Founder & Managing Partner

Israel is a hotbed of innovation out of necessity. The largest acquisition in history just occurred a couple of weeks ago with Wizz's acquisition for $32 billion by Google. So if you think about venture capital as a whole, we're investing as an industry into the next era of technology. Is that evolution of technology reflected in how we operate as an industry? There's more financial products that are accessible and available for founders where their products are a must-have rather than a nice-to-have.. And those are the things, the nuances are really the most important things that can really transform ideas, people, businesses, companies into things of.

Success. Today on The Deal Table, we're joined by Lee Belel, founder of Lioncrest Ventures, a firm focused on flexible multi-product financing solutions for early growth stage tech companies. He also serves as a partner at Greyhawk Capital, where he spent nearly 7 years investing in and supporting B2B software companies.

Before that, Lieb was the CEO and founder of the Arizona-Israel Technology Alliance, where he built bridges between the US and Israel through M&A, joint ventures, and strategic partnerships. He's been named to the National List of Influential Young Executives and honored in the Phoenix Business Journal's 40 Under 40.

Hope you enjoy this episode. Abe, welcome. Welcome to The Deal Table. Welcome to Old Parkland, a campus you're familiar with. Welcome to the Pig Room, a unique place to do anything, including filming a podcast. In reading about you and learning about your journey, it's really fascinating. And there's so many different interesting aspects to it. You've been a rabbi, a pulpit rabbi. You are an Ironman competitor. You've run high-growth startup businesses. You now run a venture firm. And last but not least, you have 6 children to take care of, the youngest— the oldest of which now is getting to be driving age, which is an interesting time as a parent. I'm well past that, thankfully. But can you just tell us a little bit about this very unique and special journey?

Yeah, well, number one, thank you for having me. It's great to be back in Old Parkland. You know, I'm from the UK originally. My family's from South Africa and grew up in a place called Newcastle, which is the northeast of England, about 80 miles south of the Scottish border. Grew up in a great family, great community. Went for my undergrad and studied in Israel for about 5 years. Got exposed to the ecosystem, the technology ecosystem there. I say I made my best investment ever, and that was marrying an Israeli. Right. And which may return as a 6x, but it's the quality, right? It's not necessarily the number. So I've got 6 wonderful children. My oldest was born in Israel, moved to Des Moines, Iowa in 2011. I was getting my MBA while I was in Israel, and an opportunity came up to serve in the pulpit. And when I was studying in Israel, I was on my own journey, on my own faith journey, and Landed up really starting really from the ground up and exploring my history, exploring my faith, and landed up in rabbinical school. And I didn't have a plan on becoming a rabbi. I'm very community-driven, very focused on the people around me, how I can be a net gain for them, how I can be a contributing factor to their life. And There was a committee from Des Moines that was in Israel, and I was approached and asked whether I would consider moving to Des Moines, Iowa, and I was like, where is that? And it was a synagogue that had been founded in the 1800s, and it was way past its heyday, and they were down to about 42 families, down from several hundred at its peak. And I didn't give it much thought. I spoke to my wife about it, and with a little bit of prodding, I saw this as an opportunity to, again, contribute to the community and go to a city that had a historic past and see, could I be a contributing factor there? And we landed up there for about 5 years, and we left from growing the community from about 42 families to over 100 families. When we left in 2016. So that was my evolution from the UK to Israel to Des Moines. While I was in Des Moines, I finished my MBA. I started a software company called Glimpse there, which ultimately with the timing of my kids growing up and with the position of that company was we needed additional engineers. We ended up moving to Arizona, and that was through an entirely different process. As the timing aligned, I was racing Ironman triathlons. And if you're not familiar with Ironman triathlons, it's a 140.6-mile race that you have 17 hours to finish the race in.

I would need a lot more than 17 hours to finish that.

Congratulations to you. Thank you. I mean, the secret to it is really, it's a life secret and it's really an ethos. It's about step by step. It's not necessarily about getting to the end, although that's my favorite part. People ask me what's my favorite part. It's really finishing it. But it's the discipline. It's the mindset of little bit by little bit, goal by goal. And eventually you get to that destination of where you want to go. And going back to 2015, I was racing in Boulder, Colorado, and I was in great shape of my life. And I ended up having strep on that day. And I found that out about 20 miles into the bike. So it's a 2.4-mile swim, 112-mile bike ride, followed by a marathon, 26.2 miles. And there's 3 letters that most athletes, if any, want to have associated with any race, and that's a DNF, did not finish. And I did not want that associated with any of my races. I finished the race, I cried and walked the entire marathon and I finished it in, my official time is 15 hours, 59 minutes and 59 seconds. So an hour and 1 second to spare. And the only race that was available in the rest of the season was down in Tempe, Arizona. It's the only race I could get into. And at that time of when we're looking at growing the startup, You know, my founders, my co-founders and myself, we didn't want to move to San Francisco or New York or Boston. And we were looking at San Diego, Colorado, Austin, and Arizona. Those are the 4 locations. And Arizona was actually number 4. But I went to visit there and to race there. And I came back and I was like, this is a great place, great quality of life. I've met some wonderful people. And that's what brought me to Arizona. And And that's where I've been since.

