The ‘accidental Israeli’: Fund manager finds investors for startups in the Jewish stateby dan pine, j. staff
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Daniel Frankenstein is a proud, passionate Zionist, but that’s not the reason he made aliyah three years ago. The U.C. Berkeley grad moved to Israel to make money.
Looks like it’s working out according to plan.
As co-founder and managing partner of Janvest Technologies, a U.S.-based micro-cap venture fund that invests exclusively in Israeli startups, Frankenstein found a way to pair his love of Israel with a drive to succeed. He calls it “doing well by doing good.”
These days Frankenstein, 30, divides his time between Israel and the Bay Area, where he grew up. He says Janvest appeals to a niche investment market — and a relatively small one at that.
“I saw in Israel a gap,“ Frankenstein says. “Israelis could raise friends and family money of a few hundred thousand dollars to get started. But then the venture firms would not get involved until they could put in about $4 million. In between, there’s not a lot going on.”
Frankenstein and his partners seized on that in-between market, appealing to investors eager to bet on the startup nation but who didn’t have millions to play with.
“Because we’re U.S.-based and only work with non-Israeli investors, everything is done in the United States,” he adds. “We provide investors with the opportunity to buy into an Israel-only pre-IPO technology portfolio.”
The advantage, he says, is that his investors are absolved from any potential tax or legal liability in Israel.
Janvest (http://www.janvest.com) so far has invested in four of a projected 10 Israeli companies it plans to fold in to that fund.
Though for privacy reasons he will not divulge the names of Janvest companies, Frankenstein describes their innovations. One is in the field of security authentication: The company devised a system for analyzing keystroke and computer mouse usage to create a new kind of user “thumbprint.”
The technology is used to spot internal fraud, he says.
Another Janvest company has developed a mobile phone app that warns users when the phone is pumping out a potentially harmful level of radiation.
In all cases, Frankenstein, CEO Felix Zilberstein and vice president Gerry Sapir (both Israeli) as well as American-born managing partner Brian Rosenzweig, are anything but silent partners.
“We’re involved with the founders,” he says. “We sit on the boards of all the companies, and we are active in management.”
Frankenstein was practically born into the investment business. His father, George Frankenstein, is a veteran San Francisco investment and stock broker with Credit Suisse (and served on the former Jewish Bulletin’s board of directors).
The younger Frankenstein grew up in a strongly pro-Israel household, and contemplated a life in politics when he enrolled at U.C. Berkeley. Business ultimately trumped politics, and as an economics major he took classes at the Haas School of Business on the Cal campus.
He sharpened his pro-Israel views there, at a time when the second intifada raged.
“I was on the student senate and president of my fraternity,” he says. “Israel was right in the mix. I found myself on the senate, with Israel as a huge issue. It gave me an interesting opportunity to be a voice for the pro-Israel community in a place where that’s not easy to do.”
After graduating in 2004, he took a job in Washington, D.C., as an analyst with the Corporate Executive Board, which provides corporate executives with best-practice research, tools and templates.
Four years into his tenure there, he approached his bosses with a proposal.
“I asked, ‘Why don’t we do business in Israel?’ ” he recalls. “‘I’ll put together a business plan. All I ask is that you read it.’”
He did so, and at the end of 2008 moved to Israel to get the CEB’s Israel office up and running. “Sometimes I call myself the accidental Israeli,” he says. “I am a Zionist, but I went to Israel because I’m a capitalist.”
Frankenstein spent the subsequent three years working with CEB clients such as Teva Pharmeuticals, Bank Hapoalim and Bank Leumi. He found that being an American had its advantages. “In Israel, the American business ethic comes with a lot of cachet,” he says. “So it definitely helped.”
In time, he says, he discovered that “the most exciting part of Israel is not necessarily the large organizations, but the startups, the emerging tech companies, the pre-IPO companies a fraction of the size of the companies I was working with. I decided to leave the Board, because I felt there was a big gap in the market.”
He and Rosenzweig (friends from their younger days as AIPAC activists) launched Janvest to close that gap.
The Janvest team’s American members not only help reassure U.S.-based investors about the risks and rewards of investing in Israel. They help Israeli entrepreneurs when they come to Silicon Valley seeking funding.
“We are the face of these companies in the U.S.A.,” Frankenstein says. “The challenge is [that] all our entrepreneurs speak perfect English but they don’t speak a word of American. These are young [companies]. They don’t need a fancy algorithm; they need people who will roll up their sleeves, help them develop their product and sell it.”
And when one of those companies eventually entertains a profitable buy-out, even in a short time frame, it’s time to pop the champagne.
Frankenstein says the venture capital industry generally seeks exits — bizspeak for selling one’s company for maximum profits — that reap at least $100 million. That, he says, amounts to around 1 percent of all exits.
Critics of Israel’s startup industry say Israeli entrepreneurs tend to exit too early, missing out on potential fortunes. But Frankenstein and his partners felt they could turn this to their advantage.
“We made a calculated decision that we would not play in an overcrowded field. We wanted to be in a market nobody was playing in. Early exits can be a profitable event for our investors.”
Frankenstein and his wife, Israeli journalist Erielle Reshef, are back in the Bay Area for a while. He plans to work with investors and potential investors, persuading them that Israel is a good bet.
Then, he goes back to Israel, though undoubtedly he’ll keep traveling. Sitting still does not seem to comport with the life of an investment fund’s managing partner.
Says Frankenstein, “I should pay rent to United Airlines.”