By the age of 33, Liad Agmon had notched up two successful exits and a decade later completed the deal of his life by selling Dynamic Yield to McDonald’s for $300 million. Today he is an investor and a little less certain of himself. “Only in another 10 years will I know if I have been a good investor or just a flop,” he says.
He tells “Globes,” why Israel will never be an AI power. “It is a crazy arms race while the country is run by people with personal agendas.” Agmon also talks about raising children who have practically everything and about the fact that emigrating from the country for him is only a matter of time.
Agmon observes that no AI company has been founded in Israel on the scale of OpenAI, which developed ChatGPT, and there probably won’t be. On the other hand, France for example has Mistral AI, which is giving OpenAI a fight. Israel missed the boat.
He says, “Israeli companies have not been able to grab a place in the deep infrastructure of AI and in the world of the large language models (LLM), which underlies part of the AI technology. They were busy with other things, for example corporate software, applications adapted to different industries and of course cybersecurity. The potential has been wasted.
“But the fact that Mistral AI did succeed was because its founders came from the elite laboratories in the field of AI (Google and Meta), and they also happen to be French. Companies that broke ground in the field did so through entrepreneurs who are prodigies in their field – a singularity.”
But Israeli tech has been able to demonstrate singularity in other areas, like cybersecurity for example. In AI there are companies that have succeeded in distinguishing themselves like Amnon Shashua’s AI21 Labs, but not on a sufficient scale.
“We did not have an Israeli Sam Altman (OpenAI CEO and founder). This is a man with phenomenal ability to raise money that ran the company under the radar for four years without pressure from investors to produce revenue. And then when he launched ChatGPT at the end of 2022, he stunned the world. It’s a rare man and a super rare situation.”
“In the current situation, Israeli entrepreneurs need to understand how to ride this crazy tiger called AI. The question is whether they will succeed in developing companies that know how to preserve their competitive advantage over time. If a company develops a product that is below the user interface (UI) layer, it has a ChatGPT infrastructure, so what will prevent a rival from doing exactly the same thing?”
When you say that Israel missed the boat in the field of AI, you in fact relate to it on two levels – the industry missed it because we still don’t have major players in this field, and the country also missed it.
RELATED ARTICLES
Insight Partners appoints Liad Agmon Israel partner
“Israel has missed out big-time in the field of AI. This is a crazy arms race and the country is run by people with personal agendas. AI is a great opportunity and also a great risk, and for that reason that it is the weapon of the future. It is obvious that a country without a high-speed internet infrastructure gets left behind.”
Is the idea of start-up nation still valid?
“Silicon Valley still has a lot of respect for the ecosystem and Israeli entrepreneurs. That began in the 1990s and today we are in 2024. There is a crazy startup scene in the east. In Europe there are strong startup centers. The world has become flat and there are people sitting in villages in India and uploading code to everywhere in the world. So over time Israel’s uniqueness is declining.”
“Sitting on a mountain of money after not investing for two years”
Let’s talk about the influence of the war on the industry. Insight Partners, where you are a partner, is a US fund and the founding partner Jeff Horing has close connections to Israel and so the investments are continuing. But Israeli venture capital funds are struggling to raise money and startups face challenges. The negative sentiment against Israel in the world is leaving its mark.
“The Israeli funds that are trying to raise money from investors around the world are experiencing a major drama, which will directly influence local high-tech, because less money will be invested here. This could be not only because of the concrete risk of the war, but also because of the damage caused to our image in the world. We hear more and more about LP’S (investors in funds) who say: I don’t want to invest in Israel. Maybe I have investors from the Gulf countries, so I want to stay away from that.
“As for the funds themselves, the foreign funds among them who don’t know Israel, could be deterred by the geopolitical sentiment. But there are many like Insight that are physically located in Israel, and they are not afraid of the general sentiment.”
Insight Partners has invested almost $6 billion in Israeli companies in recent years and had had great success with some of them, for example, Wix, Monday.com, JFrog, and Wiz.
“That’s right and what has increased for Jeff, and the fund overall, the connection to Israel is the personal friendships formed with our CEOs and partners in Israel, as well as the fact that Insight made a lot of money from its investments in Israel. It manages to generate significant profits for the investors, so everyone is happy.
“In the last two months, there has been an awakening in the market (which is also evident in the field of exits: this month, three Israeli cybersecurity companies were acquired for a cumulative amount of $900 million, and there was also a report that an Israeli company in Insight’s portfolio, Run:ai is expected to be sold to Nvidia for a significant amount). We are starting to see more companies going out to raise money. Those who went out in the last two months quickly raised handsome sums, as if we were in 2021.”
How do you explain that?
“Venture capital investors have hardly invested for two years, after the high of 2021. They are sitting on mountains of money. And in the end you want to invest and when you see a good company, you say: Oh, finally.”
“Companies are preparing a contingency plan for emergencies”
If we get back to the impact of the war on the industry, we have seen Israeli companies that have moved various teams abroad for a long period to allow continuity at the company.
“Yes. There is a startup that I know that told 12 of its employees, ‘leave Israel and we will finance your stay in a European capital. Move with your families. We cannot take a chance that you won’t be available.’ Because of the escalation on the northern border and concern about national infrastructures being damaged, many startups have built contingency plans for a situation in which they would need to survive without electricity for two weeks. There is genuine fear about this.
“I unfortunately live with the awareness that my grandchildren won’t grow up here. From my perspective Plan B (emigration from Israel) is happening. The question is when.”
Are you doing anything about it?
