When a glacier begins to melt, it does so in a way that is imperceptible to the onlooker because the warming water melts it from beneath the surface. By the time the glacier’s retreat is irreversible, it’s shrinking at its fastest rate. Only then do giant cracks become visible and make headlines.

If the radical proposed changes to the Israeli judicial system pass, business will appear to continue as usual. Investments will still flow to Israeli startups and acquisition offers will still be received. But that will be highly misleading.

The overhaul that subordinates the courts to politicians won’t do as much harm as every subsequent piece of illiberal legislation the government will probably then proceed to pass. Like a glacier that melts from underneath, each contentious decision will gradually warm the waters around Israeli high-tech until it is severed from its mainland.

I am an Israeli venture capitalist who brought one of the leading American funds to Israel 17 years ago, and which has since invested approximately $1.5 billion across more than 75 Israeli startups. I’ve been asked repeatedly what will really happen if these misguided “reforms” come to pass.

People are asking the wrong question when they wonder whether foreign investors will abandon Israel. Investors in fact won’t need to leave Israel: The entrepreneurs will do so first.

Entrepreneurs are the heart of the Israeli high-tech economy, and investors will follow them wherever they go. As entrepreneurs recognize the slide toward authoritarian rule — and the uncertainty that presents for their business and personal lives — they will increasingly choose to start their companies outside of Israel. And they will be welcomed by many countries with open arms. The imperceptible retreat of Israeli high tech will begin with individual, personal decisions like these.

If you consider the recent past, you’ll see that such an entrepreneurial brain drain is not far-fetched. Israeli entrepreneurs have often established their companies abroad, closer to the market and to sources of capital. Some have done so with Israeli R&D centers, while others ignore their home base altogether.

Consider this: The most valuable tech company in the world that was founded by an Israeli is Palo Alto Networks, currently valued at $45 billion. This cybersecurity company only bothered to create an Israeli office 13 years after its founding. To understand the impending loss to Israel a decade from now, multiply the case of Palo Alto Networks by twenty. This is not an anecdote. There are dozens of additional examples.

Other Israeli entrepreneurs will start their business in Israel, but incorporate in the US or UK. This was once standard practice due to tax uncertainties in Israel for founders and their shareholders. These founders will correctly reason that as Israel enters a new illiberal era, it is hard to anticipate how Israeli-domiciled companies will be received in global markets and by global investors. It will be the prudent thing to do, and foreign investors will eventually demand it of them. Businesses and investors don’t like uncertainty, and that is what the judicial transformation represents.

Existing Israeli startups are unlikely to leave Israel, but some will be compelled to “flip” the company into a US parent to dissociate themselves from their country of origin. Others will open secondary R&D centers in Europe and North America to lessen their dependence on the Israeli office and to accommodate those Israelis wishing to relocate. This too is not far-fetched and happens regularly. Our country is too small and distant to accommodate so much talent, so there has always been an Israeli brain drain. But the slippery slope towards illiberalism will take it to depths never imagined.

Like itinerant merchants from another era, Israeli startups are some of the nimblest, fluid businesses in existence. They will go where there is opportunity and leave where there is a liability. Criticize this all you want on ideological grounds, but it’s their business and their lives. Israeli startups, like their products, are remote and virtual. Unlike a manufacturing site in Hungary, they don’t need special trade agreements, economic incentives or access to railroads.

Twenty years ago, Israeli startups struggled to attract the attention of American investors and multinationals. We intentionally obscured the fact that we were Israeli, hired foreign CEOs, flew to meet them and agreed to conference calls in the middle of the night. We also accepted an “Israeli discount” on our valuations. One of the most remarkable accomplishments over the last five years has been that an “Israeli premium” replaced this unfair “Israeli discount.”

Investors and buyers may not leave Israel so soon, but they will once again demand a discount to reflect the uncertainty and the damaged Israeli brand. They will demand this discount until the Israeli brand is so toxic to the point that no discount will suffice. The Israeli tech brand that took decades to build will gradually become a liability.

The final blow to Israeli high-tech will be the most silent of all. That will be the opportunity cost –missing out on the continued upward trajectory of Israeli high-tech had we not taken this precarious path.

Bad news in business is often manifest solely in terms of what can’t be hidden from the public: A company lays off employees, shuts down an office or pulls out of a previously announced deal. But worse news comes when plans to open and expand a local office are shelved in favor of a European office. Or when a Silicon Valley CEO refuses to even bid on an Israeli acquisition due to perceived difficulties with shareholders and employees. Or when a large VC with a third of its capital from Persian Gulf countries becomes wary of building too large a portfolio in Israel. One less investor may not seem important but the difference between an ability to negotiate from a position of strength and having to capitulate to the only offer is one additional bidder. These are things that will not make headlines, because few will know how things might have been different.

The absence of declarations from foreign investors and multinationals should not be seen as evidence of business as usual. Investors have nothing to gain by public statements, so stop looking.

The legacy of today’s government will not only be the gutting of Israeli democracy, but the stunting of the high-tech economy. That high-tech is resilient, but not invincible. Like an iceberg, Israeli high-tech will slowly retreat in the warm waters of illiberalism, unnoticed by those relying solely on headlines and declarations. It will happen gradually, then suddenly.

Politicians can ignore the warnings from the entrepreneurs themselves, but the future of Israeli high-tech hangs in the balance. Those of us working at the level of the individual decision-maker can already feel the otherwise imperceptible change in temperature. It will only be with hindsight that the cracks will become visible and cumulative impact makes headlines. Or we can stop, reflect and reconsider.

***

This op-ed was published in English in The Jerusalem Post and in Hebrew in Calcalist.

All the citizens of Israel will soon find themselves in one of two lines if the new government enacts its “judicial reform” plans. It will result in a new system of government, where the executive, legislative and judiciary branches are all subservient to a Knesset majority. A majority now empowered to ignore laws with impunity, and when ignoring the law is too shameful, to change the law with similar impunity.

Because we will still elect the Knesset majority at least every four years, some will insist that this is the fulfillment of representative democracy. But unrestricted power, even in the hands of the elected, is “tyranny of the majority.” While in power, the elected Knesset majority will have authoritarian powers held in check only by their good intentions and their internal divisions.

Fear from a tyranny of the majority is as ancient as democracy itself, but while Jews are an ancient people, our experience with democracy is relatively new. This isn’t an illegal coup in which power is seized from the electorate. But it is an aggressive power grab in which one branch of government seizes power from another, disrupting decades of equilibrium. A move that fundamentally changes how the country functions as a democracy and that provides a legal blueprint for authoritarianism. A road to submission for the people of Israel.

Don’t be confused. It’s not the judges who are the losing power, but each and every citizen whose rights will now depend entirely on the opinion of 61 MKs who have a monopoly on the “sharp tools” of governance. Like sheep, we will have to trust that these tools will be used in our best interests, and then only sparingly.

The irony is that aside from secular Israeli Jews, every segment of Israeli society is a minority. Those Israelis represented in the current Knesset majority are confident they will forever be in the line to be sheared, freed of the burden of so much wool. Like sheep unable to contemplate their future beyond the next meal, these Israelis don’t realize that some of them may find themselves in the other line.

How long will the welfare-reliant, draft evading Haredi parties continue to be the “natural partners” of the largely secular, free market Likud, which sends its children to the military and eventually into the workforce? Who will find themselves in the minority following an Israeli Arab political awakening that reconstitutes how a Knesset majority is formed?

While the current political alignment will eventually shift, the consolidated power of the Knesset majority will be practically irreversible. Judges will continue to interpret the law knowing they only serve at the will of the ruling majority. It will not only be an indelible stain on our democracy, but one that will put us in conflict with our natural allies and supporters abroad.

That’s because a regime change represents a change in our fundamental values and a break with countries that aligned themselves with us due to shared values. Shared values that have kept much of the democratic West on our side during armed conflict and diplomatic siege. Shared values that have been the bulwark against the BDS movement and repeated attempts to delegitimize our country. And shared values that have allowed foreign investors and customers to favor Israeli businesses without reservation. Our high tech will not be spared.

For all its might, Israeli high tech is entirely dependent on the influx of foreign capital and access to foreign markets. Even if the calls for sanctions on Israel are repeatedly thwarted, foreign investors will grow wary, choosing to make smaller allocations to the country and demanding larger discounts on the investments they do make.

It took decades to build the industry that now drives the Israeli economy, but this one reckless decision can set it on a path of decline. This reckless step will set in motion a cascade of contentious decisions that will be impossible to defend without an independent judiciary. Today it is the judiciary. Tomorrow it is the Bank of Israel. Tyranny of the majority is arbitrary rule. Arbitrary rule is not only uninviting for businesses and investors, but also deters them over time.

