A Matter of Trust
“I need to feel comfortable and trust the entrepreneur right away. I always tell founders that trust must be there from the get go. It’s a long term relationship, what’s the point of working with someone if there isn’t trust?”
For Liron Petrushka, trust is at the basis of everything he does. It was a lesson he came upon early in his career and it is the beacon guiding him today when making investment decisions.
Liron resides in Silicon Valley since moving from Chicago in 1995. “Moving to Silicon Valley was one of my defining moments. Everything I read and knew about it convinced me that this is where I needed to be. The drive to succeed here is tremendous, there are cool people, cool technologies, I love the vibe here”
With 27 investments and 13 exits (3 being companies he founded himself) under his belt, a few still active, Liron has seen his own share of cool technologies. Liron was also a founding partner in the boutique Silicon Valley Seed Fund, UpWest Labs which has also seen a tremendous success rate.
FROM GOALS TO EXITS
Liron’s goals weren’t always exits — his goals were literally “goals.” Hailing from Israel, the son of a nurse and a taxi driver, Liron’s passion growing up was soccer. He played semi-professional soccer until he met his wife, a US citizen volunteering in the Israeli Army, whom he fell in love with and at the age of 21, followed her back to Chicago. He started studying English and computers, but his studies, however, were cut short when after 2 semesters, he met an ex-IBMer, the man who would become his first co-founder.
Together, they started PCM — a PC installation and networking company. They were lucky enough to find a niche — law firms — who were then rapidly buying computers, trying to connect offices to each other to create a network. The business quickly grew to over 80 people. 7 years later, Liron sold his part and was ready to start his own company. “I was drawn to entrepreneurship because I didn’t want to work for anyone. At PCM, I was minority stakeholder and that bothered me for 7 years. I wanted to be my own boss, make my own mistakes and my own success.”
He went on to found US Group, a Human Resources Management System (HRMS) enterprise software solution. Again, Liron chose well, his first customer being Genentech, a large biotech corporation acquired by Roche. 4 years later, in 1997, Liron sold the company to Ultimate Software, Inc. The third and final company he founded was Commercebid, an e-Commerce strategic sourcing company with customers like HP, GM and Shell. Commercebid.com was acquired a year later by Commerce One for $4.5M cash and $227M worth of stock. “Commercebid was my shortest yet most intense venture, and it was also my last real job before moving to the ‘dark side’.”
FROM DOT.COM BOMBS TO HANDS-ON INVESTING
After a successful exit with Commercebid, Liron decided he had enough capital to help other entrepreneurs. It was the year 2000 and Silicon Valley was buzzing with tempting dot.coms. Liron’s first investment, however, did not bode as well as his entrepreneurial career. He invested $700K in Pets.com — one of the most noteworthy dot.com bombs, that raised $300M and flopped.
“With Pets.com it was a race to get the money in. I had about 1.5 meetings with the founders and wrote the check. 1999 and 2000 were really crazy in the Valley — money was flowing into companies like water. That’s why the bubble burst. In retrospect, I didn’t know the entrepreneurs, the technology, I really had no clue how to be an investor. From this experience, I learned that if I wanted to invest I should be more engaged and involved with the founders and understand what’s going on with the business. This lesson stays with me till today.”
Liron had the opportunity to put his insights to play when he invested in Check, a mobile bill payment app, which were acquired by Intuit in 2014 for $360M. Liron was the first investor after having met the Founder, Guy Goldstein multiple times before the investment. Liron spent time getting to know the partners, the team, their plans and even the initial engineers. Liron could sense that this investment was a solid one:
“I could tell that Guy wanted to do something big. He was driven to succeed. He had an entrepreneurial skill and spirit. I trusted him and felt I could work with him.”
Liron was very hands- on this time. Over the first year, when Guy opened their Silicon Valley office and was building the product, Liron would sit with him at the office so he wasn’t alone. He was involved all the way to the Intuit acquisition, aligning with the founder’s wishes and even creating a competitive situation which helped increase the value of the transaction.
BREAKING NEW GROUND
One of the investments that Liron is most proud of is LendingClub, the first peer-to-peer lending company, in which he invested in 2007, a very uncertain time with a space that was being questioned by all. Liron met Renaud Laplanche, the founder who initialized LendingClub with his own money. Liron became one of the first outside investors.
“Renaud was very committed and really believed in what he was doing. The scary part for investors then was the thought of unsecured loans from people you don’t know. Despite the uncertainty, his story and business model made sense. Renaud had a vision which he backed up with his own money and created a new space. Now it’s a multi-billion dollar market. I trusted him and he really stuck his neck out.”
At one point, towards the end of 2008, LendingClub went through Regulations and a 10 month “Quiet Period” where they couldn’t get outsider money for the loans platform. This could have potentially tanked the company. Liron stepped in, put his own money in for loans and rallied other investors to do the same to keep the company going, without knowing what the outcome would be. Once again, this paid off when in 2014 the company IPO’d at a value of $9B, which was the largest technology IPO to that date.
TIMING IS EVERYTHING
Not all of Liron’s investments had rosy outcomes. He invested in 2 companies that had the right idea at the wrong time. “LocalMusic”, a company attempting to create what Facebook would eventually become and “Unified Dispatch” — what Uber does today, before the era of smartphones.
“Brilliant ideas ahead of technology. Timing, timing, timing. It’s like today with AR, everyone’s talking about it but it’s still 5 years out — it will happen but there’s no real business application yet. So I stay away from it for now.”
Perhaps that’s why Liron passed on the opportunity to invest in Linkedin in their VC round. “I didn’t see it, I didn’t understand it. I just don’t get Social stuff. Obviously today I do. I’m happy for them — it’s an awesome tool and solution. Happy that others made money, one can’t be greedy.”
WHAT LIRON LOOKS FOR IN A STARTUP
When examining a startup, Liron looks first at the founders: who they are, how they work together, if they complement each other and most important, their execution. Ideally in his mind there should be a technical and a business founder. Don’t bother sending him a deck that doesn’t show the team. He also has zero tolerance for teams that are underprepared about their market, that drop names of people that are involved when they’re not and those that conveniently “change their history” to make it seem more impressive. The next piece is the market opportunity and potential.
“Ideally, aim for the stars. If the market opportunity is there and is big enough, you can always make detours. If you get a chunk of it, it will be successful. If the market is too small, the chunk you get will be too small.”
LIRON’S BEST ADVICE FOR FUNDRAISING
“Have passion about what you do. Show that you really researched and learned the space, the problem and you want to build something big. Be VERY well prepared. People don’t realize how important it is — the ENTIRE Team should be very well coordinated, not just the CEO. It shows cohesiveness and that they can work together. I like to see skin in the game — if they’ve been in sweat equity mode for 6–9 months, they took a risk and that proves to an investor that they should do the same.”
Liron sources investments mainly through trusted individuals in his network. He doesn’t respond to cold emails and finds people approaching him through LinkedIn ineffective. He does 1–2 deals a year, mainly in Fintech, Saas and Marketplaces, with a check size of $1.5-$2M. He mainly focuses on leading seed rounds, then bringing in other investors to bring value and later, VCs for Round A.
In summing up his journey as an investor, Liron said:
“Bill Campbell once said to me: ‘If you go in, go all the way in, if not, don’t bother.’ Be committed. Understand the business in and out, align your goals with the founders and let that guide you.”
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