“I am Israeli and my wife is Israeli (the TV presenter and producer Shaily Shindler), my children are Israeli and we love living in Israel. Our roots are here. To be an immigrant is a tragedy.”
What is the red line after which you say ‘I’m leaving’?
“At some point life here will become so unbearable that we’ll have to make a decision as a family whether we stay or not. When will that be? I don’t know. Humans have a psychic ability to adapt. You probably know the story about the slowly warming frogs. A big part of my family perished in the Holocaust. They were heated over a small fire and they didn’t notice until it was too late. I think every Jew has a collective trauma of the Holocaust that makes him ask: when is the moment when you have to pack your bags and escape?
“If before October 7 we still said: we will live with all the fratricide and politics, suddenly the external threat becomes more tangible. Sometimes people simply act out of panic.
“Do you know the number of employees that I employed over the years that relocated to the US and they didn’t come back. About 5%-10% of my employees over the years no longer live in Israel.”
As somebody in contact with people abroad and who even studied at an international high school in Italy, Agmon identifies anti-Semitic sentiment abroad. “The antisemitism erupting now around the world, although it does not extend to the good people in Israel, but I do feel that we are partly getting it because of the government that we elected. The government does not think about Israel. It is pushing the high-tech engine towards the abyss. After this there won’t be anything to share out.”
“I am not the person you would take to develop the next OpenAI’s algorithm”
Agmon also speaks about the challenges he faces as an investor. “In venture capital funds almost all the profits come from 10% of the investments. It’s frustrating, because your damage ability is low. Success is catching the next Wiz, the next monday, the next Wix, when they are small.
“For example, I have been a professional investor for the past two years. Only in ten years will I know if I was a good investor or not. Maybe I am a flop.”
When I interviewed you in the past you were a young entrepreneur, 33 years old with two exits under your belt. Onigma and then Deliver. Nine more years passed and then you completed your most significant exit when you sold Dynamic Yield to McDonald’s for $300 million. Your biggest concern was that as you get older you and became 45 you would become less relevant. You are 47, so how do you see things today?
“I think I’m less sharp than I was in my 20s. I’m probably not the person you’d take to develop the next OpenAI algorithm, because there are 22-year-olds faster and smarter than me. But what makes up for my decline in speed and mental acuity is the more experience and abilities and more softness in my personality.”
Are you still afraid of being irrelevant?
“Yes, I’m still afraid of it. But when you talked to me 14 years ago, the fear of losing relevance was also related to financial anxiety. The fear was that no one would want to hire me and I wouldn’t be able to make ends meet. Fortunately, I made enough money, so I have been freed of that fear.”
After earning such major amounts, from where do you get the hunger to continue working?
“This is a real problem. It would be easiest for me to found another startup, but if I did that it would be an escape, it would be to do the same thing. I’m trying to develop in other directions. I lead groups and give retreats, which are a combination of meditation and group sharing. It’s work of body and mind. The complete opposite of high-tech.”
Regarding hunger for success, how do you instill this hunger in children that have everything on an economic level?
“The great advantage we have as parents is the emotional resources and the free time we have to devote to the children. We don’t have to tell the child to choose between tennis and the piano. I can give him both. But in the end the spark has to come from them. I try to give them the playground and in the end they will take the direction. Of course when they grow up, I will help them with rent, but there is time.”
So maybe don’t help them with rent.
“These are real questions. I didn’t have these problems, because I didn’t grow up with a lot. But it’s definitely something you think about as a parent. How supportive are you and when do you say no, and why not? Anyway, my kids don’t live with an awareness that we are rich. My child gets fed up that if he wants to play Fortnite, first he has to read.”
In 2020-2021, Insight Partners was the most prominent investor in Israel tech industry, elevating several companies to “unicorn” status, such as Wiz and Lightricks. But Startup Nation Central reported at the beginning of the year found that Insight has declined from funding 40 investment rounds in Israel in 2022 to only 11 in 2023. A few months ago, the “Financial Times” reported that Insight’s new 13th fund managed to raise a few billions, much smaller amounts compared with the past.
“What happened is that the best companies all over the world, including in Israel, raised a lot of money in 2021 and in the first half of 2022, and they simply weren’t out to raise money,” Agmon explains. “In 2023, I think you can count on two hands at most the number of good Israeli companies, which are growth companies, which went out to raise money. They had money, they knew that the market was in a difficult situation and the values would be lower, so they just waited. In the near future, the market is going to get very hot and Insight is super-active in Israel.”
Talking about the 13th fund, Agmon says, “It will probably won’t be as big because the market has changed. In high-tech, investments are for the long term. You don’t look at a year or two and say, ‘something here is broken.’ Since 1995 there are not many entities in the world that have produced the kind of returns we have shown. As someone who leads the investments in Israel, I feel confident in the continuation of our investments here.”
What are the parameters you look at when looking at investing in companies?
“First and foremost, the company has to pass a threshold that indicates that it has Product Market Fit. That is, the product has a market and customers who are willing to pay for it. To test this, you have to talk to customers and ask them, for example, why you chose this product and if you replaced a previous product with the company’s product. If the company doesn’t have 15 customers that I can talk to, it’s probably too early a stage for us to invest. There are customer retention metrics that are even more accurate than talking to customers like ‘gross retention’ and ‘net retention’. They look at how many of the customers stayed with you over time and for every dollar you have at the beginning of a period, how much of it is left after a few years. Regarding ‘net retention’ it could mean that 20% of your customers stop using the product in a certain year, but the existing customers increased their spending by 40%.”
Published by Globes, Israel business news – en.globes.co.il – on March 31, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.