I'll just say that there's, there's a lot to unpack there already, but like the DNF, you could associate that with as a, you know, an entrepreneur is like, you know, the whole never quit, you know, the resiliency of having to be, you know, to be an entrepreneur, you have to have that resiliency. And then just like the DNF factor of did not finish, just like not wanting to have that on a label. You know, a lesson we got from Victor Vescovo, he was on here and he was saying like, your first deal is the roadmap for the rest of your career. So if you mess up that first deal, your, your career could be, you know, kaput. So like having that DNF on your record, whether that be racing or as a startup, I think there's a lesson there.

There are so many correlations between athletics fitness, mentality, and startup life. And a lot of it has to do with persistence, determination, the never-quit mentality, and, you know, willing to be hit over the head a number of times, knowing that you're going to have to pivot, going with all those lows that come with the ultimate high that all entrepreneurs strive for.

You talked about community and We ask our guests what are the one or two themes they want people that watch this podcast to take away. And your answer was the importance of people. So serving as a rabbi and ministering to that community, how does that translate into being— I don't think of that as connecting with being in a transactional industry in venture capital.

You know, the way that I see venture capital and I think finance as a whole, and there's many parallels to other industries, is that we are in a time and relationship-driven business. Those are the two key components that drive really everything and anything. How much time do we have available and who are the people that we know that can really culminate in something that is powerful and successful? The relationship side, you can have all the data regarding something, regarding a deal, but do you know the people? And if you don't know the people, how much more difficult is it to be able to get in that door? And maybe I can highlight a little bit of what we're building at Lioncrest that has very much a deep dive into those two aspects of how can we gain time back from manual work and have that larger availability of time to dedicate to the people in order to be able to have those win-win scenarios. So I'm a big fan of servant leadership to be able to provide and be there, be there as a resource. I think it's so undervalued or underfocused of how one phone call, how one email introduction can change a person's life. And those are the things, the nuances are really the most important things that can really transform ideas, people, businesses, companies into things of success.

You are involved in data-driven venture capital. That's a new construct for me. I wasn't familiar with it, but apparently it uses structured and unstructured data to inform your investment decisions. Can you tell me more about that?

Yeah, DDVC, which is data-driven venture capital, I would say is a fairly newer phenomenon originating back in 2000, early 2010s. And I would say it's over the last 4 to 5 years has become more prominent and focused in terms of how venture groups, and I would say primarily much earlier focused venture groups, are come to decision-making in investments in, in early-stage companies. You know, my focus is primarily companies that are at a product-market fit. They're doing about $1.5 million to about $7 million in ARR, annual recurring revenue. DDVC can definitely cater to that because there's, there's a lot of data already established. We can see metrics and understand the health of a company. DDVC is a lot more helpful in an earlier stage in terms of being able to take unstructured data and constantly, you know, being able to scrape various different resources to come up with data that manual work would be a lot more challenging to be able to come up with an unbiased perspective. So DDVC, I'd say there's parts of data-driven venture capital of where you have firms that have in-house data scientists. So if you think about venture capital as a whole, we're investing as an industry into the next era of technology. And if you think, if you take a step back, venture capital traditionally hasn't gone line in line in speed-wise with the evolution of technology. We're investing into the next era of technology, but is that evolution of technology reflected, reflective of how we operate as an industry? Are we still using spreadsheets? Are we still using analysts to be able to try and understand a market size? How big of an opportunity is it? So if you take those in parallel and you try and do what we're do— what we want our objectives to be able to come out with those good investments, best investments in those companies that are transforming data-driven decisions for enterprise. How can that be reflective within our organization with a venture capital firm itself? So data— what data-driven venture capital does, it takes away the bias. If you can be dedicated for taking away the bias, rather, is it a gut feeling? Is it intuition? And I think some of those things are really important. But we as people, we always have biases. You know, if you think about we had a deal that was great and therefore this is gonna be a great opportunity, this is a great market for us. Well, that was one deal that could have been a great opportunity that had great operators. Does that mean that because it's in a similar field, it's gonna, there's gonna be those parallels? So we automatically have those biases. How can you utilize data-driven venture capital, proprietary tech stacks to be able to take those biases away and give us the ability to be able to make make the best decisions possible. With that, I still believe that there's an integral part on the human side of understanding who the management are, which DDVC can actually also enhance that. But as a people person, the people are gonna be a driving factor in decision-making when I'm investing.

So on that, it sounds like, have you seen that movie Moneyball? Yes. So just to make a quick analogy, 'cause I would assume that VCs, private equity, anybody doing any kind of investment, they're always going to be somewhat data-driven. But if I can— what I heard in that is, you know, the old style of scouting, recruiting, that's kind of like the current state of VC or PE world. But then the Moneyball where it's like, hey, we're not— we don't care what they look like, we're only looking at the stats. Would that be kind of a good analogy of what you're talking about?