Israel will be unique among the nations not because we are the only democracy in the Middle East, but because we will be the only democracy in the world without a constitution, without judicial review and without a separation of powers. The tyranny of the majority will be Israel’s special version of democracy and it will weigh us down.

Detractors of Israel will use it to bludgeon us on the international stage, in court rooms and in corporate board rooms. New claims of illegitimacy will arise in chorus with existing claims of illegitimacy. Another burden we’d rather do without, but this time a burden entirely of our own making that we are condemned to endure.

Do not be mistaken. This is not normal politics, where the winners reverse the previous government’s laws and pass new ones that favor their own constituencies. This is aggressive politics by an illiberal government intoxicated with victory that sees democracy as a means to rule over the defeated minority. The historic parallels are too painful to contemplate.

Over the last two centuries Jews suffered in authoritarian regimes and thrived in democratic ones. For liberal minded Jews the proposed structural changes are akin to bringing authoritarian “gods” into the temple of democracy. This desecration of Israeli democracy is infuriating and insulting.

This is not the time to remain silent or complain behind closed doors. Do not whine about emigrating from the country that was your family’s refuge. Oppose this government and exercise your right to speak out. Donate to organizations that protect Israeli democracy, individual rights, quality in government and religious pluralism. And most importantly, demonstrate in the streets and let them know you refuse to submit.

Originally published in Calcalist

https://www.calcalist.co.il/local_news/article/r1ye11x009s

Like everyone I know and work with in Israel, I too am utterly opposed to discrimination based on race, religion, ethnicity, gender or sexual orientation, and refuse to do business with anyone who discriminates. This only needs to be said because a fanatical group of religious settlers and provocateurs, who were elected due to their uncompromising and extremist views, are proposing a “religious exemption” to the anti-discrimination law that would authorize discrimination on religious grounds.

But the only reason anyone suddenly takes the proposal of these fools from the “Judean People’s Front” seriously is because the incoming government is determined to upend the Israeli political system by neutering Israel’s independent judiciary, which could generally be relied to disqualify such a discriminatory law. The core of this “judicial reform” will allow a simple majority of the Knesset to override any supreme court objection to a law, making the court’s role merely advisory. Because Israel still lacks a constitution this means all the “basic laws,” which provide for individual rights and the separation of powers, can be altered and annulled by the present ruling government.

This is the primary policy proposal that should frighten fellow Israeli citizens because it effectively removes the sole safeguard against a “tyranny of the majority” in a democratic Israel. Without those protections, democratically elected tyrants will abuse (or threaten to abuse) the defeated minority and ensure they remain a minority. Those on the right and left with authoritarian impulses cynically call this “democracy,” a designation I should note also embraced by many countries ruled by tyrants.

I’ll happily wave the LGTBQ flag in solidarity with my brothers and sisters, but alongside the black flag which signals the grave threat to liberal democracy that confronts us all (and of course with the Israeli flag).

For too many people in the business world, the act of making money and protecting it is the sole prism through which they view individual freedom. They believe that the capitalist pursuit of riches is the vanguard protecting individual freedom, while liberal values impede and restrict that “noble” capitalist pursuit. It is the worst American import to Israel since Rabbi Kahane and it is having a corrosive effect.

While I do believe in economic freedom and capitalism, its importance to me pales in comparison to civic principles such as equality before the law, freedom of thought and expression, and freedom from discrimination to name a few. I mention this because Israel’s economic right and their American supporters have found common cause with anti-liberal platforms and parties in Israel that advocate for a weakened Israeli judiciary. One that would be impotent against a law legalizing discrimination.

Israel’s strength as an entrepreneurial, high-tech ecosystem rests on individual freedom as much as economic freedom. Citizens don’t want to live in a country where rights can be taken away and their fellow citizens harassed, where vast parts of society avoid military/national service and are paid not to work, and where former convicts dictate police policy and control the treasury ministry. Like capital itself, entrepreneurs and their investors are highly mobile, and able to take advantage of more welcoming environments. Testing how far a government can go to satisfy extremist elements before the cracks appear is a perilous game that will rapidly unravel decades of work to build an industry that is pride of this country and envy of the world.

It is without reservation that I declare my detest for the incoming government of this country I love so much and my intense disapproval of those who support it. The government includes some of the most deplorable people in Israeli society and represents a threat to all I hold dear. I will therefore also reflexively oppose every policy proposal they put forth because their proposals can only reflect their parochial and sectarian worldview, personal interests, and lust for revenge. On the occasion of this new government, coming out against discrimination just doesn’t seem enough.

But there is intellectual laziness in looking at Israel or any country through an American ideological lens or expressing your foreign policy position in a four-word tweet like “Apartheid states aren’t democracies.” AOC is not only wrong, she is also throwing stones from inside her own glass house.

Criticizing a country’s very nature is equivalent to an ad hominem attack and while it’s tempting to respond in kind, it would sidestep an opportunity to educate the many who want to learn before issuing vacuous proclamations. The following is less for AOC than it is for those who admire her and the strong stand she has taken on many salient issues confronting the United States, many of which I agree with like socialized medicine, immigration reform and many of her social justice initiatives.

Before I get started let me just say I despise the current Netanyahu government and every member of it. They are uneducated, uncouth, provincial and care more about their political survival more than their citizens’ well-being, both Arabs and Jews. They have no strategy for the country aside from maintaining the status quo and that includes domestic and foreign policy, which is why they failed to form a new government in the most recent election.

But I am still an Israeli patriot, and love my country and its people, even more so when being bombarded with indiscriminate missiles and ignorant tweets. The ability to make the distinction between a country and its government is fundamental to a democratic mindset, and the inability to distinguish between them ensures that the debate will rapidly devolve into questioning the existence of Israel as an independent country.

As many know, Apartheid was the official term used by the minority-controlled ruling party of South Africa to describe the institutionalized racism that forcefully separated South Africans based on the color of their skin. Israel doesn’t have any racial laws (a uniquely western concept), but instead uses nationality, which fuses ethnicity and religion without regard for belief/tradition or the color of your skin (as many Israeli Jews have the same olive complexion of Arabs making them virtually indistinguishable).

In calling Israel an apartheid state, one might as well describe many US states and cities, which routinely pass discriminatory laws like “stop and frisk,” “stand your ground” and “election integrity” as apartheid states. But if there is any value in the historic significance of South African apartheid, please do not use this word merely for its shock value. I’m not simply making a semantic argument about the precise history of the word but rather calling on Americans to refrain from intellectual laziness…to make an effort to understand a complex history that will be solved with neither a bumper sticker tweet nor a special mission by Jared. And yes, it’s complicated, like most things in the world outside of an orderly ideological construct.

When one speaks about Israel and the occupation, one has to be careful because as it concerns Palestianian Arabs there are in fact four or five different areas in which Palestinians live under some level of control/influence by the State of Israel. This includes Israel itself, where most Palestinian Arabs prefer to call themselves Israeli Arabs as they are full citizens and historically have not identified with the struggle for independence by Palestinian refugees outside of Israel. There is an historic reason for this, but let’s just say it’s the same reason Jews didn’t call themselves Palestinians before Israel became independent.

In Israel proper Arab citizens (whether Christian or Muslim or Bedouin) can live anywhere, work anywhere, vote in all elections, protest, travel (inside and out) and speak/write with complete freedom. Arab Israelis staff government ministries, serve as judges, lead hospitals, teach in academia, appear as anchors in the news media, win national beauty contests and lead nonprofits and businesses. Arabic is an official language of the State of Israel, which unlike Spanish in the US, is taught to most Israeli school children (admittedly not very well). Today Israel has more minorities in its parliament (in % terms) than there are minorities in the US Congress and Israel has had more Arab justices on its Supreme Court (3) than there have been African American justices on the US Supreme Court (2). At the same time, as a minority Israeli Arabs absolutely face discrimination in Israeli society and is something many of my fellow citizens work to change and rectify. And if this concerns you too there are many wonderful non-profits working to effect change.

Israel doesn’t use capital punishment so it looks a lot better than the US in that department, nor is there a right to own an automatic weapon. We also don’t have laws against blasphemy, laws preventing women from teaching boys, or laws outlawing homosexuality that pervade most of the Middle East, and some conservative pockets of the United States. Again, this doesn’t mean there isn’t discrimination here, but please name a country or people that isn’t guilty of discrimination and prejudice.

The second area is East Jerusalem (captured from Jordan in the Six Day War of 1967), where Palestinians are given permanent resident status, meaning they have all the rights that Israeli Arabs have except the right to vote in national elections (they can vote in local elections). Before shouting apartheid, consider for example US territories like Puerto Rico and Guam from where citizens can’t vote for President, or Washington DC, whose citizens don’t have a voting member in Congress. These East Jerusalem Palestianians can apply for and do receive citizenship, but most don’t and few vote. If these comparisons don’t hold up it’s because it’s very difficult to compare one country’s system with another.

