Why We’re Betting on Students
Five months ago I sat in the offices of one of Israel’s most successful startup founders. He had sold his company for almost $5 billion- the largest exit in Israeli history, and I was there to pitch my own startup idea. What I had pitched then is now incorporated as fresh.fund, Israel’s first student-run venture fund.
He listened intently as I talked about the huge potential I see in student-run startups. In the Israeli investing ecosystem, student venture is an under-served market. I enumerated the long-term social and strategic benefits of involving student-investors in the decision-making process. Having just finished my own four years as an undergraduate I could speak to the dynamism of student entrepreneurs in terms of deal flow, the fresh perspective they bring to the table, and the various community multipliers that come from empowering a population that will build and generate value long into the future.
He carefully considered my proposal and after a moment of pause asked:
“…Why would you invest in inexperienced students over industry veterans with years of experience? Why would you trust students ‘with milk on their lips’ to make smart investing decisions? It’s admirable, but you should be prepared to lose all your money…”
This was neither the first time nor will it be the last time I encounter this reaction, which is why I decided to write this post: a consolidation of the reasons we’ve chosen to “hang our wallets on the horns of a giddy gazelle,” as it were, or on “keren hatzvi,” in Hebrew, and bet time, money and reputation on student founders and student investors.
I’ll also explain why we chose to do so in Jerusalem.
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“For Students, By Students”
The idea of a venture fund “for students, by students” isn’t new.
The rationale is that students are connected to innovation on a grassroots level; they’re surrounded by smart ambitious peers, professors, and potential co-founders; and that they’re early adopters by nature. Perhaps this is why in the US at least 44 student-focused-funds or investor groups invested in student startups in 2015–2016 according to PitchBook.
I had first-hand experience with this network to support student innovation when I started a company during my senior year of college at Harvard. My team and I launched our startup on campus. After seeing some solid early traction, we approached a classmate of mine from one my entrepreneurship seminars, who arranged a meeting with Dorm Room Fund. Within a few weeks we pitched the Boston team of investors, secured our first $20,000 in investment, and began in earnest our go-to-market efforts. The process was seamless, fast, friendly and empowering, and it gave us the confidence we needed to turn down the jobs we had lined-up after graduation. We had the incentive to dedicate ourselves full-time to our startup and take that invaluable leap at a crucial moment of opportunity in our professional lives.
When I returned to Israel, my home country, nearly two years later looking to get involved in the local startup and investing scene I was surprised to learn that no similar framework existed for student startups here. While Israel has its fair share of campus innovation centers and student focused incubation programs, funding for student ventures in this self-described “startup nation” remains scarce.
The Case for the Israeli Student
I was especially surprised by the lack of student focused funds in Israel considering two key differences I’ve noticed between Israeli and North American students that I believe merit a quick unpacking:
First, Israeli students are usually older and more experienced than their peers from around the world because they’ve typically served in the military, traveled the world and held a steady job long before starting their academic careers. This is why the Israeli students will often inherently demonstrate at least a nascent “founder fit” (8200 grads in cyber example) and are less prone to first time founder risks that undermine many early stage university-based startups elsewhere.
Second, Israel is so small and heavily networked that reaching every single student with an interest in entrepreneurship might actually be feasible. There are a limited number of schools that are accessible with some very basic campus outreach. A fund run by students focused on students therefore has a real shot at being the first encounter that Israeli startup founders — current or future — might have with venture capital. This not only gives a student-focused fund the “first mover advantage,” but also the opportunity (and responsibly) to give founders a positive first impression of VC. In turn, this could have a huge impact on how these founders approach the process of raising capital in the future.
Why Israeli investors have overlooked this niche is unclear. What is clear is that pre-seed funding for student-run ventures in Israel remains scarce, and therefore presents an opportunity. The bottom line is that we need more Israeli students taking an active role in the startup community. For that to happen someone needs to offer a streamlined track for early-stage capital.
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Community Multipliers
To be sure, starting a student-focused fund, and giving students the opportunity to make investment decisions is a long-run play. We are investing in the community now because we think it will pay off in the future, yielding value for us and everyone involved. This may sound philanthropic to some, but it’s also strategic. Equal Partner at Aleph, Eden Shochat, put it best, when writing about “community as a power multiplier”:
“We believe that if we help impact the community’s skill set and mindset, the power multiplier that is the technology startup ecosystem will ignite results that are much more significant [in the future]. […] Taking on these [community] projects demonstrates that by providing initial pay-it-forward currency “liquidity”, any community creator can jumpstart a pay-it-forward chain that will develop good deed currency. This makes the whole system more liquid and effective.”
We believe wholeheartedly in this pay-it-forward approach. This concept is most powerful when applied to students, who are open-minded and have fresh energy in taking their first steps in the world. The greatest source of our fund’s potential will be the strong rapport it ignites with a generation of promising students. These young entrepreneurs will grow to become tomorrow’s leading startup founders and investors, and our early engagement as catalyst and enabler of their enterprises will serve as their foundation. While it is clear why our fund will be in a position to benefit from those long-term relationships, the primary goal is to guide students towards careers in the ecosystem, and improve the overall level of startups in Jerusalem and beyond. It’s a shared value proposition.
