INNOVATIONS: ‘Start-ups are not for pessimists’

‘I have always preferred to look at my successes and examine why they worked. It’s the successes we tend to take for granted, and that’s a mistake,’ says Pitango’s Chemi Peres

The goal is to create something innovative,’ says Peres. (photo credit: courtesy)
The goal is to create something innovative,’ says Peres.
(photo credit: courtesy)
The reason that Israel has become the ‘Start-up Nation’ is that the country itself is one big start-up,” says Nechemia (Chemi) Peres, cofounder and managing general partner of Pitango, Israel’s largest venture capital firm, with total funds reaching more than $1.3 billion.
Peres, who began his VC career after spending a decade as a pilot in the Israel Air Force, understood early on that foreign markets were critical to a small country with no natural resources.
“In this respect, the Israeli model differs from others,” he says. “It is one based on the need to invent itself – to survive in the physical and other kinds of climates.”
When he left the military – at age 28, married and with a son – he became a senior consultant to Israel Aerospace Industries and vice president of marketing and business development at Decision Systems Israel, a leading company in the defense industry. His military experience had involved years of observing, learning and adjusting to technological advances. So these positions were a natural fit and provided a smooth transition into civilian life.
But Peres, the youngest son of President Shimon Peres, was itching to “venture” – both literally and figuratively – into the hi-tech world.
“Capitalism means making money,” he says. “But in Israel, money is not the goal. The goal is to create something innovative.”
Indeed, says Peres, “I had always known that I wanted to find a way to combine creativity and industry, while also contributing something to the country. I saw that what Israel needed was economic independence and strength. But [rephrasing Rabbi Elazar ben-Azaria’s Talmudic adage] ‘If you want the Torah, you need the flour.’ In other words, what was missing was the financing.”
It was thus that Peres established the Mofet Israel Technology Fund in 1992. It wouldn’t take long, under his management, for Mofet (the Hebrew word for “exemplar”) to go public on the Tel Aviv Stock Exchange.
Four years later, in 1996, Peres co-founded Pitango with hi-tech venture capitalist Rami Kalish. At the time, Kalish had been managing Polaris, among the first funds in the Israeli government’s Yozma initiative to encourage VC investments in the country.
The two VC trailblazers, who had separately been investing in Israeli entrepreneurship for years, joined forces to create Pitango Fund II. Managing to raise more than $100 million, Pitango II invested in 35 hi-tech companies. Some were partially funded by another Israeli VC firm, Eucalyptus Ventures. When the investments proved successful, Pitango II and Eucalyptus merged into Fund III in early 2000.
Pitango Venture Capital Fund IV followed in 2004, and in 2007, Pitango V.
In 2010, with the support of the government, Pitango established the first fund in the country geared toward the Arab sector, called Al-Bawader (Arabic for “early signs”).
“The process of Israel’s becoming a start-up nation was slow and steady,” Peres says. “Other countries began to notice that Israel’s main resource was its talent, with hardworking innovators all over the place. More and more foreign companies began to set up their research and development facilities here.”
With so many “hardworking innovators” cropping up, how does Peres know which ones are a good investment? “I have to see that entrepreneurs who come to me know what they’re talking about, and I weigh their ability to achieve their goals,” he says. “I also have to know what the market is for their innovations and who could constitute their competition – the risk involved, the effort required in terms of money, time, tools, manpower, etc.”
He also points out that while innovators used to be thought of as “drop-outs” – like Facebook founder Mark Zuckerberg – “now they are considered young people building a career on a track that didn’t used to exist.”
This, he says, has led to an even greater explosion of innovators seeking investors.
Another contributing factor, according to Peres, is the lack of fear of risk.
“Israel is a country of new immigrants,” he says. “And new immigrants, by definition, take greater risks. There is also the fact that everyone here serves in the army, which certainly involves risk-taking.”
But he sees a more spiritual side to it as well.
“There is definitely a ‘Light unto the Nations’ aspect,” he says, “of setting an example for the world; of daring; of realizing a dream.”
Regarding his own successes at recognizing opportunities and seizing them, Peres uses an analogy: “In life, there are many ‘train stations.’ The world is filled with tracks, and we try to map out which ones will get us to our desired destinations. Sometimes we are on the right tracks, sometimes not.”
Still, he says, “There are many ways to progress. Some people learn better from their failures.”
His advice to young entrepreneurs? “Start-ups are not for pessimists, but they’re not for optimists living in a dream world, either,” he says. “You have to be positive and a realist.”
Reprinted with permission from ISRAEL21c.