I would say there's correlations there and there's differentiations as well. If you look at venture firm technology stacks, they are generally, they have generally been pretty siloed and simplistic without being integrated with each other. That gives the best ability to be able to make the best decision-making. With that said, as I mentioned, that's, that is evolving and it's evolving in a pretty quick manner. The last survey I saw several weeks back saw about 50% of venture firms now have components of DDVC within them. And if you go back to 2020, it was about 3 to 5%. So that there is a quick adoption and specifically emerging managers, you know, if you look at legacy firms that have been around for a while, the adoption of change is a lot more difficult. There's many more emerging managers that are understanding the necessity of having these tech proprietary tech stacks to be able to leverage data to be able to make the best decisions. So as you see the adoption happening, some of it is happening within the legacy and traditional venture firms, the other household names, a lot of it is happening as well within the emerging managers.

Within the venture capital universe, Eric Bennett was our guest before you, and he's focused on brain health. And so he's looking at a specific universe subset of the universe, and then he's looking for not Series A or Series B. And so for you, where are you playing? I guess there's size, there's stage, there's industry. Where do you, where does, where, where does your company fit?

So I, I think when we talk about series, the, it's a very gray area. You could have a Series A, I've seen a Series A3 and a Series A4, right? What, what, what is, what does that really mean? You know, my focus is all companies that have about $1 million, $1.5 million in revenues up to about $7 million. And there is in, in annual recurring revenue and there's rationale behind it. It's about understanding the founders, management teams. They've been through a certain cycle, a company lifecycle, and they're on this cusp with data, with metrics behind them to be able to demonstrate that there is adoption to market. They have this product-market fit. And so this would generally be a post-seed to about pre-B or so in terms of revenue, in terms of, in terms of stage that the companies are in., and these are generally going to be B2B AI companies. What was vertical SaaS is primarily focused on, these are companies that have developed software for generally enterprise that are mandated within regulatory and compliance aspects. So we are targeting investing in companies of where their products are a must-have rather than a nice-to-have. And if you think about cyclicality of markets and sometimes budgets going up and down depending on those markets, when there's regulation, when there's compliance aspects, those are mandates of whether budgets allocated regardless of the cyclicality of markets as well.

So within that size range, which is fairly narrow. Yes. And then B2B necessary, not, not maybe SaaS. That's a fairly— you really reduced the funnel. Is it a crowded space? Are you now competing with a lot of people for a smaller number of deals?

I think that there's more funds being established and the more funds that are established, we have generally been in a non-competitive environment. Specifically, we are not running after deals out of San Francisco, Boston, and New York. So very much focused on undercapitalized and underserved geographies in the United States of where there's less competition, a lot a lot more collaboration as well. So just by nature of who we are co-investing with, who we're syndicating deals with, and again, it comes down to the people. Who are the people that are going to push you? Who are the people that are going to pull you? Generally, it's a lot more collaborative, and especially having folks that understand the space, knowledgeable in the space, have the networks, resources to be able to help those companies. It's a lot more complementary than it is otherwise.

So being in Arizona, Does that give you an advantage because you're not on the coast? And are you seeing deals in that geography as opposed to— is it deals that are just because you can originate deals out of San Francisco that may not be San Francisco companies, but are.

You— Yeah, I mean, the companies coming out of San Francisco, I'm thinking to myself, if I get an inbound from them, well, does that mean Sand Hill Road said no to you and then you're reaching out to Arizona, right? I love Arizona. It's the most— it's a great state, great state to raise kids. There's some significant wins within the state like TSMC. They're building a $20 billion fab. You've got Intel there, some great large initiatives happening. I would see it from a startup ecosystem perspective. Now we've got a lot of work to do, but there's definitely been progress. I spend a lot of time in other markets. I spend a lot of time in— obviously I see a lot or most what happens in Arizona, but markets like Salt Lake City, like Austin, like Silicon Slopes. Silicon Slopes, we've named it. Yes. You know, Southern California, Dallas, Austin, Atlanta. There's, you know, you've got about 65% of all capital are non-coast-based capital that comes into early-stage venture growth. So there's plenty of regions to be able to pay attention to. And then I would say something else which is really unique about our fund is that we've got the equity side, we have a debt side as well. And the debt side gives us opportunity on the deal flow side that many firms don't have. So we've got a debt fund and we have an equity fund that have separate portfolios, and there's opportunities to be able to fund the debt side. And some companies grow into the funnel and onto the equity side that we know about and no other venture groups know about simply because We've got that relationship with them, we've financed them on the debt side, and we've got proprietary deal intelligence simply because we've got the funnel that others don't have in seeing a whole plethora of companies that are not seeking equity, but we've been able to finance them. They've been able to get to their growth stage of where equity is now a possibility for them, and we're able to continue that relationship with them on the equity side.

So you're more flexible there. And I think one of the challenges for founders of young B2B SaaS businesses is the dilution effect of bringing on equity. So is debt a better alternative? I mean, I guess it's all the.