East Jerusalemites are still discriminated against for the simple reason that the municipal and national governments do not allocate sufficient resources to education, infrastructure, policing and health care. You can see that the eastern part of the city is neglected and this is both shameful and unfair. I’m against this discrimination but it’s quite a stretch to call it apartheid unless you want to devalue that word and apply it to the US as well.

The complex situation with 6 Sheikh Jarrah apartments in East Jerusalem requires too much history and legal understanding for this blog, but this article explains what it is and what it isn’t. Bottom line, these are apartments that once belonged to Jewish families expelled by Jordan in 1948 (that’s not disputed), but the law that is allowing them to sue to get them back is not reciprocal for Palestinians Arabs who left or were expelled from their homes in West Jerusalem (much like Jews who fled from Arab countries don’t get to reclaim their abandoned property). Discrimination, yes, but hardly apartheid as it’s taken 50 years of lawsuits to even reach this stage and they still haven’t been evicted.

US housing, districting and lending laws pale in comparison. Of course, Israel is not the US, but neither is it apartheid South Africa. There are small Jewish communities which discriminate against Arabs and Arab towns that would throw out any Jew who attempted to move in. That’s the Middle East, a multiethnic region that is at peace with some degree of self-imposed separation because their ethnic and religious identity is still so important to them. It also exists within Jewish communities (between ultra orthodox and secular) and within Arab communities (Druze don’t live alongside Arab Muslims and Arab Christians don’t live alongside Muslim Bedouin).

The case of Al Aqsa and the Temple Mount is also complicated. It is administered by a special entity called the Waqf that is controlled by the Kingdom of Jordan. Its explosive nature means that although it’s also holy to Jews (is called the Temple Mount for a reason) Israel preferred not to change anything. As a result, here the discrimination is reversed. Jews are not allowed to pray on the Temple Mount and are often blocked from ascending. A smart policy in my opinion, but some religious Jews find this racist and discriminatory.

Then there’s the West Bank (Judea and Samaria in Israel/Hebrew) and the Gaza Strip. These are also areas captured by Israel in the Six Day War from Jordan and Egypt respectively. Both have since relinquished their claims which is what makes administering them so incredibly complicated. While the UN General Assembly recognized a Palestinian State in 2012, it still has no internationally recognized borders and remains legally amorphous.

It’s been 54 years of government policy but successive Israeli governments acquiesced and then advanced the settlement of mostly-religious, Israeli Jews into the West Bank. Some of these settlements were in fact the resettlement of Jewish towns abandoned in the War of Independence in 1948, but I view most others as an aggressive move and corrosive to Israeli democracy. This policy has resulted in pockets of Israeli citizens going about their business in a most unforgiving, hostile territory. I’ve been called upon to protect them with my own life and can’t countenance the IDF enforcing such discrimination.

The Jews and Palestinians within the Israeli administered parts of the West Bank have no interest whatsoever in living, learning or working together. It’s self imposed separation abetted by the Israeli government that naturally cares more about its citizens than it does the Palestinian residents. They suffer as a result and have their mobility and development severely restricted. It’s discriminatory for sure, and they deserve to be under Palestinian rule but there are genuine security considerations that sadly complicate matters. Aside from their proximity to Israeli settlements, the West Bank is a highland overlooking the coastal plain of Israel where a majority of the Israeli population lives. Israel at its narrowest point is a mere 9 miles, much narrower than the 14th congressional district of AOC.

Of course most Palestinians in the West Bank actually live within the territory of the Palestinian Authority or what their government now calls the State of Palestine. This means a Palestinian government is responsible for their education, health care, policing, welfare and more. Admittedly, they lack some of the powers and resources of an independent country, including border control as it remains a patchwork of populated areas without contiguity for the time being. Frustratingly neither side seems very interested in discussing a comprehensive change.

These Palestianians technically have the right to vote in their own elections but they’ve actually only had one since the creation of the Authority in 1994. Jews are not allowed to own property or live there. It’s not fair to call this apartheid because they too are still building their country for their own people, which of course is not going to conform with the American notions of freedom.

The last area is the Gaza Strip, where Israel and Egypt have each imposed a blockade on their borders to restrict imports and movement in and out of the territory. Gazan Palestinians live under the complete control of Hamas, a US-designated terrorist group whose founding charter calls for the murder of Jews and the elimination of Israel as a state. This is not a place where leaders of the Palestinian Authority are welcome, let alone foreign women without a head scarf and a tight muzzle. These Palestinians certainly have their grievances, but inside the Strip Hamas tosses gay men from rooftops, dresses children up as suicide bombers and invests their donations from abroad in rockets to fire at Israel and in digging tunnels from which to attack Israeli communities. Gaza is a true tragedy, a small strip of land that had a population of only 60K before Israel’s War of Independence. Successive waves of refugees and an unwillingness by Egypt and Israel to empower them made it a hotbed of extremism that is a proverbial hot potato today.

One can’t call it apartheid because Israel doesn’t rule them or impose any law on their people. Israeli settlements in Gaza were abandoned more than a decade ago, but the lives of Palestinians haven’t improved one bit. Israel is not alone in controlling their borders, but can hardly let Hamas arm themselves with Iranian-supplied weapons if the last week proves anything. We welcome fresh ideas at what to do with the Gaza Strip, even from members of Congress, but there are few thornier problems on the world stage than this.

Calling Israel an apartheid state is not simply an embellishment, it actually emboldens our right wing extremists that sound a lot like AOC’s nemesis from Georgia. It is the evidence they seek to show Israelis that Americans don’t pay attention to nuance or detail. They reason that if members of Congress call us an apartheid state, no one will notice if we slowly become one. These are people who would in fact not mind living with more discrimination, something closer to those areas in the Deep American South, where polling booths are removed, zoning laws restrict minorities and Confederate flags still adorn schools and trucks.

The rioting and violence this past week between Arab and Jewish extremists in mixed Israeli towns is most tragic. AOC is fanning the flames with her incautious use of the term apartheid rather than working to calm tensions and foster mutual understanding for people who have no choice but to live together in harmony. Like many Israeli Jews I also have much more in common with my secular Israeli Arab cousins than with my extremist Jewish brothers. I also have more in common with AOC, an inspiring leader in a strong, yet also imperfect democracy, than I do with extremists defending a terrorist organization.

True leaders have the self-confidence to change their minds and positions, if not to admit an error. I don’t expect to change opinions with a single blog but perhaps the intelligent among you will find it harder to reflexively take sides and throw detail and subtlety out the window. Israel is an imperfect democracy which is how a lot of democracies can be described, but its our imperfect democracy. Those of us who love the country will continue working to improve things while defending it from detractors who don’t really care much about any of us, Arab or Jew.

In times like these you likely find yourself one of two minds: this is the crisis you’ve been dreading or the crisis you’ve been waiting for. The actions you now take, or refrain from, will depend on the health of your current portfolio and the health of your fund, and unlike previous crises, also the health of your person. All things above being equal, I will attempt to provide some advice as to how you may approach investing in the current environment and fulfill your role as a venture capitalist.

Short-term Macro-trends Were Never Your Barometer

Let’s start with those of you who think the end is nigh. It admittedly requires some cognitive dissonance to take in the newspaper headlines in the morning and contemplate new investments in the afternoon, but I will remind you that your job as a venture capitalist is to focus on long-term trends and long-term financial results. You can afford to take risk today because of the low probability of aa huge payout in the distant future.

All venture capitalists declare themselves to be long-term investors and take pride in being patient capital. This platitude was hardly challenged as long as one could reliably count on rapid valuation appreciation and cheap follow-on capital in the short term that never seemed to dissipate. Long-term investing, however, mustn’t assume these short-term dynamics persist indefinitely. And as you see now, everything has flipped. Once confident in your ability to predict revenues three years out, your portfolio companies can’t even forecast the next quarter. It sounds intimidating, but in truth long-term investing was always about having greater confidence further out than in the immediate future.

A commitment to long-term investing should not come with a macro-economic caveat. Headlines and engaging graphs can certainly inform your investment decision, but should never determine it. You didn’t quiver at the thought of competing with a mercurial juggernaut armed with a $100B growth fund yet now shudder at the prospect of 20% unemployment or a 50% decline in stock market indices. Venture capitalists don’t justify their investments on positive macroeconomic indicators like low unemployment, favorable GDP forecasts or rising stock market indices. That’s because venture capitalists don’t bet on the trends that grace our mass market newspapers or cable news chyrons, but on those trends that are initially too obscure to be named, let alone to warrant a headline. To that end, a successful venture capitalist will take pride in having done something to make the news (vicariously of course), not in simply reading about others who’ve made the news.

