The following is an interview with CEO and Co-Founder of Road2 Eitan Kyiet for the MBA Entrepreneurship and Innovation Program at the Technion in Haifa.
Q: Can you tell us a little about your experience as both private and public investor and with the Friendly Angels Club which you co-founded? And what would make a successful investment opportunity?
A: I started working on investments for others, specifically managing a Law firm’s venture capital for large family investments. I learned a lot in those years. What to look at, what people are interested in investing, and most importantly that there is no perfect bride or groom. Meaning there is never a perfect match for an investment.
Once I realized my limitation in investment matching, I decided to leave the firm and move to the corporate world. I worked with large companies like Johnson & Johnson, Lumenis, and working on a startup we later floated on NASDAQ.
At that point, I was able to really start understanding how the corporate world looks at investments compared to venture capital firms.
The Friendly Angels Club was established because of my love of the industry. I was able to meet people who caught the investment ‘bug’ that saw what was going on with Israeli opportunities. We were able to bring a group of people together to start investing in Seed and Round A funding.
The first few times that I invested my own money, either I would overkill on the due diligence, or I would go lighter and trust other more experienced investors that maybe didn’t research enough. It took me a while to balance my commercial understanding on the one hand and the due diligence portion on the other in order to formulate good decisions on whether or not to invest.
Q: I would like to shift your focus to Road2. How did you start it? And how did you choose which verticals to include in this project?
A: Road2 is a very different type of animal than a regular VC. There is really nothing like it in Israel. It’s a private company whose shareholders are NVIDIA and Mati Haifa. It also receives funding from the Israel Innovation Authority, making it a unique PPP – a Public-Private Partnership.
It’s much easier for me to tell you what Road2 is not, than what it is.
Road2 is not a venture capital fund. It’s not just an accelerator, even though we invest in startups through programs to make a significant impact. The programs are used to build the ecosystem in Haifa and develop it as a city that benefits from early stage high tech startups. We use accelerators as an active due diligence tool in our investment decision process.
Road2 was conceived in order to revamp the entrepreneurial character of Haifa. On the one hand, there are leading universities that develop ideas through the student infrastructure. On the other side, there are very large multinational companies, but there is very little in the middle that can grow to become the next unicorn.
We are trying to fill the gap by bringing startups to Haifa.
The best way to describe Road2 is that we are a factory for startups. We are looking at how to wake up the ecosystem and how to invest in companies. It’s not a simple fund that just hears pitches and decides to invest. Rather, we accelerate and work with companies over a period of several months while conducting an active due diligence process, as we look at it through the eyes of a startup.
This is where I rely on my past experience. Startups need three things. They need money, infrastructure, and customers. Road2 has the infrastructure, and access to customers. If our active due diligence is successful, then the customer (the large company) is satisfied and the infrastructure is relevant. Then they (the large company) will invest in the startup, become a customer of the innovation, or partner in other ways.
The desired side effect from this equation is that participants in the programs will inherently help build the startup ecosystem in Haifa.
I’ll give you an example from our energy program. The idea was not to directly approach startups. Rather we approached companies like the Israeli Electric Company, EDF (the Electric Company in France), BAZAN, Johnson Mathey, and others. We asked them to prepare for us a list of challenges that can be solved through technology.
We took on these challenges and advertised them to the startup world so that if a startup or idea can address these challenges, it would receive 3 things from us.
They would get the infrastructure to solve these challenges with AI labs powered by NVIDIA. We’re investing over a million shekels a year in this part.
They will receive additional support from our partner companies like the Israeli Electric Company, which will provide a C-level executive to consult on strategy.
More importantly, startups shall receive design and engineering support to understand exactly what the potential customer really needs. If a startup’s beta trial is successful then the startup would also get a new potential customer.
The moment we have these in place then Road2 can put on its investor’s cap and invest in the startup.
If I were to summarize what Road2 does in a nutshell, it searches for challenges, provides infrastructure, and contributes investments. We create partnerships with global companies from different industries for the benefit of creating a viable entrepreneurial ecosystem. We do all this in the following verticals: Digital Health, Industry 4.0, Smart Mobility, and finally Gaming.
