More than half of the Australian firm’s investments are tied up in Israel, but they are looking globally
While it has become common to see venture capitalists from abroad set up shop in Silicon Valley, plenty have done the same in Israel with little fanfare. One of those venture outfits is Square Peg Capital, busting onto the scene in the early 2010s out of Sydney. They have expanded around the world with Melbourne, Boston and Tel Aviv as bases of operations.
Square Peg invested in Tel Aviv-based Fiverr in late 2013, precipitating the outfit’s push into Israel.
“Could we become a player here? What would it look like? Could we fit into the market?” Dan Krasnostein, Square Peg’s partner in Israel, tells Geektime from the offices of e-commerce startup Feedvisor.
He’s been with the firm since 2012, but landed as the firm’s rep here in October 2014. He works with fellow partner Arad Naveh, a 10-year vet of Cisco who was previously with another VC.
“By dollars close to half are in Israel,” Krasnostein says of his company’s investments. “As a global mandate we have no pre-defined allocation of where we expect our money to go.”
That might also reflect the trend among other venture capital groups to see Israel as a must-have market. A few firms have shut down their Israeli-dedicated funds of late, shifting operations to their general funds which tend to make the largest and latest investments in many companies’ portfolios. Sequoia shut the door on its Israeli operation in 2016. Naveh made the switch to Square Peg when Benchmark Capital closed its Israel offices in 2010.
Square Peg also counts investments in New Zealand, Singapore, and the United States, including a handful of Australian transplants working out of Silicon Valley offices. Jerusalem smartwatch company Glide and health-monitoring startup LifeBEAM (HQ in NYC) also round out their Israeli holdings.
The team has a broad approach, with Krasnostein saying it wasn’t what it looked like, considering we were having this interview at Feedvisor. They aren’t focused solely on e-commerce, and largely only avoid life science investments.
They have a stake in Aussie design darling Canva, Singaporean travel engine Wego, and have a piece of Australia’s answer to Uber GoCatch. Their seed rounds have given way to leading several mid-stage rounds like the $60 million Series D funding round in Fiverr, Feedvisor’s $3.5 million Series A, LTG Exam Platform’s $5.25 million Series A, LifeBEAM’s $16 million Series A, and led a $17 million Series B in cyber upstart UpGuard this past August.
G’day vs. shalom
“I think Israeli founders are generally more technical, [as in] more technical founders than in Australia. It’s not surprising given where the education comes from,” Krasnostein notes.
He acknowledges Australia’s startup ecosystem isn’t nearly as advanced as Israel’s, but it has advantages Israel might not. Krasnostein points to banks being good at adopting technology and being thorough to investment and acquiring new companies.
“I think the other thing Israelis do which Aussies could be doing more is thinking globally from Day One. I can’t imagine there are a lot that don’t think that [in Israel],” he posits. But Israel’s launching pad mindset, which sees startups look at markets abroad from the day of founding, highlights a peculiar problem in a place like Australia.
“Very rarely can you create a big enough market just with Australia, but it’s big enough to get caught there for a very long time. Moving becomes a second priority,” he says.
There are some 23 million people in Australia. Professionals in the Aussie startup ecosystem like to compare itself to Canada (35 million), which is another large English-speaking country with an advanced free economy and strong universities. But Canada is right next door to the colossal American market, often times a drive of just a few hours from New York, Boston, Chicago or Seattle.
Paradoxically, Krasnostein plugs Australia as a gateway to Asia for foreign startups on account of the strong relations the country has with its neighbors to the north and China. Asked if travel time and distance between would-be investors and potential portfolio assets is a deterrent to more international venture capital, Krasnostein thinks the modern world was too small to let that inhibit people from abroad.
“You know, I think it’s less of that to be honest.” Australia has its share of free-thinking and ambitious founders who can pull off the moves necessary to scale. That attracts attention from abroad. “Entrepreneurs are generally tenacious, hardworking creatures — ambitious creatures. I don’t think there’s anything structurally that’s going to impede things in Australia.”
In the meantime, Israel has a unique set of factors making the ecosystem develop like a pressure cooker. The results have been clear in pulling talent and investors from abroad to experiment with the scene, with more likely on the way to learn how to import Israel’s particular innovation culture back home.
“The culture here is very different. But in someways that’s part of the exciting thing. Israel is my focus. It’s personally exciting for the Australians. Israel is the yardstick.”