Devil'S in the details. So the impetus of a multi-product venture firm was from the realization and the observation that there are many founders that are seeking capital and they're agnostic to what type of capital. They just need capital to be able to get to where they want to be able to get to. The most known resource and financial product generally within tech is venture capital of where they're gonna be taking on an equity partner and they're gonna be diluted. Now, if you think about it, Does that really align with many of those founders? I call it founder alignment, company alignment. Sometimes there are other products out there that those founders don't know about, and there's better alignment within different products. And debt was that number 2 product of where I saw many companies, they were growing nicely, 20, 30%, but they're not necessarily venture-backable companies. Or there could be some other aspects that made it challenging for them to be able to raise on the equity side., but a lot more, a lot easier and a lot better aligned for them to be able to raise on the debt side. So I think there's more financial products that are accessible and available for founders that many founders don't know about, but aligning yourself. When I was seeing those opportunities and those companies, potential investments, and I'm like, this doesn't align with venture, but you know what, there's probably 3 or 4 different introductions I can make for you that you may have not considered and could be better aligned and get you to that destination. And if you think about founders, whether it's the right product or not, do they want to have everything that comes along with an equity partner? And sometimes they haven't really thought that through specifically if they're a first-time founder.

This really resonates with me specifically at this time because like I myself am trying to raise capital and if like, do you want equity or do you want debt? I'm like, I don't care. I just want the cash to be able to, again, take it to the next level. Because for the newer founder, when you don't have any options, maybe you don't have an uncle that has a big piggy bank and you go through merchant, you go through a PayPal and they're like, where when you're taking out these loans that don't even have interest because it's not an interest-backed loan, it's a fee-backed loan. So no matter what, you're paying that high fee and it's, it's not quite usury because I think they skirt the rules because it's a fee and not an interest. But some of these loans that I've seen are, if you do calculate, it's like a 30 or 40% loan for capital. And it's all, it feels very close, similar to like those, uh, you know, payday loans, you know, but for business. And, and I know for me myself, like, I've, I've fallen into that trap where it's like, hey, I can't grow because I have all this high-interest garbage. And then it's like trying to go, okay, where If I need to go to the next level, I need capital. Is that through equity partners or is that through debt? But I, at least in my case, I don't care. And it's funny because some of my, my mentors or advisors, you can almost see them visibly like, you know, cringe because like, how could you not care? I'm like, I'm just trying to get to tomorrow, you know? So like, if I need to chop.

Off an arm to survive, you do what you do. I, you know, these are common comments that I hear, but I hear fairly often. I got an email this morning from a founder who was introduced by another founder that we, that we know well. And he was like, we have an invoice that's gone out today for close to $100,000. It's going to be coming in within 30 days, but we've got this cash flow challenge, right? What do we do? And again, I think coming back to our strategy of being able to best align founders and there'll be a small subset of them that are going to be a good fit within some period of time, not now, for the equity side, 'cause I think many of them are just not aligned on the equity side, or it's not the best product for them. But I think founders having the resources, the knowledge, the network to be able to know that there are options for them. And I know, and I'm sure you can resonate, you sometimes, you know, come to the end of the day, where are we gonna go? Who do we reach out to? And I think a multi-product firm has the ability to be able to best align rather than saying this is the one product that we have, this is what we can offer you and we're gonna take, you know, a chunk of.

Your 5 years' work. And it's funny 'cause like I met a woman last night who was an entrepreneur and she was on this panel and she was talking about how her first venture, back to what you were saying before about like making sure you have the right partner, she did get VC back, but then they started doing their, you know, manipulating and she ended up just walking away from the whole thing because she went to a lawyer and the lawyer was like, look, They've got more money than you. They're going to win this legal battle. We can, we can fight, but they're going to outspend you. So you did it once, you could do it again. So she literally just walked away from her first startup. I don't know the scale of it. I don't know if it was $1 or $100 million.

It doesn't matter. I mean, it was her baby. I think there's definitely a connotation that the venture capitalists can be, you know, can be aggressive. I think that there may be some truth in some areas. I think for the most part, the firms that I work with, the deals that I've been involved with. There's some great people out there, some really, really good people. And again, it comes down to the people. It comes down to the alignment. There's reasons of why you want to continue investing with the same groups, understanding is there alignment between the firms, right? Not just about the, not just the management of the company that you're investing in, but the board, right? The people on the cap table. Is there that alignment? So I think it's really— it's a principle of life. It's like, who are you doing business with? Who are you transacting with?

And with her specifically, like, I mean, the amount of lessons that came through that because she's still fairly young and just like, I mean, because it's taken me a while to get to where I'm at mentally with my business. But like, to me, I would take that as a gift. You're able to— you're still here, you're able to work on the next, the next thing, but you learn this valuable lesson of you know, make sure you read the contract and make sure you fully understand what you're, what you're giving up. So in regardless of if it was malicious intent from the VC, that doesn't matter. The lesson is still there of you're right, alignment and just reading the documents and understanding it.

Have the right people in your corner to surround yourself.