People always ask me, “How does gaming fit into the picture?” We think that games can connect to the training in Industry 4.0 and in the area of compliance in Digital Health. Gamification can make interesting connections and we can also build crossover programs with different verticals with the opportunity to use our AI labs.
Q: Regarding entrepreneurs, what are the important points that they should know when meeting with investors, and what are some of the common mistakes they should avoid?
A: An investor wants to see that the entrepreneur is an expert in their field. So when an investor asks questions, the entrepreneur should know how to provide clear, concise answers. A good entrepreneur should also know what they don’t know. There is usually a list of about 20 questions that we choose from to ask an entrepreneur. From there we dig into the “Whys”.
Why did you choose this way?
Based on the answer- Why choose this direction over another direction?
If we see from their answers that they have analyzed all the angles, then we have a good enough impression that they know what they are speaking about.
Considering entrepreneurs are usually young, they don’t have everything covered. There is no way for them to know the whole market, or the whole history, or all the regulations, all the characteristics, and the dynamics, and the investors, and how to connect to it all.
What’s important for the investor to see, is that the entrepreneur understands that there is information that he doesn’t understand and that they should feel comfortable to discuss with the investor the angles that they are not strong in.
A mistake that often happens is to tell the investor “give me the money, I know what to do with it.” If I hear that, I pretty much shut off and politely wait for the meeting to end and that would be the end of our discussion.
The other mistake is to come to the meeting lacking confidence.
Q: After you meet the entrepreneur and hear the idea, how do you decide the amount of investment, and how do you ask about the investment possibility?
A: Today, it’s really a gut feeling. I’ve been doing this for over 30 years. It’s well known that VCs want to see data about the market and be shown that an idea has a billion dollar market, but for me, potential market size is less interesting. What I’m interested in is the person. The path to success is possible in many directions. So, if you need to, you can pivot and do a hard right turn and then possibly a hard left turn. What we thought was the correct path at the start is very rarely the path that we will stay on and it certainly won’t be the same path when we exit.
So when I choose to invest, I first look at the people, then I look at the technology, and finally, at the market. It’s sort of the opposite of the logical approach, normally investors look at the market, then the technology, and only at the end look at the people.
I don’t know if it’s a better approach than others, however, my track record speaks for itself.
Q: Road2 verticals deal with energy, environment, industry 4.0, and digital health, etc. What do you think is the difference between Impact Investments and other investments?
A: There are 3 things. The first is patience, the second is patience and the third is…patience again. Obviously, all this combines with the understanding of value, because there are a lot of market failures in the world we are living in. The fact that there is a need for impact is a consequence of market failures.
I’ll give you an example that is less intuitive. I come from the pharmaceutical world. There have been many advancements in medicine for cancer and other diseases, however in the last 30 years, not with antibiotics. The market for antibiotics has not changed. Why? Because it doesn’t really matter where it’s made. In the end, it’s being sold for ‘50 shekels’ to the pharmacy and it would cost millions of dollars to open up the market. We see that we are losing the battle against the world of bacteria. If you manage to identify market shortcomings and find clever ways to overcome or exploit them then you’re on a winning track.
At the same time, I saw this and chose to invest in a similar project that would open up the world of antibiotics in a company that has a little bit of a twist. We understood that this company was by itself, and therefore you can really succeed.
It’s the same impact with other industries. With the environment, for example, it’s very easy to speak about carbon emissions on the state level, but very difficult to discuss on the single home side or the neighborhood, as it requires diligence. This is where the opportunities are.
So, when we are speaking about impact, we first look at education, which is the first patience. Once you understand there is good technology out there, you’re able to come with patience, and state funding. One of the enablers of our patience is that we can utilize state funds to test out ideas that are not currently fundable and to mature them into a fundable level.
Q: Thank you so much for speaking with us. Can you leave with a golden tip that you can share with entrepreneurs?
A: There is a phrase that is well known and that I really believe in.
If you ask for money, you’ll probably get advice, and if you ask for advice you may get money.
It kind of returns to how we started the conversion. If you come as an entrepreneur that is very confident, and you know what you don’t know, and you discuss with the investor, you encourage the investor to come and help. If you only come from the perspective that you should just give me money and I know what to do with it. More often you won’t get the funding you’re looking for.