How we founded 5eyes — a VC is born

There is a popular Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now”. As a founder, executive, advisor and angel investor, I have been around the startup ecosystem for over 20 years now, but now is the first time I truly felt inclined to open my own venture capital fund. Here is the story of how it happened…

Chapter 0 — Some background

For the past 12 years, my day job was that of a CEO and co-founder at an Ad Tech company. Ad Tech has been a constantly evolving vertical, with technologies, regulation and consolidation ever changing the playground me and my company played in. Aside from my primary occupation, I have been involved with founding and investing in several startups, of which the most notable was Dynamic Yield (Sold to McDonalds) but there have been a few others and each taught me a unique lesson, be it small or big.

When COVID-19 hit, I was forced to reassess my company’s business in light of the coming change. After a close examination of the numbers, activity and future projections, my partner and I decided the company cannot continue its operations and had to be shut down. The next several months passed in a haze. I was busy handling the company administrative tasks while also figuring out the new reality with my wife and the kids studying from home. At that point of time, I was unsure what I was gonna do next.

Chapter 1 — The partnership

To get some fresh ideas, I reached out to my friends (including some I haven’t met for a long while) and met them for coffee or the occasional Hummus. In our meetings, I was getting insights from my friends that helped me clarify what I was interested in doing and mostly what not. My calendar was filling up quite quickly and my Caffeine levels where pretty high at that point. During August 2020, I had an idea for setting up 2 of my friend for a sort of business-wise blind date. While I did not have a clear idea how they can cooperate, there was something about their personalities that I thought could work well together. The three of us met for coffee in a trendy Tel Aviv place named “under the tree”. It was there, that we all felt a connection to each other. Despite the fact that my friends have not met before, they connected and even more than that, the trio of us was just like a band reuniting after not playing together for many years.

A week later and many more coffees, one of my friends pitched us an idea he wanted all three of us to execute together. I don’t think it took us more than a few minutes to commit to it. We decided to create a new company aimed at helping Israeli startups penetrate the US market. Bringing together our mutual experience and strengths, it was looking like the company is gonna be a significant player in the Israeli startup scene.

Maybe it’s the military service or any other reason, but Israeli startups have always been prominent on the global tech scene. Israeli entrepreneurs are great techies, pretty good at sales but their challenges lie mostly in the marketing and strategy areas. We have seen Israeli companies with huge potentials fail to reach them simply due to the fact that they were unable to bridge the gap to their target clients.

While all three of us come from diverse backgrounds, we all experienced this gap first hand and knew that this was a worthy task for us to pursue. We all agreed that our goal is to make a significant impact by helping Israeli startups penetrate global markets.

Chapter 2 — Not a VC

The next couple of months were spent on setting up the company, which included a lot of thinking into the actual aspects of how we will operate, who our clients were, what value were we bringing to them and also the matter of compensation. As all three of us are experienced entrepreneurs with a few successes in our past, we decided that our business model will be equity based, aligning our interests with those of the startups we work with.

Once we figured out the preliminaries of the company, the next step was meeting startups. We were meeting a few companies each day, both pitching our idea and learning about the companies to figure out if there was a synergy worth pursuing. Dozens of companies later, we figured out the entire model was wrong. The model was wrong due to the fact that most startups have a very short span of attention to partners (even strategic ones) which conflicted with our intent to actively help the companies figure out their strategy, product-market fit and market penetration. It was then that we figured the need was there but the method had to change.

Chapter 3 — Should we become a VC?

Aside from startups, the other significant player in the ecosystem is the venture capital funds (VC), providing much needed cash to help startups fulfill their potential. Having decided that the agency model was not right for us, we started looking for the right vehicle to help us bring value to the Israeli startup scene and the obvious candidate was forming our own VC. Based on our individual experiences and preferences, we knew it was gonna be different than the classic model we’ve seen all around. The 5eyes VC was gonna be nimble, passionate and heavily involved in the startups it chooses to invest in. We finally found the right model for our company.

Chapter 4 — Choosing a platform

Starting a new venture capital fund is easy, just pour tons of money on one end and connect it to many startups at the other, well, not exactly. To get our fund running, we decided to allow our LPs (limited partners) to join the fund using a syndicate structure, basically inviting them to invest on an ad-hoc basis when we find a company we want to invest in rather then having to commit their money up front. It was good for investors as they could first see how they liked investing with us without commiting for a ten year period (yeah, that is the average time a fund capital is locked), but it was also good for startups as it allowed us to start investing almost immediately without waiting to raise the whole fund capital as traditional VCs do.

Chapter 5– Ready, set, go

Right now, our syndicate is up and running with all 3 fund partners constantly meeting, assessing and due-diligencing (is that a real word?) exciting startups that we feel might fit our investment thesis. I have a feeling the next year is gonna be truly exciting.