Well, you talked about your journey and from northern England to Israel, you're getting an MBA, and then you're in rabbinical school, and then you're recruited to Des Moines, Iowa, and then you go to Arizona. Where did you gain the skills, knowledge, experience to launch a venture capital? I didn't hear the part where you.

Became— where you got into the business world. So from Des Moines to Arizona in 2000, early 2017, I exited my part of the business to my partners, and I wanted to do something that was a passion project. And I launched an organization called the Arizona-Israel Technology Alliance. The Arizona-Israel Technology Alliance came about through necessity and through demand. I'd become somewhat of a de facto resource within the state of Arizona for initiatives pertaining to commerce, technology, tech transfers between resources, whether it's both in the public and private sector within Arizona and Israel. And so I established an organization called the Arizona-Israel Technology Alliance, which was really a trade association that focused on being that middle facilitator between things that we saw a net gain both for the state of Arizona and Israel as well. Through that time, I mean, we got tens of millions of non-dilutive funding on R&D between different entities in Arizona. We did with the state of Arizona, ASU, ASU and Ben-Gurion University as it related to cybersecurity for green energy initiatives. We led the state's largest trade delegation in Arizona's history outside of Mexico. We took 65 people, including several dozen state legislators to the state of, to Israel. We worked with the Senate to be able to get state funding to open up a trade office in Israel. We led many delegations to Israel. We brought many Israeli companies to Arizona. And there was just a lot of good things happening between the two regions. And some of it had to do with the similarities in terms of topography, the landscape, the challenges within the environment period, you know, in terms of water and water challenges that we have in Israel and we have in Arizona. If you look at semiconductors, a lot coming out of Israel, you know, aerospace and defense, there was a lot of synergies in those areas. And I started to see a lot of deal flow. And a lot of opportunities both in Arizona and Israel. And the more that I looked at it, there was just a lot of information I was seeing that I had the ability to be able to utilize. And so I went and started my own small fund, pre-seed, seed stage fund called Aretz Partners. Aretz in Hebrew means the land, and you had the A and the Z at the beginning and the end for Arizona. And I saw an opportunity within these companies because the nonprofit was focused on really everything and anything, not on the investment side. It all had to do with just collaboration. It could be research and development, they could be grants, they could be customers, right? Customer introductions. And on the investing side, that's where I saw an opportunity and I set out to raise a small pre-seed, seed stage fund. And my attorney on the fund formation side introduced me to another firm in town in Arizona called Greyhall Capital. Greyhawk has a great reputation, been a very successful fund, and I'll even call them the OGs of venture capital, definitely in Arizona. The firm was founded in 1999, and I was introduced to my partner now, Sherman Chu, and who's the co-founder of Greyhawk Capital. And the more that we got to know each other, I met the firm. We initially was introduced more on the opportunity side, on the deal flow side, and we got to know each other, and then they asked me to join them. They were raising their next fund, and they said instead of being a solo GP, why don't you come on over to, to, to Greyhawk? And that's where, you know, I've been since 2018, I believe it is.

Yes. So I want to talk more about, you know, the, the, your process for investing, but I'm curious, what is the state of business and investment in technology in Israel given today's environment?

Yeah, I think my answer will be the same pre-October 7th, '23, and just with a heavier emphasis. Post-October 7th, '23. Israel is a hotbed of innovation out of necessity. The mentality, if you look at the founders of the most successful companies out of Israel, many of them are coming from a unit, from the cyber intelligence unit called the Shmon HaMatayim, which is the 8200 unit. The necessity for innovation isn't an opt-in in Israel. There is an absolute, if you're not taking care of your job and the needs of the state and the needs of the country, then you are literally potentially jeopardizing your family, your siblings, your loved ones. You're talking about a country from north to south is maybe about 6-hour drive, from east to west is in some parts of the country is 45 minutes, an hour. So it's really small that doesn't have the friendliest neighbors either. And the necessity for innovation. And if you look historically going back to, I'd say even the 1960s of when I would say probably the first impetus for innovation by necessity came into place when the French had an arms embargo on the State of Israel. And when the arms embargo, the State of Israel were faced with either we do something in-house and we innovate in, you know, in-state, or we go and find additional partners. And they decided to innovate in-state. And that's probably where the catalyst of innovation out of Israel started and has really snowballed since then, obviously picking up a lot more momentum, you know, in the early 2000s through to today. And so, you know, if you're looking at Israel as, you know, the largest acquisition in history and just occurred a couple of weeks ago with Wizz's acquisition for $32 billion by Google, you know, that's, I would say, a testament to the scalability of companies can get. Now, do I think that's an anomaly? I think today it's an anomaly. Do I think that is, you know, as high it can get? I think people were thinking the same when Mobileye sold to Intel. And there's been several other large multi-billion dollar acquisitions and we sometimes think, okay, that was just an anomaly. But then in a couple years later, another one happens and another one. So I think the innovation by means of necessity will continue. If I see some of the technologies coming out post-October 7th, '23 and how they are being transferred into enterprise opportunities, I'll give one such example of where the need to be able to look underground and see what's happening underground. And the challenges with preconstruction in the United States, you've got large contractors, they don't want to, they've got some preconstruction that they need to do for a large building facility or a housing complex. And there's, you know, there's wires and there's pipes underneath. And if you mistakenly hit one, then that whole project is put on pause for, it could be a couple of weeks, it could be a couple of days, it could sometimes be longer than that. And that puts down, you know, that puts timelines way back. And there was never really the best technology to be able to identify what's happening underground. And with what happened in October 7th, they needed to develop and evolve some technologies that were in existence but needed to be refined. Now that has enterprise opportunities and relevancies for the building market in the United States. So if you think about supply chain logistics, if you think about cybersecurity, defense tech as a whole. Those are industries that have really gone leaps and bounds out of necessity for the type of urban warfare that is, you know, that has been going on, you know, for the last couple of.