“The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.”

The quote above comes from New York Times columnist Paul Krugman on January 4, 2009. Reporters are best at reporting what already happened; much less so about what will happen. I would say the same about economists and a bunch of other professions that are never made to entirely account for their forecasts. However, you have chosen a profession in which you are paid to make perceptive bets on the future, especially those that others will dismiss and ridicule, and in particular in times of turmoil and uncertainty. You put your reputation, time and money to work to help realize that future and expect to pay a price when you’re wrong.

I don’t know how long or deep this downturn will be, but rest assured it will be one for the history books. I’ll simply remind you that the sole cause for the economic decline has been genuine concern for our health and it will likely be the emergence of a viable health solution that will be the trigger for the economy’s inevitable return. Unlike previous economic crises, this was a planned, organized shutdown by governments around the world with massive fiscal stimulus packages already underway. Although there will be lasting damage, there is still a reasonable case that the recovery could also be among the fastest we’ve ever experienced. Waiting to find out won’t earn you any awards. Time diversification is a real thing in venture capital, including during periods like this.

The Future Was Never as Bright as You Thought it Was

The dreams of exponential growth that once got you out of bed in the morning now feed the nightmares that keep you awake at night. The credulity of venture capitalists in the exponential excel models produced by startups has simply been replaced with the exponential excel models of epidemiologists. Venture capitalists appreciate the power of the exponent better than most, but we also know through experience that exponential growth cannot continue indefinitely without considerable and consistent intervention, stimulation and investment. And right now, the world is working furiously to frustrate the ominous projections of epidemiological forecasts.

This is why I won’t trust an epidemiologist’s predictions any more than that of the weatherman or the early stage entrepreneur. They are often directionally correct, but almost certainly wrong in so many other ways as they rely on too many dynamic inputs. This is not to say the worst forecasts won’t come true, only that we don’t know that. Nor do we know the ultimate impact on the economy, let alone the impact on a small startup addressing an infinitesimal slither of the global economy. As reminder, all you need is for the small market trend you’ve already identified to continue its growth in spite of, or because of, the chaos around us.

Venture capitalists may not share the ebullient optimism of entrepreneurs, but we are fundamentally optimists and strong believers in the power of innovation and the general march of human progress. So have a little more faith in science, medicine and technology. Perhaps not tomorrow, but 12–18 months from now. Show a little more appreciation of the ability of humans to quickly adapt to hardship, respond to necessity, improve their lot and fulfill their desire to live life! And discover in yourself the same resolve that your entrepreneurs are demonstrating this very moment. Surely you don’t think fundamental technology change would only happen when cash was plentiful and forecasts unimpeded.

As unnerving as it is, this crisis is unlikely to reveal any fundamental flaws or weaknesses in most of the technology trends being pursued by venture capitalists. On the contrary, all indications are that the adoption of technology will strengthen and hasten as a result of this crisis. The businesses that are surviving the current shut down amid shelter-in-place restrictions are doing so thanks to technology adoption that made it easy to enable remote work and straightforward to connect and transact with their customers and suppliers online. And as the economy begins to recover, the winners will be those businesses that embraced technological change even during a downturn.

You are in an enviable position because you have more time. Time to work with the companies through an uncertain period. Time to prove your sage decisions. Even time to experience some disappointment and failure without letting it unsettle you. Three years from now when you look back, you will realize the biggest investment mistakes you made were in the 12 months preceding this crisis, not in the first 12 months following it.

Take your time but be resolute about finding your sea legs. A macro crisis is an opportunity, and a terrible one to waste for the young venture capitalist. This is where you as an investor can shine and make your mark, not because you ignored the world surrounding us or the heightened risk that abounds, but because you figured out how to manage the risk while seizing the opportunity.

Erase That Gleeful Smile

Whether or not I have you reconsidering the apocalyptic mindset that momentarily arrested your ability to think long-term, I must now address the more sanguine among you. Those among you who eagerly awaited a downturn, anticipating suddenly reasonable valuations, less competition and a free run at market dominance for the startups you decided back. I have some advice here for you too. You may not cower in the face of the relentless stream of bad and upsetting news, but you cannot pursue the same investment strategy that served you reliably until now.

Things have changed — and not just valuations. There will be much less follow-on capital. You will lose confidence in forecasts. There will be less room for a niche player to make it big. You will have a harder time taking comfort in investment herds and will need to acquire the confidence to become an individual deal picker and contend with being labeled a “contrarian.”

In times of macro-economic shock, venture dollars that continue to be invested should ideally flow to capital-efficient businesses that can show healthy growth in the recessionary environment and that promise accelerated growth in a recovery. What constitutes “healthy growth” and “capital efficient” in the new environment will vary across market segments and stages, and it’s up to you to determine.

For obvious reasons, you should avoid the high burn businesses that subsidize their customers to create demand, but you can expect to see fewer such opportunities anyway. You should also avoid the temptation to invest in startups suddenly enjoying their day in the sun courtesy of the current environment. It is fantastic that the current environment can serve as an accelerant to a startup’s existing growth, as long as this aberrant environment is not a substitute for a genuine growth plan.

The venture time horizon extends far beyond the current crisis, which means you still need to back strong teams with a highly differentiated offering and long-term competitive advantage. This can be challenging because certain trends are experiencing a remarkable, yet short-term, boost that will be difficult for most startups to exploit long-term, such as work from home tools and online education services. To be clear, there is a compelling long-term trend of remote work and online education, but the extreme spike in demand some companies are experiencing likely obscures the true underlying market demand as well as those companies best positioned to win long-term.

Compelling opportunities are likely to appear in previously stubborn markets that have resisted fundamental technology change for too long. The crisis may dislodge whatever was blocking technology adoption, forever altering the trajectory of markets such as telemedicine and other types of business infrastructure and service modernization. This may not immediately manifest in short-term sales growth for these companies, but rather in improved pipelines, shortened sales cycles and faster and bigger rollouts. Therefore, investing in such opportunities today would be centered on the assumption that, as a result of the current crisis, the startup can more effectively sustain growth following the conclusion of the crisis.

It will be up to you to determine price, but this will likely prove be more frustrating than it appears today as the best companies will continue to be price makers and not price takers. This means you should still be prepared to pay a premium for the best opportunities. Some hesitation is to be expected, but it should not send you in the opposite direction, namely looking for low valuations. Be wary of such “value” deals, whose chief investment merits are expressed in an attractive price for you and onerous terms for existing shareholders. A crisis is a terrible opportunity to waste, but it is still a crisis, so adjust your sights and expectations accordingly.

Maintain Your Composure

Regardless of your current mindset concerning new investments, new pieces of information can still invert your thinking overnight. It’s only natural that your confidence level goes through ups and downs in a chaotic environment like this, but a successful investor doesn’t let every short-term data point disrupt his or her focus on the long-term.

I have deliberately been non-prescriptive with my advice, as only you can determine what investments are right to pursue and how to pursue them. But I’ve hopefully provided a framework to begin to think about new investments and not just portfolio triage. I needn’t remind you of the numerous great companies that were founded and funded in previous times of crisis. You aren’t a venture capitalist until you’ve weathered a crisis and found a way to pursue opportunities in the midst of a storm. I look forward to hearing about your first investment in this new era. Welcome.

*A young investor is any venture investor who was not in the business in the crises of 2008 or 2001

One reason it’s difficult to pinpoint is that product/market fit is not a one-dimensional continuum measured by sales growth, but rather a nuanced, two-dimensional matrix. I developed the following diagram for founders to reflect on their own Product-Market Fit journey, as well as for myself, to evaluate my multi-stage portfolio.

In the above diagram, the x-axis measures the “Depth of Customer Engagement,” characterized by carefully listening and understanding the target customers and users. This involves understanding customer priorities, needs, alternatives, concerns and usage/engagement.

The other end of the x-axis continuum is the proverbial “echo chamber.” These startups are engaged with themselves and perhaps fellow startups, overconfident in their understanding of the target customer. If they are engaged with customers, they are likely preaching to the choir or else speaking to the wrong ones, those too weak and compliant to have or express their own coherent views.

The y-axis measures the strength of your product and business vision as determined by how “compelling” it is for prospective customers and users. A compelling product vision will be clever and innovative, with a pitch that generates a buzz among customers, partners and investors alike. A compelling vision can also be one that challenges the conventional view on a particular product or technology architecture.

The lower end of the y-axis can best be described as “unconvincing,” which does not necessarily imply the startup can’t sell its product, however such startups don’t appreciate the broader strategic trends in their particular market and fail to offer the kind of vision that resonates with their audience.

It’s not enough to solely listen to customers or to rely on a compelling vision. A startup needs both, even though doing both involves tradeoffs. Some paying customers will not embrace your vision, while others will adopt your vision without conveying the insightful feedback that is so vital.

