Israel’s OurCrowd Uses Hybrid Crowdfunding Model For Private-Equity Investing

Josh Wolff, right, Executive Vice President, founder and CEO Jon Medved, center, celebrating a $72 million C round in June 2016.

JERUSALEM, Israel – What’s the best way to describe Israeli private-equity finance company, OurCrowd? How about online dating for accredited investors.

Well, that’s how Josh Wolff, OurCrowd Senior Vice President, Global Operations, described it to 20 journalists who were in Israel in June for Cyber Week, an Israeli tech fest at Tel Aviv University that was the brainchild of Israeli Prime Minister Benjamin Netanyahu.

“We created a venture capital fund that is a hybrid of crowd funding,” said Wolff, a Boston native, who joined OurCrowd last year after more than 20 years of executive management experience focused on operations, technology, and infrastructure. The “hybrid” part is accredited investors can invest their money in pre-vetted startups alongside VC firms and angel investors. Underscore the words, accredited investors.

OurCrowd, despite its name, isn’t like typical crowdfunding deals that let anyone with a few extra bucks invest in a business and hope for the best. In the United States, the definition of an accredited investor is someone who earns $200,000 a year or has a net worth of $1 million excluding his or her primary residence. While the definition varies by country, the common denominator is the minimum OurCrowd investment is $10,000.

So far, about 20,000 accredited investors in 112 countries have joined OurCrowd. Their money – $440 million – has been invested in 120 startups, culled down from more than 6,000 that applied. The net result to date has been 13 exits, two Initial Public Offerings and eleven acquisitions.

“You need to invest while a company is in its early stages or you miss out on the big return on investment,” Wolff said. “We think our hybrid VC fund is a better way for startups to get funded.”

Wolff pointed to a chart projected behind him on a screen and notes that 15 years ago, only one tech company was ranked in the top five VC-backed corporations in the world. Today all five on the list are technology companies, he said. So cutting-edge technology is OurCrowd’s sweet spot. All sectors of technology. The company is even looking at bleeding edge stuff like Elon Musk’s Hyperloop One, a Los Angeles company that is working to commercialize the Hyperloop for moving passengers and cargo at airline speeds at a fraction of the cost of air travel. 

Just last month, OurCrowd begun expanding its financial and strategic reach past accredited investors. On June 22, the Israeli company launched OurNetwork, a strategic collaboration that gives multinational corporations the chance to eyeball its tech startups and participate in its phenomenal deal flow. In return, startups gain exposure to more than 200 multinationals, plus a host of mentors, industry experts, and OurCrowd’s 20,000-member investor base.

But is OurCrowd unique to Israel? Wolff thinks not. He said it can be duplicated elsewhere. Michigan perhaps?

“It’s a little different model than what is typical here,” said Jody Vanderwel, a board member of the Michigan Venture Capital Association. Vanderwel also is one of the managing partners of Grand Angels Venture Fund II in Grand Rapids. “I’m not sure the result is any different from what VCs do here now. Due diligence. Skin in the game. Mentoring. OurCrowd also uses limited partners as part of the due diligence process.”

Vanderwel said as Michigan VC funds have grown and raised more capital, the number of limited partners has grown as well. But she said she is not aware of any Michigan-based VCs actively recruiting investors from outside Michigan or nearby Ontario, Canada.

The OurCrowd model, Vanderwel said, is more akin to the multibillion dollar venture funds you find in states like California, she said. These funds seek investors from around the world.

In comparison, Michigan has $2.4 billion under VC management, according to the latest MVCA report. The average amount of Venture Capital under management per firm is $96 million. While the average VC fund size is $50 million.

While she’s uncertain the OurCrowd model would work in the state, Vanderwel said Michigan investors should be vetting the same Israeli cyber startups embraced by OurCrowd.

From the perspective of the state of Michigan, I suspect there are some great opportunities to co-invest with companies in Israel,” Vanderwel said. “They have great expertise in cybersecurity. To work with them and learn from them would allow their technology to benefit Michigan companies. We ought to be working hard to build those relationships. I’m sure there are folk here trying to do just that.”

This story was written by MITechNews.Com Editor Mike Brennan who spent a week in Israel as a guest of the Foreign Ministry to find out first-hand why Israel has developed hundreds of cyber security startups. He attended the 7th Annual Cyber Week conference at Tel Aviv University.