Years that hadn't existed beforehand. It's fascinating hearing that because it reminds me about like NASA, you know, like, hey, we're trying to go to space, and then all the technology that would go into, you know, putting a man on the moon, but then all the offshoots that all the, the, the rand— like, why do we need to spend all this money to go to space? It's Well, yes, you have the end goal going to space, but think of all these other technologies that are commonplace, like microwaves or Velcro or whatever. And that all came from— I don't want to say necessity, but the desire to put a man or the goal. So to hear the necessity of innovation for defense, it only makes sense that there's going to be so many offshoots and so many opportunities for for technologies in capitalism as a whole that may not have ever come. Well, it would eventually come, but maybe not come as quickly as it is right now. And it's just a fascinating concept.

And I think one of the beauties of technology coming out of Israel is the impact that it has on the US economy as a whole. You know, many of those companies, when they come to about Series A, they're looking for— they're looking to come to the US, which is the number one market for them to be able to expand. Just the limited market 9 million people in one state and coming, obviously coming to, you know, coming to the United States, the opportunities and the customers that they can expand to over here is significant. And, you know, whether it's going to be the first Motorola cell phone that was the chips developed out of Israel and coming up to today, whether it's Mobileye and driverless technologies and many others, and those opportunities that it has to be able to enhance our lives in the United States. And, you know, the capital, if I'm looking at Israeli companies on the investment side, it's not just the capital going into it, but it's the expanded resources on, you know, from the Arizona-Israel Technology Alliance, those resources, those connections, the ability to be able to help companies to scale over here is, I would say, is twofold. And I think it just has a large impact on, on us as a whole here in the United States.

So I work with, as a sell-side advisor to businesses that are in the range of what you're describing, sort of lower middle market, $10 to $50 million enterprise values. And part of the disconnect is, and I assume you're running into this, is you're sophisticated, you've got a sophisticated accounting firm, you've got sophisticated lawyers. A lot of these founder-led, you know, founder-owner-operator businesses, they're not sophisticated. Relative to a transaction process, bringing on a partner, an equity partner. And so, you know, that's great for, for me as a consultant because I'm able to help walk them through that process. How challenging is it for you on the buy side to work with founder-owner-operators of small businesses that don't have transaction experience?

I knew where you were going with it. I think from the moment you've opened your mouth going in that direction, I think that one of the first senior management roles that we will look at, and generally through diligence, we can very easily tell how mature is this company from a reporting side, how well are their financials in place. And so, you know, there's, there's been times in past transactions of where they would be mandated post-funding to bring in a VP finance, a CFO. I think from a Series A perspective, it's an understanding that they don't have everything in place. And that could be that, you know, the onus is on us to be able to help them and to be able to get that to them to a place of where they've got the systems and processes and reporting in place. So if it was a Series B company, then there would be a lot more concern. If it's a company that's raised maybe seed capital, they're raising Series A capital. That is, I think, a little bit of give and take and understanding it that, you know, companies, they being focused on one thing and one thing only, that's grow, grow, grow, grow. That's where their focus is being. And sometimes a little bit of adoption and adapting to a new reality that with additional capital to be able to help them to grow even further. That mandates additional focuses and resources to be able to help management team or the sales side or the CEO to be able to get to those goals, which would include the reporting side.

Right. Are you making control investments or? No, these are all minority.

These are minority.

Yes. Does that change the due diligence? Is it a lighter due diligence or.

Is it the same? Well, let me ask you, is fiduciary responsibility different if it's a minority or if it's majority?

Your answer. Yeah. Quick answer. How many— when I'm working, talking to private equity firms about businesses I'm representing, they're looking at a few thousand deals a year in some cases, right? And so, you know, they see things in a very orderly construct and the onus is on us to move at their pace and give them the information in the manner. How hard is it for you to get information and to organize in order.

