million, and a few have already returned to seek additional financing.
Lending Club, which Medved has also backed, inspired him to start OurCrowd. He watched the value of that peer-to-peer lender rise to $1.55 billion after an investment by Google in May.
"I saw this, and I said to myself, 'Why isn't this going to happen for venture capital, where nothing has changed in 50 years?'" Medved said in an interview. "Venture capital was an agent of disruption for everyone else's business, but no one has disrupted venture capital."
Investors must register on OurCrowd's website before they can browse offerings and receive alerts about top deals. While the company is capitalizing on the buzz around crowdfunding, OurCrowd limits its investor membership to those who fit the legal definition for accreditation, which varies by country but is generally limited to high-income professionals. Crowdfunding rules in the U.S. and other countries have yet to be fully defined.
"We are very careful to abide by the current laws," Medved said. "We understand we are cutting new ground with the use of the Web."
In addition to legal cover, keeping the investor base tight-knit means entrepreneurs can get access to a high-quality group of mentors. That's certainly a benefit, said Bob Rosenschein, who used OurCrowd to raise $550,000 for his startup Curiyo.
"The hope is that we will also get business benefits from the network of investors," said Rosenschein, who sold his last company Answers.com for $127 million in 2011. "Otherwise, this is no different from working with a traditional fund."
Medved is tapping his connections with successful Israeli entrepreneurs to find mentors for startups on OurCrowd. He brought in Ron Moritz, the former chief technology officer at Symantec, to advise a Web-security company called FireBlade after it raised money on OurCrowd.
The combination of Web-based fundraising with the kind of mentoring that comes from traditional venture capitalists is helping OurCrowd stand out, said Jeff Pulver, an early investor in Twitter. He used OurCrowd to raise $345,000 for his startup Zula, which makes software for mobile communications in companies.
"This is a great example of how Israeli innovation is changing the status quo," Pulver said.
As it grows, maintaining the quality of investors and advisors on OurCrowd could be difficult. And while the model helps attract a new breed of investors who wouldn't typically think of putting their money into tech startups, it's unclear whether it'll become more than a niche industry, said Koby Simana, who runs IVC Research Center, which monitors Israel's venture-capital and technology industries.
"I'm not sure if those investors will see a real return on investment," Simana said. "The model is very young and there haven't been many home-runs or exits."
OurCrowd launched at a time when Israeli venture-capital firms started running into trouble. Fundraising for funds there fell 30 percent last year to $607 million, according to IVC Research Center.
While 10 percent of OurCrowd's investors are based in Israel, nearly 40 percent are from the U.S. The company recently opened an office in San Diego, California, and plans to recruit more companies outside of Israel to use the site for fundraising this year, Medved said.
"Our intent from here going forward is to be the largest site in the world doing this kind of investing," he said.