Analyzing the Four Quadrants

Congrats! You Have Product Market Fit

The upper right quadrant is where everyone should be aiming, but invariably most startups find themselves in one of the three adjacent quadrants, especially in the early years. It is also natural that a startup would drift from one quadrant to another before achieving Product/Market Fit. Of course, maintaining Product/Market Fit is by no means assured in dynamic technology markets. Having achieved it, a successful startup may find that over time they have diluted much of their vision as they focus exclusively on hitting revenue targets, or that growing customer churn suggests they are out of touch with the evolving needs of the customer base.

Sexy Story or Revenue Centric

Early stage startups in both the bottom right and the top left have a degree of customer traction, but not yet enough to declare Product-Market Fit. Both are susceptible to accepting a common fallacy that the early adopters of their product are also the industry trailblazers. Not so. Sometimes your early adopters are merely your first customers. They are outliers, drawn to your vision, but there is no mainstream customer base ready to follow in their footsteps. Their eager adoption of your product may be reflective of an unsophisticated customer or just a very narrow use case. For this reason, a certain amount of time is needed to assess whether a startup’s success with its early adopters is anecdotal and fleeting, or meaningful and consistent. Getting it wrong means the startup is listening to the wrong feedback, letting it guide the product roadmap and strategy.

The Revenue Centric startups that fall into the bottom right quadrant are generating sales, listening attentively to customers and catering to their wants and demands, but to a degree not appropriate for a resource-constrained company that needs to scale quickly. In the early stages, this is a fine strategy for bootstrapping, allowing a startup to gather customer insights and learn a new domain. But startups risk getting mired in this quadrant if they lack a compelling vision or are unable to impress their vision upon their customers. Some signs that a startup has drifted into this quadrant include wide-ranging customer use cases, inconsistent sales cycles, product customization and a high level of post-sale service to generate value for the customer. When any of these are combined with pricing pressure, it’s not a great sign for Product-Market Fit. Many of the customer deals these startups close are tightly linked with adjustments to the roadmap and start to resemble “projects.” The resulting sales from such deals will keep this startup afloat, but this will mask a company that is surviving, not thriving.

The Sexy Story startups in the top left quadrant also don’t realize they are in this position until too late. These startups have a compelling vision and a sexy story that resonates in the media and among investors. As a result, money comes to them easily, press coverage is free and customer leads flow in. However, something is amiss, and it is typically evident in challenging unit economics, an inability to monetize a free user base or an inability to expand beyond early adopters. These companies conflate media and investor acceptance with customer acceptance, and don’t realize that the positive feedback they are hearing comes from an insular echo chamber. Some sales can be bought and finagled, but is are achieved at a high cost and not consistently over time. In short, these startups never really listened to their customers in the first place and found investors and media useful substitutes, assuming incorrectly that customers would eventually catch on.

Self Deception

Finally, there is the dreaded bottom left quadrant. This unconscionable location on the chart is reserved for the startup that neither offers a very compelling vision, nor listens to its intended customers. How is this even possible, you may ask? These are typically early stage, technology companies that are convinced that technological innovation alone creates value and follow the adage, “If we build it, the customers will come.” Obviously, it doesn’t work that way. For good reasons, these early stage startups don’t typically survive much past their Seed or Series A stages.

The Powers That Be

Another way of understanding this diagram is to consider who has the greatest influence in a given startup . If the Sales organization is dominant, the startup risks falling into the bottom right. If Marketing dominates, the vision will lead at the expense of sales and true customer engagement. And if a purely Engineering mindset pervades, the startup will find itself in the bottom left. The Product group, if sufficiently plugged into all other parts of the organization (including customers), is in the ideal position to guide the startup toward Product-Market Fit.

Achieving and maintaining Product-Market Fit is about balance and judgment. A startup must listen to customers, yet also guide them with a vision of their own. At times this means accepting customer feature requests that work with the product roadmap, but also rejecting those requests that weaken the vision (not simply due to resource constraints.) At the same time, a compelling vision can only take a company so far and must sometimes be curtailed to focus on more immediate customer concerns and challenges.

Don’t be alarmed if you find that you are not where you want to be on this diagram. It is common for startups to feel the conflicting forces that pull the company in seemingly contradictory directions. As long as you are conscious of the dangers of compromising on either of these two measurements of Product-Market Fit, you are less likely to remain stuck in the wrong quadrant.

A special thanks to my friend and product leader, Michael Mallin, who contributed greatly in the creation of this post.

As an immigrant with a compulsive need for the literal translation of every Hebrew word, I am still discovering and pondering Israeli names more than twenty years after my arrival in the country. Part of the challenge lies in the prevalence of nicknames in Israeli culture and the challenge of discerning between those that sound like nonsense names (e.g. Shuki) and those that are nonsense names (e.g. Chiko). It’s taken me a long time to appreciate the diversity and creativity of Israeli names, because while meaning may not tell you anything about someone’s personality or background, the folksy, familiar and endearing nicknames are reflective of a close-knit and unpretentious culture.

Modern Hebrew Names

Given names in Israel are an extreme mix of ancient and modern. They are either 2,500 years old and found in the Bible or they are modern Hebrew words related to nature and geography, or local flora and fauna. Popular modern Israeli names have a distinctive hippy appeal including Spring (Aviv) and Autumn (Stav), but surprisingly not Summer, perhaps due to the oppressive summer heat in Israel. Dawn (Shahar), Horizon (Ofek), Wild (Bar) and Lightening (Barak) are quite popular, as are arborous names like Oak (Alon), Tree (Ilan), Cedar (Erez), Pine (Oren) and Palm (Dekel or Tomer). Naming daughters after flowers is not uniquely Israeli but we have plenty of those as well. Despite our parched parcel of land, there is an abundance of “aquatic” names such as Dew (Tal), Storm (Saar), Wave (Gal), Spring (Mayyan), Dew-water (Meital), Brook (Peleg), Stream (Yuval) and Ripple (Adva). Incidentally, the non-Israeli actress Mayim Bialik’s first name means “water” in Hebrew, which baffles Israelis, because no one names their kid water in such a dry country.

When translated literally, modern Israeli names can be a source of amusement for the newcomer. I have twice backed a successful entrepreneurial team whose names translate as ‘Deer and Fawn’ (Eyal and Ofer). Homage to animal wildlife is plentiful in Israel, which is why there are executives in our companies whose names mean Wolf (Ze’ev), Lion (Arieh), Young Lion (Kfir), Bear (Dov), Deer (Zvi), Sparrow (Dror) and my all-time favorite, Puppy (Gur). Sure, Americans have their Teddy (e.g. Roosevelt) and an occasional Wolf (e.g. Blitzer), but get a group of these Israelis together and you have yourself a startup petting zoo.

Then you have the tough, militaristic sounding names such as Aluf (general), Amir/Eitan (powerful), Oz (courage), Magen (shield) and even Lahav (blade). The name Uzi sounds shamefully violent compared to Shalom (an older, but still common name), but the sub-machine gun of gangster notoriety is actually named for its inventor, Uziel Gal, not the other way around.

Adding some confusion to Israeli name spotting is the fact that many modern Hebrew names have become unisex or gender neutral. I’m pretty sure this is a 21st century challenge unique to Israel and am fully aware of American gender-neutral names like Pat, Jesse, Alex and Chris, but those are mostly nicknames. For Israelis under the age of ~25 with the name Yuval, Amit, Tal, Bar, Shai and dozens of others, gender identification through names is no longer possible. There are also feminine versions of more “traditionally” male names, such as Alona, Ilana, Aviva and even Moshit, but this practice is not particularly unique to Jewish-Israeli culture.

Modern Israeli family names stem from new immigrants voluntarily jettisoning their diaspora names in favor of something with a local flair. This deliberate Hebraization of Jewish last names has led to further confusion, as many of these modern names often serve as both given and family names. This occasionally gives rise to confusion of whether Barak Alon is the same person as Alon Barak. It’s become so bad that call centers sometimes ask for Fisher Adam. I suppose this happens in the U.S. as well with the common practice of adopting the mother’s maiden name as a child’s first name (e.g. Hunter Thompson). But then Israel also has people with the same first name and last name, like the CEO of Israel’s Innovation Authority, Aharon Aharon.

Biblical Nicknames

Alongside short, hip, modern Israeli names, multi-syllabic Israeli biblical names like Yeshayahu or Mattitiyahu can seem a tad old fashioned. As a result, Israelis have taken to using modern-sounding nicknames that catapult biblical names from three millennia ago into the 21st century. A lot of it simply involves adding the diminutive ‘i’ or ‘y’ to an abbreviated version of a name. Hence, Benjamin is Benny/Benji, Gabriel is Gabi, Samuel is Sammy and Raphael is Rafi.