To make that investment? I think each process is different. I don't think there are systematic, you know, easy transactions that happen. You know, maybe in some cases there are, and sometimes it goes back to your original question is like, do they have the information that's really needed or do we need, you know, the analysts to go back and try to reconcile everything in the way that we need the reporting done? You know, this, I think most VCs will say that in the areas of focus where they're investing, they see everything. I don't think that is a true statement. Statement at all. I think once you're utilizing DDVC, that statement can become a lot truer because you're not necessarily biased where you're getting, how you're getting. You're utilizing TexTex to be able to get the deals that really fit the criteria of where you're investing in. So, you know, going back to your question, how easy it is, you know, I don't think we're in an easy— this isn't an easy job. We gotta work hard. You know, I was, I was talking to one first-time founder and he was asking me, well, where do you spend your time? I'm like, there's, there's the deal side, but then there's the fundraising side. And he's like, what do you mean there's the fundraising side? Like, we need to get bringing capital as well to be able to invest. And he goes, you know, I, I hadn't thought about that. Right? So, you know, we go through cycles as well. We go through the fundraising, the deployment, the governance, the exiting, and then you rinse and repeat that over and over again, hopefully successfully. So I mean, I think you always want to be putting in, you know, I'm just obsessed with putting in as much as you can. I'm pretty rigorous in terms of dedicating what I need to. I'm, I'd say, an overachiever. And I don't take that, you know, I don't take the responsibility as being a fiduciary of people's capital lightly. And I think I'll probably overwork most people.

From a rate of return standpoint, our guest earlier today is a VC investor. He's looking for a 20% net return to his investors. I guess that's net of all the layers, any layers of fees. Not uncommon to see VCs focusing on a higher rate of return, 30% or above. I was a wealth manager in a previous life, and the capital asset pricing model, the more risk I take, the more return I want. VC investing in young companies is certainly at the higher end of the risk spectrum. You're raising capital from outside investors. You've got to Buy a company or invest in companies, you know, get a return on that. I'm interested in your holding period and what you're looking for, but what is your targeted rate of return?

What are you trying to deliver back to your investors? So I'm really fortunate to come from a great firm, Greyhawk Capital. They have been a top quartile, top decile fund, you know, since '99 and in majority of, not all benchmarks. And I've set a base case of about 25% net IRR to LPs on the equity side. On the debt side, we are looking at mid-teens, mid to high teens. It's a low-risk profile. And LPs that do come in, they can, you know, they've got a choice of, they could put it in, you know, they could commit to the equity side, they could commit to the debt side. There is an increased higher blended IRR with LPs that put into both equity and the debt side., which would be in the low 20s blended across.

When you're building a portfolio of investments, are you— how many businesses do you want to invest in in order to have a full portfolio? And how are you diversifying them by.

Different segments of B2B SaaS? So on the equity side, we'll have anywhere between 16 and 18 companies, and average hold period is going to be anywhere between 4 to 6 years or so. It could be longer, it could be shorter, you know, venture in the cycles. But those are going to be average hold time periods. On the debt side, it's much shorter. These are 2 to 4 term loans. And we'll have about, you know, anywhere between 20 to 30 companies in a portfolio at any given time. The debt side is an evergreen fund. The equity side is a term, you know, is a term fund. Different taxations as well. So we keep those vehicles separate. And so on the equity side, the average is gonna be, I would say.

Maybe, you know, 4 to 6 years or so. On the debt side, if you're dealing with B2B SaaS companies, they're asset light. You're, there's no inventory, you know, no trucks. You know, you're, you have revenue.

How do you secure your position? So traditional venture debt are generally firms or banks that will come in post financing round and they're underwriting based on the most recent investment, the companies that we're investing in are either cash flow positive, very, very light burn rate, and they've got assets, whether it's gonna be IP, account receivables, you know, cash balance that we know that we have the ability to be able to safeguard, you know, our lending to them. So this definitely means, and specifically I would say as well, that the space that we are, that we play on the venture debt side, most banks will not lend money simply because they've not gone through a recent fresh financing round, although most of them have had investments prior to that.

Right. So for any B2B SaaS business owners that are watching our podcast, what would you tell them are the things that are absolutely essential for you as a buyer when you're looking at their businesses that are, we'll just say, turn-ons, and what are the things you draw a line in the sand and say, we can't go there?

Maybe the virtues are easier to define. Yeah, I would say definitely the most attractive are founders, management who've come from a certain industry and they've had a major challenge within the industry and now they're solving it. They've scoured everywhere, they just cannot find a solution. And they've had, you know, they've got the entrepreneurial itch and say, okay, this is the avenue that we're going because we know that there's a big challenge. That for me is like a big green, like I get excited about that. And then we obviously need to do our research and see what else is in the market out there. You know, in terms of, so in terms of profile, want good people, positive people, don't mind going through ups and downs, which is, you know, every relationship goes through ups and downs. And, you know, like most venture firms will allocate additional, you know, reserves on dry powder in order to be able to, help those companies as they go through additional financing needs. So we're definitely longer-term partners, you know, and we're looking for those people that we can work with, coachable founders, people that are willing to have smarter people around them and, you know, being able to guide them and be open for that. I would say everything, you know, on the opposite side are things that probably are not, you know, people who've just had an idea, they've got the greatest idea on, you know, on earth. If they've been able to demonstrate it with revenues, then we need to take that into account. But, you know, we're definitely looking for people that are willing to, you know, run through the walls, run through the walls and be perseverant, be, you know, knowing that, you know, having full belief that what they're doing is right and can be successful for whatever rationale that they've built up. It could be conviction of product, it could be conviction of market, market size. They've seen it demonstrated in specific areas and there's correlations to what they're doing. But I would say just, you know, be really hungry, be really passionate.