The Power of Diversity
Working with students — specifically in Jerusalem — also allows us to reach populations that have had limited access to startup culture in the past: Arabs, and Ultra-Orthodox communities. This opens up a whole new world of opportunity in terms of talent, innovative ideas, and market reach.
Generally, higher education in Jerusalem integrates these populations into its institutions, but sadly this stops after graduation. Stratification occurs as students begin to start their careers, and without any dynamism in the current options, the labor market could remain segregated. Inviting students into the startup ecosystem, facilitating their first encounter with its subject matter and leaders, and giving them a taste of a meaningful career in this space can help tip the balance of opportunity towards a more equal and engaging equilibrium.
The fund appears to have a social cause and agenda of sorts, but aside from its inherent commitment to an easier entry into the startup world for all students, inclusivity is also strategic. A diverse committee of student investors is more likely to catch opportunities led by peers from underrepresented communities faster and know more thoroughly how to gauge the true potential of those opportunities. There is power in diversity that we hope to empower with a committee of student investors hailing from a variety of backgrounds and skill-sets: Jews, Arabs, women, men, religions, secular, computer science, economics, sciences, math, business, design etc. This is a whole smattering of rising stars with talent, ideas, and resources which we hope to bring into a more guiding and visible constellation with fresh.fund.
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Why Jerusalem?
At this point, it must be clear that fresh.fund is uniquely perfect for Jerusalem, and visa-versa. Some of the city’s pioneer investors and startup founder have spoken and written extensively about the resurgent growth of startups in the city. They all also mention the need for early stage capital, (check out the “Made in Jlm” graph Ben Wiener shares in this great post).
I want to make one final additional point, not just about the cast and crew of the startups in Jerusalem, but also about their backdrop — the environment of innovation, the city itself. I believe it has much to offer both founders and investors in terms of mitigating risk.
For better or worse, people love Jerusalem and want to see it succeed. This is why more and more stakeholders are doing everything they can to promote it: established giants like Mobileye and emerging ones like Lightricks are headquartered in the city — refusing to relocate despite disgruntled employees who commute daily from TLV. Foundations are pouring resources on its cultural renaissance, and the state has allocated more than a billion NIS to support its growth in the form of grants, tax benefits, and scholarships.
This means that Jerusalem startups have a leg-up on startups elsewhere with unprecedented and growing access to industry partners, mentors, and great resources. This is not to say that Jerusalem startups don’t fail. I am also not insinuating that failing startups in a stellar city should be propped up artificially by interested stakeholders. However, I would like to put forth two important and unique reasons for the exceptional time and place we have for fresh.fund:
1) Startups in Jerusalem are supported to the extent that they can dare to fail, and therefore take on projects they wouldn’t otherwise consider.
2) From the investor standpoint, money in Jerusalem goes further, which for early stage investments, mitigates a great deal of the risk.
For every dollar invested in student startups in Jerusalem, we’ve secured funding from partners and stakeholders. As student startups are probably the riskiest of all, de-risking efforts like ours are so vitally important.
In this context, we’re excited to be launching fresh.fund with some incredible ecosystem partners- the Pratt Foundation and the Jerusalem Development Authority- who are committed to supporting the city as a whole, and its diverse student population in particular.
Another reason we are so excited to be launching fresh.fund in Jerusalem is the unique partnership we’ve built with Siftech, the city’s first startup accelerator, and our co-founder on this project. Siftech serves as a community catalyst, organizing events, initiating projects aimed at driving entrepreneurial activity, and accelerating some of Jerusalem’s most successful startups, inlcuding: Breezometer, Zore, ModLi, yalabot, and tzvi.vc backed companies BiteMojo and ScaleAbout In the last few months, Siftech has been refocusing its gaze back onto the city’s student populations, which makes it a natural partner for fresh.fund.
Our partnership with Siftech is critical to fresh.fund’s success both because the organization has its finger on the startup pulse in the city, as well as our mutual understanding that for student founders to succeed they need a great deal of support and guidance.
In summary, here in Jerusalem fresh.fund is uniquely positioned to create a framework that can improve the quality of student startups from ideation to go-to-market. We’re not just throwing money at student founders, wishing them luck, and sitting back and waiting for the exit — we’re creating a structured process designed to accelerate student ventures through technical expertise, industry-based diligence, targeted sourcing of high caliber problems and contributors, and individually curated mentorship programming that focuses on establishing both market and founder fit. All of this plays an important role in mitigating the risk inherent in first-time student founders, and hopefully help us some ground-breaking student ventures.
Jerusalem is just the beginning. After validating the model in Jerusalem in the academic year 2016–2017, fresh.fund plans on launching similar programs across the country. Stay tuned.
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