Other nicknames stray further from the original. If you meet Yaki, Dudi and Assi, it would not be the beginning of an inappropriate joke because all three are popular Israeli nicknames for Yaakov (Jacob), David and Assaf, respectively. And Gigi is from Gershon (Gregory) or Giora, Hezi is from Yehezkial (Ezekial) and Pini is from Pinhas (Phinehas). You would be forgiven for thinking all Israeli names end in an ‘i’ or a ‘y’, but those that do are almost always nicknames. Such nicknames are more common than the long-established Yiddish formula for creating a hypocorism (that’s a pet name), which would be to add ‘le or ‘ik to the end, as in Moshik (Moshe) or Moshele, and occasionally ‘ka, as in Zvika (Zvi). But if you are truly loved by friends and colleagues you may have such a classic nickname conferred upon you.

In case it’s not clear, Israelis have a genuine fondness for endearing and sometimes silly sounding nicknames, some of which all but erase the biblical source from memory. In fact, some Israeli nicknames are so prevalent that the original name is unrecognizable if not forgotten. When I tried to uncover the real names of people affectionately called Mooly, Mooki, Momo and Yaya, most Israelis give serious pause to consider the origin and some gave a shrug. That’s often because the nicknames are given soon after birth and may even enter the birth certificate (but I can’t be sure). These chummy nicknames then stick throughout one’s life and career, such that if you are called something in kindergarten there is a high likelihood it will stick with you through military service, university and into your career, whether it be as a rock star (e.g. Muki), an executive (e.g. “Mooly” Eden), a general (e.g. “Chiko” Tamir) or a politician (e.g. “Bogi” Ayalon or “Bougi” Herzog).

On the face of it, this is not unlike the American and English nicknames for Richard (Rick/Dick), Henry (Harry/Hank), John (Jack/Jay), William (Bill), Lawrence (Larry), Charles (Chuck), Francis (Frank), James (Jim) and Robert (Bob). Or for women’s names such as Margaret (Peggy), Elizabeth (Lizzy), Cassandra (Sandy), Catherine (Cathy), Samantha (Sam), etc. But true equivalence to Israeli naming practices would make every Richard a Ricky, every William a Billy, every Thomas a Tommy and every Amanda a Mandy. That is not always the case for American children and often changes for Americans when one enters adulthood and builds a career, but not so in Israel.

PEETA AND HOOMOOS (Pita and Hummus)

For too long, transliteration from Hebrew to English has been a genuine free-for-all, spanning everything from road signs to menus, and this also extends to personal names. For Americans, a slightly different spelling of a name can denote personality and individualism. In Israel, it’s because the other spelling is just wrong.

When Israeli school children begin to learn English around the age of 8, they are tasked with the crucial decision of choosing the English spelling of their Hebrew name. For some names there is an established standard or at least not much flexibility (Yoav or David), but for other names the options are truly endless. First there is the interchangeable ‘i’ and ‘e,’ because when Israelis see either letter the sound that emerges is identical. Hence, Ido/Edo/Eido, Ilan/Elan and Itay/Etay are the same exact names. The same issue also applies to the letters ‘i’ and ‘y’ at the end of a name. So Itay/Etay may be Itai/Etai. Roni and Rony are also the same name, as are Beni and Benny. More challenging is how to use Latin letters to make Hebrew guttural sounds like “ch,” tz,” “oo” and “a’a.” In Israel, Chen is not a name of Asian descent, but pronounced similar to the “ch” in Chanukah. Kids nicknamed Tzachi or Tzipi have a particularly hard time when touring the US.

Sometimes it is not what is most accurate, but which variant looks best or avoids awkwardness. Chagi is really pronounced Huggi, but that doesn’t look great if you’ve ever had to buy diapers. Uzi should be Oozi, but that also doesn’t look great to American eyes. It should have been a sure giveaway in the crazy story of Oozi Cats, who is unrelated to Israel-born Safra Catz, the President of Oracle, who has a first name that is really only a family name in Israel.

As more Israelis make their mark in American culture, from Gal Gadot to Rahm Emanuel, and Yuval Noah Harari to Omri Casspi, the names and their meanings will become more familiar to the English speaker. In truth, I don’t dwell on the meaning of people’s names until I see a visiting American stumbling on a pronunciation or I encounter a name I’ve never heard before, which more often than not is the name of a rare flower or obscure person from the Bible. For me it’s a chance to learn more about the Hebrew language and an innovative, friendly culture that continues to impress me every day.

A VC’s job is not just to find and invest in the winners but also to avoid the mistakes. It is surprisingly easy to be drawn to the wrong company only to find yourself working for many years simply to recoup your initial investment. The wrong investment will hobble me, consuming my time and weakening my self-confidence. As an early stage investor, knowing the types of investment opportunities I do not want to pursue is as crucial as knowing what opportunities I do want to chase down. Moreover, my ability to swiftly and confidently say ‘no’ is what allows me to swiftly and rapidly say ‘yes’ when there is a match.

After years of saying ‘no’ myself, I’ve developed a lot of respect for founders who can do the same. I’ve discovered that the best early stage CEOs are also in the business of saying “no,” although they don’t always recognize it. Lacking a history or working model, early stage CEOs are presented with endless possibilities on product, go-to-market strategy, financing, recruiting and customers. Too often entrepreneurs take the ‘yes route’ which is essentially a route of minimal resistance. The first seed fund that makes an offer. That product idea that got you funded. The first type of customer type that expressed interest. This may work out, but invariably these CEOs will find they have made some bad decisions along the way.

A startup’s business strategy and plan are as much about what it will not to do, as it is about what it will do. You can’t have one without the other. As VCs and board members, we often invoke the need for the company to maintain focus, but deciding on and maintaining such focus requires the foresight and confidence to say ‘no.’

- “No” to your R&D team that wants to add more features over the objection of your VP Product.
- “No” to that potential investor who offers a compelling CLA, but has a mixed reputation.
- “No” to that large, esteemed enterprise customer, who requires an on-premise deployment of your SaaS product.
- “No” to that offer of a joint venture in some large Asian market; and
- “No” to your VC who may offer an introduction or idea that is not in your focus.

A founder who knows what he or she will reject will have an easier time executing on their plan. Focus must be exclusionary if it is to have any meaning, especially in the early years of a startup’s life.

We too often concentrate on the power vested in us as VCs and CEOs to say “yes.” But like anyone granted such authority, it’s wisdom that determines if the right decisions are made and wrong decisions avoided. The power to say no is an essential part of building a company, as it means you have considered and given thought to all that you will not do in favor of what you will do. And it’s the VC’s role to remind founders of this important point so they can then say ‘yes’ with even greater confidence and resolve.

Software deserves the disproportionate attention it gets from the venture community, but software innovation at all levels still depends on recurrent breakthroughs in underlying silicon and component hardware. Knowing what cutting edge hardware is on the horizon helps us as investors assess what software and services to expect down the road. But I estimate there are no more than a couple worthwhile silicon startups created each year.

Someone must make these challenging investments and increasingly we are finding the best opportunities in Israel. Over the past four years, Bessemer has backed five of the most exciting silicon companies in the world, including Leaba Semiconductor, Kandou Bus, Vayyar Imaging, Oryx Vision and Habana Labs, four of them based in Israel (Kandou is from Switzerland!). Each is working on breakthrough technologies and architectures that are paving the way for dozens of exciting products and services built off their hardware capabilities.

Software may be eating the world, but a lot of it is running on silicon developed in Israel.

With the rise of Broadcom, Qualcomm and ARM, the eponymous Silicon Valley is no longer the epicenter of semiconductor innovation. That honor is now shared by additional locations in Southern California, Cambridge, England and of course, Israel. Among the four regions, Israel stands out not only because its dynamic startup culture attracts leading companies from the other three regions, but also because these secretive silicon projects are so strategic to their parent companies.

Intel makes no secret of the fact that every second server and computer in the world runs on an Intel processor developed in Israel. This can be seen in the use of Hebrew language code names for many Israel-developed chips prior to release. This openness is less true of Broadcom, Qualcomm, Marvell and SanDisk, which quietly use their large Israeli subsidiaries to extend their respective leadership in switching, wireless, communications and memory.

I sound like a shameless cheerleader when I say this, but it’s true that most computers and servers run on a chip or modem designed in Israel, and that most of the world’s network traffic traverses a network element with Israeli-designed silicon. Now we can add to this list the fact that most workloads on AWS and most ADAS-equipped automobiles run on Israeli-designed silicon.

While the semiconductor giants are busy acquiring one another, the world’s leading product companies have become the new benefactor of the Israeli semiconductor industry.

