in 500 Startups

I’m joining 500 Startups as a Venture Partner

Photo taken by Ron Shoshani, licensed under CC BY-NC-ND 2.0

I’m Adam, welcome to my blog

After building startups for over 10 years and successfully raising venture capital, I decided to take a break and join the dark side as a venture partner at 500 Startups. You can read more about me here.

It’s a big personal milestone for me, and no blog post can possibly do justice to my excitement right now but in this post I would like to share why I’m making the transition from a creator to a VC, and my plans going forward.

Why Israel?

Israel – often dubbed as Silicon Wadi (Valley in Hebrew) – has more startups and venture capital per capita than any other country in the world. In 2014, 688 companies raised $3.4bn and a total of 70 exits and IPOs netted Israeli companies more than $15bn.

I think that big international seed funds are missing out on the second biggest ecosystem in the world. Today 500 Startups is picking up the glove and I’m honored they chose me to be their man on the ground.

A unique seed fund best positioned to revolutionize the VC ecosystem

So what’s exactly is the big deal with 500 Startups, you might ask

For those of you who’ve been living in a cave for the past 5 years, 500 Startups is a seed fund and startup accelerator based in the valley, founded by Dave McClure and Christine Tsai in 2010. So far, 500 Startups has backed more than 1200 startups across the globe, and has a staff of over 75 people hailing from 15 different countries.

That unique portfolio puts 500 Startups as the most active and diverse seed fund in the world. It’s a seed fund on a mission to disrupt the VC world.

In my wildest dreams, I had given some thought to investing in startups, but always believed that if the day would come, I’d like to join somewhere unique where I could make an impact. There is a lot of capital available to startups today, but most of it does not add value.

I believe 500 Startups adds value to their startups. I have personally witnessed first hand how 500 Startups altered the trajectory of our company after Binpress participated in the accelerator in Mountain View. They gave us access to a large network of mentors and investors, helped us with distribution and provided the support we so much needed.

An investment thesis that makes sense

What sets the 500 Startups seed fund apart from most other funds, is their rather unusual investment thesis. If you have 10-15 minutes, you should read the following blog posts – nothing I write will describe better the 500 Startups’ M.O.

tl;dr – For the lazy people, the summary of the 2 blog posts is – Invest early, double down on winners and build a big enough portfolio (hundreds of startups) in order to maximize the frequency of your big outcomes.

Additionally, what I like about 500 Startups is that they came up with a unique set of programs tailored to help entrepreneurs navigate the early stages of building a startup:

  • The pre-accelerator program: An intensive 1 month program geared towards teams that have an MVP but not necessarily traction, and are thinking about raising a seed or joining an accelerator in the next 6-9 months.
  • The Accelerator: A 4 month program that provides mentorship, helps with distribution, growth, fundraising and much more. The accelerator program is more suited for companies that have product market fit and are looking to scale their distribution.
  • The Distro dojoA 3 months program that provides post-seed/pre-Series A companies with help in scaling their distribution and finding new growth engines, specifically created in order to give those companies an unfair advantage when raising their Series A.

If you look closely at these programs, they’re carefully crafted in order to provide entrepreneurs with the support needed to take them from inception to Series A. Series A seems to be an very important milestone in the life of a startup. Past Series A, the mortality rate of a startup decrease significantly. 500 Startups job is to deliver you safely to that milestone, to increase your odds of survival.

My Investment Thesis

It seems today every investor has developed an investment thesis. Good investors follow these investment thesis religiously and through time evolve them as they get more experience. I believe a good investment thesis allows you to stay disciplined and defeat the natural human bias when investing in startups. That’s why I wrote one for myself.

I expect to write a longer post in the future defining in greater details my investment thesis but for now, the following investment thesis will do:

  • Location: Israeli companies or companies founded by Israeli founders.
  • When: As soon as you have a product and early market validation.
  • How much: $50k-$100k initial check as part of a larger seed round.
  • What: B2B, developer tools, SaaS and marketplaces startups.
  • Who: 2-3 founders with at least one technical founder.

Team
I believe the team is what leads a startup to succeed or fail. Here’s what I’m looking for in a team:

  • Customer focused: They care about their customers and are genuinely interested in making their life easier.
  • Cohesive: A team that has worked long enough together to know how to handle differences and that are complementing each other. Preferably ego free.
  • Determined yet coachable: Looking for the right blend of resiliency, persistency, determination and the ability to listen to others.
  • Good people: I want to back good and moral people.

Market
The next thing I like to look after the team is the market. Here’s a few pointers what is a good market in my mind:

  • Large addressable market: The addressable market (TAM) has to be at least a couple of hundred of million of $ and grow reasonably fast every year.
  • Competition: A market without competitors raises a flag while a crowded market will be less than ideal since I’m always worried that it will end with a race to the bottom. However this can be countered by having a unique and a well differentiated product that drives substantial value to customers.

A couple of additional notes:

  • I’ll try to make a quick and informed decision but when I can’t form an opinion in a timely manner, expect my decision to be not to invest.
  • I’ll be as candid as possible with my feedback – I don’t like evasive answers or sugarcoating reality. If you won’t take it well then maybe we weren’t a good fit to start with.
  • Even if I say no, keep me posted about your progress. 99% of the time I’m wrong and I like to be proven wrong. If you made significant progress that warrants taking a second look – please send me an email.

That’ll be all for today. If you know of a great team tackling a big problem – please send me an email. Additionally I’d like to thank Dave, Christine and the rest of the partners who gave me an opportunity to join 500 Startups and invest in Israel. I’m one lucky bastard!

Leave a comment if you have any questions or would like to clarify something about this post. You can also follow me on twitter: @adambn.

* Photo taken by Ron Shoshani, licensed under CC BY-NC-ND 2.0