Israel, also referred to as the “Startup Nation,” possesses one of the most active and innovative startup ecosystems globally. Not only does it have the most startups in the world on a per capita basis, its entrepreneurs are way ahead of the curve when it comes to building products that people need.
You may not know it, but every time you use an Apple product, utilize Google’s navigation tech, or even insert an innocuous USB drive into your laptop, you’re benefiting from technology developed in Israel. Little wonder that the ecosystem raised US$3.6 billion in funding last year, helping investors gain 50 percent on each dollar invested.
That’s the opportunity equity crowdfunding startup iAngels hopes to expand. The site is trying to equalize the playing field for global investors by helping them get a slice of the action and providing local Israeli startups better access to capital.
Built by experts
iAngels was founded by Mor Assia and Shelly Hod Moyal, both of whom have a finance and technology background. Mor graduated with an MBA from Columbia Business School and worked at IBM prior to launching the venture. Shelly’s a graduate of Northwestern, with previous jobs in Goldman Sachs and UBS. They believe their combined experience serves them well when it comes to building networks, scouring for the best deals, and building a product that resonates with angel investors worldwide.
“We were motivated by the challenges faced by entrepreneurs and investors worldwide,” explains Shelly. “We saw […] promising Israeli startups raising seed capital in Israel and then flying all over the world to find additional investors. We also saw investors […] wanting to invest in Israel but not having a professional vehicle […] and we felt there’s got to be a better way to connect the [two].”
Despite the robust investment space in Israel, Mor says there are still hurdles that prevent entrepreneurs from securing seed capital.
Angel investors in the country are usually entrepreneurs who have successfully exited from multiple startups, as well as high net-worth individuals who’ve made their riches in real estate, finance, or other verticals. There are also a number of ‘micro-VCs’ looking to invest anywhere between US$500,000 to $1 million in seed rounds.
But the traction needed to successfully close a seed round remains high. The startup must already be revenue positive, have customers, proven concept, or engaged in deeply futuristic tech that requires substantial amounts of capital to scale up.
“In general, the capital available for early-stage startups has increased, but this does not mean its easy to raise seed rounds,” Mor adds.
High quality deal flow
For investors looking to sign up to be a part of the network, the process is fairly simple and straight-forward. But that belies the frenetic work that takes place behind the scenes to ensure only the most promising startups are selected for investment.
The first stage in iAngel’s vetting process is its exclusive list of 30 ‘lead angels’ who refer companies back to it. The angels have been identified after research and analysis of all the mergers and acquisitions as well as IPOs that took place in Israel over the past decade. Shelly explains their research indicates that top quartile angels in Israel generated 80 percent of financial returns, hence presenting a “compelling opportunity” for a co-investment model.
In addition to the recommended companies, the iAngels team also keeps a close eye on emerging startups by attending community meetups, trade shows, accelerator demo days, and other networking events. On average, they analyze between 100-120 deals every month, and accept only two for investment. That’s a rejection rate of over 98 percent.
Investors also have to meet one specific criterion, although it’s not nearly as exacting as the ones portfolio companies are subjected to. Individuals seeking to co-invest have to be accredited investors in the country they’re based out of. For example, in the US, this means they must have US$200,000 in annual income or US$1 million in investable assets. Exact standards vary by country, but there is no other requirement.
Most investment activity has originated from the US, Hong Kong, China, Canada, Germany, and Australia.
To ensure there’s maximum value for both investors and founders, iAngels deploys two models in parallel. The first one is the ‘portfolio model,’ where investors commit a certain amount of capital that will be assigned automatically once a startup has been approved by the investment committee. After that round, the startup extends the deal to the rest of its network of investors, who then evaluate the offer on their own metrics and decide whether to invest or not.
The minimum amount of individual investment for each deal is US$10,000.
Since launch two and a half years ago, iAngels has facilitated 50 investments and deployed nearly US$17.5 million in investor capital. Two of its portfolio companies have already been acquired by bigger players. Big Blue Parrot, a social poker application, was bought by online gaming giant Playtika, and MyRoll, an intelligent photo organizer, was acquired by AVG.
Mor adds that they haven’t had to write off any investment yet either.
The startup itself raised US$14 million in series B funding led by Australia-based Thorney Investment Group in March. It doesn’t take any fees from entrepreneurs but does charge investors a 5 percent ‘administrative fee’ after each round closes, along with additional costs based on performance.
The investor community is spread across 40 countries.
Every investor has access to a personal dashboard which contains a comprehensive profile on their investments as well as updated information on how portfolio companies are performing.
Shelly explains that they’re in the process of building a ‘secondary market,’ where existing investors and portfolio company employees can sell their shares within the iAngels community.
In some ways, iAngels also strives to act as a business accelerator. All portfolio companies go through monthly feedback sessions where topics like strategy, fundraising, and customer acquisition are discussed. Furthermore, because its investor network is made up of over 4,000 people in 40 different countries, iAngels is able to leverage these numbers to help entrepreneurs.
Shelly does predict eventual consolidation in the equity crowdfunding space, mainly due to a ‘proliferation of platforms,’ but says iAngels is well-positioned to weather the storm. She says only those startups that are able to deliver value to investors will prevail.
“This is why we chose to create a platform that looks after the investors interests, provides high quality deal flow, reporting, and transparency. Standardizing these processes and creating best practices in angel investing is a big part of our mission.”