It is no longer only the giant semiconductor companies exploiting Israeli silicon expertise. Unbeknownst to many, multinational product giants including Apple, Amazon, Cisco, General Motors and Samsung rely heavily on semiconductor innovation emanating from their Israeli R&D centers (mostly by way of acquisition). These component-level innovations largely stay hidden from view because they are destined for use in the finished products of the parent company in the form of a server, switch, car, game console or phone.

For instance, Apple X’s 3D facial recognition capability is an outgrowth of their once perplexing acquisition of 3D sensor company PrimeSense back in 2013 for $350M. Apple has close to 1,000 engineers on the ground in Israel, many focused on advanced technologies ranging from memory controllers found in every iPad and iPhone (via the acquisition of Anobit), but also 3D sensors.

Amazon’s only announced semiconductor development takes place within the Amazon Web Services division, which acquired Israel-based Annapurna Labs while the latter was still in stealth mode in 2015. Its server network processor is believed to ship with every new AWS server, presumably making the $400M acquisition money well spent with tens of millions of chips delivered and deployed.

Cisco hadn’t made a single semiconductor acquisition anywhere in more than a decade when they decided to acquire Leaba Semiconductor in 2016 for a reported $320M. The entrepreneurs’ previous company, Dune Networks, was acquired by Broadcom and forms the basis of that company’s high end switching products. Aside from Broadcom’s Dune unit, Israel is a hotbed for switch innovation with companies like homegrown-Mellanox, Marvell and Huawei each developing switching-silicon locally.

The Next Steps are in New Markets

Israeli hardware innovation has moved away from implementing standardized communications or networking standards to developing chips for entirely new categories of products such as automotive, IoT, augmented reality and artificial intelligence. A lot of this innovation centers around new mixed signal sensor technologies, combined with highly efficient algorithms and processors. New markets require new silicon components. The other type of silicon startup we see targets web scale data centers with high performance and super scalable chip architectures used in networking, storage and processing.

This explains the emergence of a company such as MobileEye (acquired by Intel), whose computer vision processor has put them at the forefront of semi-autonomous driving. The greenfield opportunity in automotive is driving other promising silicon and component companies such as AutoTalks, Oryx, Valens and Vayyar.

In general, there seems to be a renaissance in the world of 3D sensing and imaging as the digital world seeks to capture and process real time data from our physical world. Such innovations have broad applications from consumer and automotive to industrial and IoT with Israeli startups such as OrCam, Vayyar, Wiliot, and Inuitive.

Hola Habana

This post wouldn’t be newsworthy without mention of Bessemer-funded Habana Labs, fresh out of stealth mode this week. Habana Labs is the brainchild of serial entrepreneur and investor, Avigdor Willenz, who founded it along with Davidi Dahan, Ran Halutz, Shlomo Raikin and others from Apple, PrimeSense, Ceva and Intel. Habana surprised the market this week announcing it has developed the first dedicated AI processor for commercial use. We strongly felt that the processor market needed a third category in addition to CPUs and GPUs; one dedicated to machine learning and AI processing. Habana’s initial chip, Goya, delivers performance 12x that of an Intel’s Xeon CPU and at least 5x times Nvidia’s most powerful GPU at lower latency, power and cost.

While it has operated in stealth mode these past two and half years, it should hardly come as a surprise that a company like Habana would emerge out of Israel. Habana will undoubtedly have an impact on the entire AI sector, yet another Israeli signature on the long list of impactful firsts.

There are too few silicon and component companies to make it the sole focus of any venture investor. However, I expect to see at least one promising startup each year with the vision, depth and team to justify the long and expensive journey ahead. Even as silicon declines as a portion of overall venture investment, it is likely that Israeli startups will be responsible for a disproportionate number of those that ultimately make it.

Founders typically defer the contentious naming issue by settling on a temporary name, which they promise to change prior to launch. Invariably the temporary name begins to grow on the founders and their early employees, who begin to develop an attachment to it. Alternative names surface, often by distraught investors, but detachment anxiety prevents founders from making a change. Even when founders are in agreement that the name sucks and is a source of ridicule, they point out how familiar the market already is with their name and inflate rebranding budgets to further defer action. And before you know it, the name that no one is particularly proud of appears emblazoned on mugs, pens, notepads, the obligatory t-shirt, and worst of all, a “prominent list of promising young Israeli startups”.

This post explains why it is worth taking the extra time to carefully think through your company name and to solicit feedback early from people who won’t just tell you what you want to hear. As an early stage investor, I’ve had the privilege of being involved in companies at the founding stage where I was witness to the birthing of a name. My experience includes helping to name and/or spell Leaba Semiconductor (acq. by Cisco), Sedona Systems, Oryx Vision, Vayyar Imaging and BillGuard (acq. by Prosper), along with a few failures like Siano, Kerenix and Kodeos. I’ve also made many entrepreneurs squirm in their chair talking about their company name, so I think I’m in a pretty good position to put together a helpful guide for company naming, with a particular emphasis on avoiding the most common mistakes.

Part I — Be Memorable

The main goal is to be memorable while resisting the temptation to be too clever. I say this because there is a natural tendency to search for a name with meaning or something that evokes the product’s purpose or capabilities. Forget it. It’s really not important that your name have meaning. Growth and expansion over time renders most names devoid of meaning in any case. PayPal was originally for paying your pal through an electronic handheld device such as a PalmPilot. Micron probably thought it was future proof before all semiconductor processes moved to nanometer scales. Coke used coca leaves and 7Up used lithium at one point, but thankfully that’s no longer true and of course no longer relevant to customers anyway. One could argue that meaningful names, like Salesforce.com or Netflix, helped catapult them initially, but there are far too many counter examples (e.g. Amazon, Adobe, Splunk, Twilio).

Hundreds of technology entrepreneurs have struggled in vain to be both original and relevant, but unless you are focused on a veiled corner of the tech universe, there will always be a tradeoff between originality and relevance. Instead, focus on being memorable, which involves being original, yet simple. Single word names generally work best, but to be memorable a name should ideally be differentiated and catchy.

There are dozens of good examples out there, but some of Israel’s best include Anobit, Cotendo, Gigya Goji, Gong, Fiverr, HiBob, Kashya, Kenshoo, Kizi, Kidaro, Nolio, Oberon, Onaro, Onavo, Outbrain, Panaya, Taboola, Viber, Waze, Wix, Xeround, YotPo, Zend and Zerto.

If these sound like the nonsense names of creatures found in a Dr. Seuss book, planets in a Star Wars film or the name of a breakfast cereal, you are well on your way to understanding what it means to be memorable. Essentially if a child can say it and remember it, it’s probably a good name choice.
Aside from being memorable, it is also important to find a suitable URL. It is rarely as simple as adding .com, so be prepared for unusual domains from countries you are unlikely to vacation in. More importantly, make sure there isn’t another SEO minded company at the top of Google search results. Dislodging such a company may not be worth the effort.

Part II — Avoid the Pitfalls

Being memorable, but not too clever, is easier said than done. Let’s review the common pitfalls made by Israeli entrepreneurs that you should be careful to avoid.

1. Your Company is Not a Product — Think big and think long term, because your first product is unlikely to be what defines you when you are big and successful. An oblique nod to the product concept in your company name can be great, but don’t let your company name be confused with your product name as in PowerMat, OneHourTranslation, Double Verify, SpotInst, BeInSynch or OwnBackup. Occasionally, it works out in the case of MobileEye, Fraud Sciences and CyberArk, but ideally your company name should be distinct from your product name and capabilities (e.g. AutoTalks, WalkMe, SalesPredict, SeeTree). Product names prove most problematic when trying to execute a pivot, as MyThings learned the hard way. The one exception for this pitfall is with consumer products, where product and company meld together as in MyHeritage.

2. Two-Word Names Lack Originality — The other problem with product sounding names is that they typically require two words, which becomes a mouthful for branding (e.g. SuperDerivatives, EyeBlaster and BVP’s Dynamic Yield). Don’t even get me started on three-word names, such as The Gifts Project, Secret Double Octopus, Start A Fire. Either way, if you need two words to describe your company you are going in the wrong direction (excluding words such as networks, systems, semiconductor, etc.). It’s certainly easier to be unique with two words, but it’s generally not memorable or catchy (cautious exceptions for known word combination such as Charlotte’s Web or SundaySky). If you do go this route, at least stick to word combinations with no more than two to three syllables. Once successful, names like SolarEdge and PrimeSense seem great, but they are still a mouthful to say and write even post exit.

