Michael Jordan, Global Entrepreneurship and The Changing Definition of Success
“You have competition every day because you set such high standards for yourself that you have to go out every day and live up to that.” — MJ
By Gil Ben-Artzy, Partner @ UpWest Labs
The greatest basketball player of all time was fanatical when it came down to pushing himself to the limit. I remember watching Michael Jordan’s Hall of Fame acceptance speech, and being in awe of how he described drawing from his immediate environment to push himself to the limit. Whether it was playing against his older brother in their backyard, or against top NBA players during his famous “Flu Game”, he was relentless in the pursuit of winning. The support he received and the obstacles he faced were all stepping stones for him to climb higher and succeed. Many players around the world grew up wanting to ‘Be Like Mike’, contributing to an almost fivefold increase in the number of international players playing in the NBA — from 21 in 1990 to 101 in 2014.
There are many parallels in the startup world, with international entrepreneurs influenced both by their local ecosystem and by pick-your-favorite-Silicon-Valley-Unicorn playing the part of MJ. The path each entrepreneur takes varies, and the conditions in which each one “plays” and the entrepreneur’s own definition of success can have a major impact on their potential outcome.
For example, one can examine the vibrant Israeli startup ecosystem, which combines strong tech talent with access to significant amount of venture capital financing ($3.4B in 2014 — more than any European country). Though Israel has been rightly applauded for its innovation and perseverance over several decades, some criticism persists regarding the magnitude of venture outcomes relative to their US counterparts who currently have the most MJs of the world.
Despite impressively large outcomes like Mobileye, some critics maintain that Israeli startups don’t have it in them to go all the way. Previous research shows that the average exit amount for an Israeli startup is 53% less than the global average, hindering access to the Unicorn Club.
However, there are three emerging factors that are influencing how international entrepreneurs are redefining success of their startups to compete at the highest global level, with Israeli entrepreneurs as the case in point.
First, larger US and international funds are driving deeper into the international ecosystems, increasing the focus on mega-outcomes.
In the past 20 years, the source of capital for Israeli startups has steadily shifted in favor of US and foreign funds. Between 2005 and 2014, capital raised by Israeli startups from investors outside of Israel grew from 51% to 83% of total capital.
In the past few years, global funds like USVP, Norwest Venture Partners and Battery Ventures have increased their activities in Israel, and they are being joined by others such as NEA, who are spending an increasing amount of time in Israel.
Prompted in part by the hit-driven nature of the venture capital business and the larger size of US funds, the bar is rising for Israeli entrepreneurs seeking capital. VCs in every ecosystem have always pursued companies that have huge potential outcomes, but the increasing presence of US investors in non-US markets is ushering in larger check sizes, and, like MJ, upward pressure on the entire ecosystem to be better.
This shift by no means diminishes the important role of Israeli VCs, who are mostly focused on early stage investing and are crucial to the early success of the local ecosystem. Local investors are also benefiting from the increased presence of non-Israeli investors that are providing crucial later-stage capital to follow-on the investments that the local investors made in earlier rounds.
Understanding the economics of global funds that enter new ecosystems is critical for local entrepreneurs, as the success stories will need to properly align expectations with all potential investors along the VC food chain.
Success Breeds Success
Second, startup ecosystems are characterized by the ‘snowball effect’, where experience and knowledge pile up as momentum and begin to trickle down into early stage startups in the form of mentorship and the recycling of capital.
This is undoubtedly true for Israel, a tight ecosystem where angel investors are sometimes the product of successful unicorns. Some of the early employees, advisors, and angel investors that are joining startups at early stages have seen what big companies, and big successes, look like. For example, Shlomo Kramer, co-founder of Checkpoint and Imperva, invested in Trusteer, Lacoon Security, Fundbox, and many others.
An increasing number of entrepreneurs are influenced by successful US-based mentors and investors. For example, HoneyBook* raised their seed funding from the co-founders of Ariba Networks, the co-founder of Twitter, and the founder of AngelList, among others. Each of these angel investors are looking to invest in The Next Big Thing and support the next generation of startups by influencing the founders to set their eyes on the biggest prize possible.
Rising Up To The Challenge
Finally, entrepreneurs in Israel (and around the world) targeting the US market are getting earlier and more frequent exposure to competition and innovation from the US, and Silicon Valley in particular. More and more companies are competing head-on with startup unicorns.
For the vast majority of tech industries, Silicon Valley is still the premier source of both great innovation and intense co-opetition. Startups are exposed to companies and individuals that represent early adopters and easy-to-access distribution channels. It is important to recognize that what may have worked for one startup is not necessarily a proven model of success for another. In a tech culture obsessed with emulating successful habits, it is becomingly increasingly important for entrepreneurs to seek creative solutions to rise above the noise.
As Israeli (and other international) entrepreneurs engage earlier with the US market in search of product-market fit in their real target market, it is clear that these founders are hungry and eager to rise to the challenge. Many of Israel’s entrepreneurs are smart and resourceful, learn on the fly, and adapt to critical business nuances in rapidly changing competitive landscapes. The underdog narrative is a direct product of heightened competition.
Similarly, Waze experienced the benefits of moving to the local ecosystem when CEO Noam Bardin relocated to Palo Alto. Also, SentinelOne*, which relocated to Silicon Valley and quickly onboarded customers such as Netflix and Box.
In some cases, Israeli founders have even started their companies in the US, gaining early exposure to the ecosystem from day one. Houzz, founded by Israeli couple Adi Tatarko and Alon Cohen, has raised north of $200M to date.
Whether it’s through US-based accelerator programs or just by showing up, international entrepreneurs can find ways to get early access to their target market. Competing on a level playing field should bring out the best in these founders.
Be Like Mike
The “Michael Jordan Effect” is a very real phenomenon in global entrepreneurship. As startup ecosystems outside the US continue to evolve and emulate their counterpart in Silicon Valley, these factors will enhance the confidence and experience of international entrepreneurs that is key to building an iconic company. By surrounding themselves with successful investors and mentors, and by getting early exposure to their market, entrepreneurs will continue to change the definition of success and aim for even more impactful outcomes for their ventures.
* Disclaimer: My firm, UpWest Labs, is an investor in HoneyBook and SentinelOne