Why we Should Invest in Israeli Students
Israel was given the title of “the Startup Nation” a few years back and it has stuck ever since. While we hold onto this title with great pride, we have seen a decrease in exits in recent years according to the IVC, No Camels, and other sources. We see fewer exits for larger amounts as larger check sizes are entering the Israeli market at a later stage. There is very little funding in the earlier stages of startups, let alone exit events. This is unsustainable and must change. The reason for this is that we, as an ecosystem, wait too long to invest in innovators.
Everyone wants to invest in serial entrepreneurs and avoid the risks of investing in a new player; yet, someone has to invest in them the first time around. When I say that we wait too long, I don’t just mean that venture capital funds want to see entrepreneurs after they’ve run a company before, I mean that we are investing only in older entrepreneurs. Thus, there is a whole class of entrepreneurs that are mostly ignored, young founders, first-time founders, and student entrepreneurs. At fresh.fund we focus on what most venture capital funds try to avoid, young first-time founders as Israel’s first university-focused venture capital fund. Why would anyone invest in young first-time founders? We argue that everyone should and we do it as an integral part of our investment strategy.
This strategy isn’t so far-fetched; many of the biggest tech companies in the world were founded by students. Google, Microsoft, and Facebook are only but a few of the most famous examples. You might think this is a fluke but for the most part, one startup is responsible for the majority of a venture capital fund’s returns. Imagine if you invested in any of those companies when they were first conjured in their dorm rooms!
We believe that dorm rooms are incubators for change and innovation. These startups aren’t the rare outliers, in fact, student entrepreneurship is on the rise around the world. Companies like Warby Parker, Stripe, and Canva are a part of our day to day lives. Not every successful company is a unicorn and we’ve seen an increase in successful student-run companies reaching multi-million dollar valuations.
This has led to a growing global investment trend of university focused funds like fresh.fund, which have been launched across the globe. Other known funds are First Round’s Dorm Room Fund and General Catalyst’s Rough Draft Ventures, founder-backed Contrary Capital, Alumni Ventures Group and many others in the United States. Not to mention European funds like Asif Ventures and Campus Capital, as well as Rookie Fund in Hong Kong and Text-Book Ventures in Australia.
Part of the reason this is a global trend is that there is no better time to become an entrepreneur than when you are a student. Students are surrounded by a campus full of potential co-founders. Each classmate offers endless potential and their combination can into an entire classroom acts as a “hub” of diverse bright and innovative minds. Every library offers a quiet workspace and many campuses established entrepreneurship centers, which hold open doors and are eager to help. Not to mention, only on campus do world-class experts, also known as professors, have office hours. Students’ unique access to these experts gives them an unparalleled advantage.
Regardless of this being a global trend, we personally believe in not only investing in students but also in Israeli students in particular because Israeli students have unique attributes that help them establish successful companies. One of them is, naturally, their “chutzpah”. The mere nerve to assume that they can succeed and create their own company is something that every founder needs. These founders are still young and coachable as they are in a stage in their life which they are dedicated to learning. In addition, Israeli students are older than their international counterparts and have more life experience and grit through their army experience. They have often led teams, been tasked with the impossible, and faced tough odds countless times before. Furthermore, Israel is a small country with an even smaller job market. As a result, students are very aware of their limited options and are hungry and motivated to expand them. Given that most of the students are already in their early twenties, they are quite ready to launch their careers and refuse to go back and start from zero after having completed their army careers. They have management experience and don’t want to fall to the bottom of the totem pole just because they are recent college graduates. This motivates these students to change their career goals entirely and start their own enterprise. They take the experience they accumulated in elite technological units in the IDF and years of coding, experimenting and developing their own technologies. Often, these founders aren’t actually first-time founders as they founded technological projects in the army, which de facto operates as a “technology hub”, in which they could develop their skills by learning from experienced superiors and fellow colleagues. Thus practicing and perfecting such skill throughout their service. Investing in blue and white is always an honor but as you can see, when it comes to the young, best, and brightest students, it’s also good business.
Every venture capital fund has its investment strategy, and ours is being the first in investing in untapped potential. For the majority of our portfolio companies, we are the first investor they have met. We call it “the friends, families, fools, and fresh.fund round”. By being there first we have the privilege of meeting the next Israeli Mark Zuckerberg or Bill Gates. It’s only a matter of time before Israel has its own college student founded company disrupt the world too. Israel has long been called “The Startup Nation” but there is no reason why that has to start only after founders hit their thirties. The young have always been credited as being the dreamers and change makers. By investing in our students, we believe that they will also be Israel’s next big disruptors.
Aviv Harkov is the Partnerships Manager and Deal Flow Coordinator at fresh.fund. fresh.fund is Israel's first university-focused venture capital fund. It is proudly backed by Pico Partners and other prominent investors. It invests between $20K to $100K in early-stage tech companies founded by students, academics or recent graduates.