3. Don’t Memorialize a Tech Trend — The same can be said for naming your company after a technology trend or sector. This is tempting, because it can yield a quick return when it’s hot, but when overused or out of favor, it becomes a burden and source of confusion. Few of you may remember the .com era, when literally every startup added “.com” to their name regardless of their core activity. That shortsighted label appendage won’t likely be repeated en masse, but there are hints of a similar trend with companies adding blockchain to their name. Today we suffer from the mild overuse of “app,” “cloud,” “cyber,” “deep” and “AI”. Hopefully your company will last a lot longer than a trendy term or market segment. The same goes for using variations of the word “intelligence” or “innovation.” Despite hundreds of attempts, that worked exactly once with Intel. I would add to this list variations on the word “optimal” as in Optibase, Optimove, Optibus, and Optimal+; and variations of the word “maximum.”

4. Easy to Spell — When someone hears it, they should have a fairly good idea of how it might be spelled so they can find it online or refer to your company without mangling the name. It does not have to be a real word found in any dictionary and certainly not a correctly spelled word, but if it is a real word, it should not contain more than one spelling mistake. It didn’t stop them from succeeding, but Xtremio had two surprises in its spelling, and to this day I cannot be sure I have typed it correctly. Luckily it was acquired before anyone really searched for it online. Same with Xacct, Pursway, Cvidya, Pipl, Wochit, Moovit and dozens of others that never made it past their A round. In any case, a name should never be a concentrated collection of spelling errors. One misspelling, such as BVP’s Qwilt is perfect, because the misspelling itself becomes memorable. Also be careful with symbols as in CTI2, Optimal+ and Hola!

5. Easily Pronounceable — There are names that when spelled leave the reader struggling to know how to pronounce it. In particular, it must be pronounceable when read by a native English speaker. Arbe Robotics will be pronounced like the fast food restaurant, Arby’s. More importantly, you can’t expect the average person to know how to pronounce horribly misspelled words or even some acronyms. XIV got away with this and it was pretty cool, but I think Shieldiot (shee-idiot), SEOxperts, IPlight (i-plight) and Analoc had to correct people more than once.

6. Avoid Medicinal Names — Although it’s tempting, the name shouldn’t sound like something you could find in the pharmacy or biological weapon unless that’s what you are developing. The letter ‘X’ is quite tricky in this respect. Consider Mellanox (too close to Maalox), Appoxee (for eradicating smallpox?), Vexigo (to relieve stress?), Xoreax (use gloves), Oxitone (for clearer skin), Thorium (sounds lethal), and SysAid (anti-bacterial cream?).

7. Hebrew Words Can Be Awesome — Using a Hebrew word for an English-speaking audience is challenging, but when a company pulls it of it is awesome. The best names are both easily pronounced in both languages and carry the secret meaning Israeli entrepreneurs crave. Take for example our former portfolio company, Altair Semiconductor. They developed a software defined radio modem for mobile wireless. To some people, Altair sounds like a gesture to the world’s first minicomputer, the Altair 8800, but it also has the word “air” in it suggesting it’s a wireless play. But the Hebrew meaning is probably the most interesting, because “altair,” means to improvise, which is exactly what their technology enabled with regards to different wireless standards. Passave was also clever. It combine the word passive, as in passive optical networks, with the double Hebrew meaning of broadband.

Other good examples include Alooma, Adallom, Capriza, Feex, Finjan, Fixya, Kaltura, Leaba, Qlika, Saifun, Taboola, Tipalti, Zirra and Zooz. This might look easy, but remember that Americans put an emphasis on the first syllable, while Israelis emphasize the second. The flip side is a secret Hebrew word, like RoboTeam (Hebrew for robots in plural). Then again, some Hebrew words have a dual meaning in English which ruin the original intent (e.g. OrCam).

Hebrew words can be awesome…except when they fail.

a. Avoid Names that Only Work with an Israeli Accent
I have come across many startup names that made no sense to me until I heard it with an Israeli accent. Even ‘WhatsApp’ only sounds like ‘What’s Up’ to a non-American. That’s why StartApp, no matter how successful, is actually a bad name because I’m pretty certain it’s supposed to sound like “startup,” but it doesn’t! Other examples are Yadata, Cooladata, Sweetch (switch with a heavy accent) eGlue (this is not how Americans pronounce igloo), Neebula (Nebula), Hooqs (hooks), Back& (Backend), DaPulse (always reminded me of this scene), OverSi (this is Over-sigh, not Oversee), Pipl (this is pipe-el, not People) and Bandwd (Bandwidth). Only after their acquisition did I realize that LightCyber was supposed to sound like a Jedi’s favorite weapon. I thought they were a light cyber security solution.

b. Don’t Make it Hard for Israelis to Enunciate — Anything that starts or ends with a “th” is off-limits, like ThetaRay, Worthy (“wordy?”), or EatWith (Eatwid) and Ethernity (Ether-nity?). Same with Libox (a box of lies?). But it can be worse, because some names such as Factmeme and iPawn, sound X-rated in a typical Israeli accent. Best to avoid any names with a sexual connotation like SEOxperts, Xsodot and AllOfMe.

8. Check the Urban Dictionary — This is something you must check before signing off on your name choice. Some of the words and meanings are obscure, but you don’t want to be surprised that your company name is a slur or lewd word, like SnatchBot. I’m not sure they would have avoided it, but perhaps Sec.do and Any.do would have chosen differently if they knew that “do” is slang for hairdo. So the next time you are in a hair salon, you can ask for an any.do. Although for me SecDo still sounds like something you mistakenly stepped in while mowing the lawn.

9. Check Translations — One final check before you press send. This is hard to avoid, but your company likely means something in a foreign language. This may just mean a little extra SEO work as we experienced with Soluto (in Italian) or total rebranding as what happened with Luz2 (Brightsource). English should be the first language to check but there is no excuse for very foreign sounding names like eToro, Hola! which clearly sound aimed for a South American audience. Check the meaning in a few UN languages, such as Wix in German. Click to view this self-induced parody

10. Eponymous Names Are Still Out of Favor — Who doesn’t want their own name in a company, on a building and eventually a ticker symbol (e.g. EMC, Ford, Dell, Disney, Heinz, Hershey)? But these single founder companies belong to a very different era. Today most startups have multiple founders (and immigrant names don’t always work). Even Hewlett-Packard was such a mouthful in the day, everyone called it HP which compelled the company to belatedly change its name to HP Inc. We have Benny Landa’s Landa Digital Printing, but the closest successful eponymous Israeli startup name I could find was Dov Moran’s M-Systems, which he astutely changed from Moran Systems due to how American are likely to pronounce Moran. Acronyms with the founders’ names have had some success decades ago (there was of course Adi Shamir in RSA, but acronyms are not typically memorable unless you are already successful). NSO Group works because its sounds like NSA, where the O is for “offensive” (my uninformed interpretation).

11. No License Plate Names — This branding technique is horrible. It’s where individual letters and numbers are pronounced as words, similar to a license plate that can be read like “IMGR8.” There was exactly one Israeli company that hit it big with a license plate name and that was EZchip, luckily in a sector where brands don’t matter as much. Not surprisingly, they were founded a year after the company behind ICQ (I seek you) was acquired by AOL for $400M. From there it was downhill with companies such as uTest(now Applause), E4X, CB4, 2CUagain, LiveU and InirU. Bessemer has one entry here with Team8, but it’s a single number and not really a startup.

Part III — Some Ideas for Generating Leads

1. Open the Dictionary at Random — Pick a two-syllable word. Mostly likely everyone will know how to read and pronounce these words even if the definition is unclear or its meaning irrelevant to your startup. Israeli startups such as Diligent, Applaus, Lucid, Conduit, Behalf and Dune all did this well. Lemonade did this, although it also makes a valiant attempt to link it to the new found joy of buying and paying for insurance, which is a bit of stretch. Since a lot of companies have already used this dictionary method, you may have to play with a single letter to achieve something more unique, such as Provigent (Provident) or Savan (savant), both former Israeli semiconductor startups.

2. Baby Names from a Century Ago — This is now a favorite for American startups (e.g. Oscar Health), but there is no reason Israelis can’t adopt the approach and become Americanized before even opening a subsidiary.

3. Borrow Names from the Ancients — Latin, Greek and Persian names work surprisingly well as in Nike. Take for example Valens Semiconductor, named after the Roman Emperor. Or ScyllaDB named after the mythological creature.

4. Relatively Obscure Place Names — There are a lot of city names out there that can serve as a resource for naming companies. Israeli companies that have used this approach include Ravello Systems, Sedona Systems, Habana (Havana), Annapurna, Iguaz.io and Celeno.

5. Adopt an Animal– Some companies do this and add a color or some other adjective, such as “Red” or “Big,” but this is now overused. More recently we have Israeli startups taking regional animals as their name. Israeli startups, Ibex, Oryx and Oribi, coincidentally, are all names of antelope native to the Middle East and Africa.

Company names are not that important unless they are really awesome or really awful. If you can’t come up with an awesome name, there is still no excuse for an awful name. Be memorable, avoid the pitfalls and hopefully you won’t have to revisit it until your next startup.