In August of 2022, I launched Erez Capital - a Boston-based venture capital firm investing in Proptech, Fintech, A.I., and Web3 startups at the forefront of digital transformation.
In this post, I'd like to share the initial inspiration for Erez Capital, which finds its root in the Israeli ecosystem, but also the tools, principles, and processes that helped us as we launched our first fund.
Table of Contents
Lessons from the Israeli model
Before starting Erez Capital, I worked as the Director of Innovation and Economic Development for the Israeli Foreign Ministry in New England, where I advised and represented over two hundred Israeli-founded startups. Within this cohort, over the span of three years, dozens of these companies reached IPO, were acquired by multinational corporations, or raised successful Series A rounds.
I observed and developed a thesis about their success, which includes prolific founders , using A.I. and ML innovation processes to address large global issues (food insecurity, desalination, climate change, technology access and disease), and engaging design features (typeface, color-schemes, logos and shapes). Think Waze, Wix, Monday.com, CyberArk, and Tomorrow.io, to name a few.
However, the most impressive trait of Israel-founded companies is their use of strategic partnerships and alliances. Finding ways to use collaboration and shared strengths to add mutual value to multiple enterprises.
In 2019, while serving in the Israeli Foreign Ministry, I hosted a delegation of Israeli companies to Boston (Hartford and New York City). The health delegation included a cohort of startup companies classified as pre-seed (at the time). These companies worked together and formed various strategic partnerships. All of the participating startups are still operating, ranging from Pre-Seed to Series C stages and raising a total of $199.5M across eight companies (excluding the one acquisition). This is only one example, but is indicative of the importance of strategic alliances at the early stages of any startup or venture capital firm.
mHealth Israel Delegation to Boston 2019
Another example of successful strategic partnerships can be found in the vertical alignment within industry clusters - giving exposure and opportunity to smaller early-stage companies when corporations engage in M&A activity. The chart below shows the level of M&A activity between Israeli and U.S. companies only in Massachusetts between 1999-2015. Israeli startups collaborate within and across industry clusters, allowing for increased exposure and validation to venture capital, angel and private equity investors.
I launched Erez Capital with these traits in-mind, and was equally lucky to bring-on an Associate, Noah Ente, a University of Michigan grad with VC experience in the U.S. and Israel.
“[Funding for] Israeli companies in the U.S. represented 136% growth in 2021 in equity investments over 2020… Israel surpassed the average global increase (71%) and that of the US (78%).”-Startup Nation Central (2021)
Treat your fund like a product
Our strategy in the early days was simple:
The best way to prove our potential was to operate and accelerate like a startup company - and by creating a valuable enterprise (with no product) we could inspire investors to ask the question…what could they do with $10 Million?
Following the Israeli model, we did the 5 following things.
1. Streamline dealflow
We created an efficient, data-based inbound form for inquiries and startup introductions, without placing undue burden on the startups to provide information. Our form operates through an incredible platform called Cinch, and it provides all of the information we require for due diligence and the context necessary to meet effectively with a founder. Keeping this in mind, our completion rate stands at 43%.
While there are dozens of platforms on the market, and endless strategies for bolstering dealflow - OpenVC has been the most valuable tool in our arsenal, particularly for a fund that operates in less crowded markets like Proptech or Web3. Emails from OpenVC companies continue to operate within the confines of our investment thesis. Most notably for our fund was an email from a proptech company with over $1M in capital, a visionary founder, coverage in every major publication and a 180,000 person waitlist - Home.LLC. From a cost-basis perspective, making our firm visible and present on OpenVC has been a valuable step.
2. Leverage new tech platforms and financial services
In our journey we have found and leveraged the following companies and platforms, which have proved instrumental in our success, and wanted to share them with the community.
We adopted a well-designed, affordable legal, compliance and LP onboarding service - Savvi Legal. It is the single best technology investment we have made as a firm. The platform is also available to startups and it is worth every single penny.
Prior to launching the fund, I was completely unaware of the panoply of industries and services that supplement the work of venture capital fund managers. While there wasn’t synergy in every meeting, we found partnership opportunities with payroll providers, business formation companies, and venture studios.
3. Build a strong, engaged advisory board and tight relations with other funds
Our advisors possess deep experience in our industries of focus and all aspects of our fund thesis, and we have formed relationships with other funds and investors to exchange dealflow, share insights, and provide one another with additional due diligence and priority access to deals. Members of our board include an Chan-Zuckerberg award-winning Oxford scientist to the CEO of a disruptive Web3 startup. Diversity adds immeasurable value and sector specific expertise is equally important. We found individuals who are passionate, have lived-experience as investors, startup founders, technologists and academics.
4. Develop strategic partnerships with Venture Partners
Since launching we have built a global list of Venture Partners - allowing us to share dealflow, earn carried interest (in some cases) and leverage global experts in specific domains. Our current Venture Partners also cover different innovation hubs around the world, giving us market perspectives and connections from Tel Aviv and London to Lagos and Silicon Valley. We share partnerships with Consilience Ventures (crypto,web3 and tokenization), an MIT- spinoff studio fund in IHQ Ventures (fintech), Dharma Capital and SV Venture Group (Silicon Valley Venture Group) to name a few.
5. Construct Referral Partnerships to align incentives
By facilitating referral partnerships aligning services to meet the needs of startup founders - adding value where we could easily make an impact. At the time of this article, Erez Capital has signed six referral partnerships, onboarded five advisors / venture partners, secured two seats on investment committees, generated two revenue streams and launched three SPV’s. We leveraged the strength of our dealflow to to drive startups to companies that we believe will add value and ultimately accelerate their startup journey. Whether it be referral discounts through companies like Firstbase.io, or Justworks - there is great shared benefits for sharing our positive experiences and helping startups access those services.
For our Venture Partners, we compensate on a commission basis for capital and executed deal flow brought into the fund. Our referral partnerships have given us access to premier operational services in return for referrals we make to inbound startups, portfolio companies and affiliated funds.
Conclusion: Value in every interaction
In closing, we believe there is value in every interaction. We started a venture capital firm that has corporate partners, revenue streams, brand recognition, talented advisors, a global deal flow pipeline, our own legal services….and no debt. Now imagine what we could do with $10 Million.
About the author
Michael Benezra is the General Partner of Erez Capital LLC, a new venture capital fund in Boston, Massachusetts. The fund is raising a first fund of $10 Million to invest in proptech, web3, fintech, and A.I. / machine learning technology spanning across various industry sectors. To learn more about the firm’s thesis and activities, please visit www.erezcapital.io.
Noah Ente, Associate at Erez Capital LLC, contributed to this article.