And always be honest. I feel like you're talking to me. So I need to get my attorney to draft my docs. Yeah. You know, go ahead and just dump money into my company. Let's go. Because like, you know, that resilience running through the walls, that's what I'm good at. You know, just keep going. Wanted to circle back though, because the word technology gets thrown around a lot and then SaaS gets thrown a lot. What is it you specialize in specifically? Is it SaaS specifically or is it anything that's tech?

So SaaS as a business model, I think is plateauing and AI usage is increasing. So you're seeing business models are gonna continue to change. I think AI usage is gonna be the business model that's gonna continue growing and SaaS is gonna I think it's gonna plateau. I think there's still good use cases out there for SaaS models. So on the equity side, on the venture capital side, we're focused on companies that are again, B2B focused and have developed software for large enterprise and enterprises within, you know, whether it's fintech, cybersecurity, supply chain logistics, digital health, those would be the probably the 4 big verticals that we pay heavy attention to. All of them have regulatory compliance aspects to it as well, although it's not a must, but those are things that we gravitate towards. And on the debt side, it's a lot more flexible. We've got marketplace, we've got tech-enabled services companies there as well. It's just a lot broader in the ability to be able to lend to those companies. It doesn't need to be as narrow and rigorous than it is on the equity side.

As far as the AI goes, I think I saw 1 in 10 on the planet are on like OpenAI every day or something like that.

Maybe not OpenAI, but just AI in general. There's, I mean, it's, you know, I've been in a number of audiences recently of where the presenter asked for a show of hands, how many about, you know, how many people had utilized OpenAI or just any AI platform over the last 24 hours. And it's always, you know, always surprises me. I would say always over 50%. The most telling one was where there was definitely an older demographic and it was well over 50%. And I think if you think about adoption and generally the older generation are less accustomed to quick adoption. The way that, the way that technology adoption has compounded over the last 5 to 10 years is absolutely staggering to the extent of where you have— I saw 80-year-old hands go up and they utilize it often and they're utilizing it in so many different forms. I had some conversations with them afterwards, but that's the era that we're living in. And if you are not jumping on.

The bandwagon, you're getting left behind. And what's funny about that is on the other side of the fence, I got a call yesterday, a just random discovery call. And her inquiry was, can we help her put a PDF on the internet? And I'm like, ma'am, you can do that right now by yourself. You don't need me. And so I just walked her through how to use Google. And she's like, oh, wow, this is great. I was like, yeah. You're welcome. Now pay me $1,500 for consulting. No, but it was just like, but the other side of it is like how there's still a population of people.

That don't immediately go to, let me Google it. I think Google, I mean, Google obviously developing their own engines, but I wasn't.

Even talking about AI.

I'm just talking about mindset. Right. Right. I mean, I think, I think also depends if you go to rural America, it's going to be different. Than the large metropolises as well. But I think every touchpoint is going.

To be affected in the next couple of years. One of the challenges, I think, or raps against maybe VC is that 4 to 6 year exit, right? You've got investors, they want their money back, they want a return. Who knows where the market will be 4 to 6 years? Could be a terrible market, could be a great market, but don't know, can't control that. May have investments that need more time to fulfill, you know, the expectations. How rigid are you in that? And is that something that is a.

Challenge for Greyhawk, for your firm? Timing is everything. Yeah. And majority of folks that are investing in venture capital understand the longevity of the investment and the relationships that go along with that. And there's different cycles. You can have great cycles or you can have cycles like you've seen over the last 4 years or so, the DPI, distributed paid-in capital, is, is very, very low and in some cases nonexistent. I know that when I've raised capital, currently raising capital, I am very verbal about the cyclicality of market, but where the outsized returns that you can get in venture capital outweigh sometimes the patience that's needed to be able to harvest those investments. So I think communication is absolutely key in letting investors know what your expectations are, what different scenarios and outcomes are possibilities, and having that communication with them. And generally those folks who've been around for a while, family offices, institutions, other, maybe people who've been angel investing for a while, they will they will actually respect that a lot more than you telling them we're going to have, you know, we're going to be able to exit within 4 years or 5 years or 6 years. Now, there are legal mandates within the structure of a fund, right? And in most cases, you have a term fund with a couple of years of extensions possible. And that I've seen that more and more common of where there are extensions by another 1 or 2 years post the typical 10-year fund. Most LPs are not going to want to take full ownership of their portfolio if that term comes up after, call it 12 years, and they're going to be, you know, they're going to need to suddenly be, you know, they need to govern their own destiny within those portfolios. Some of them are normally on the back end of a fund. You've either got some great winners or you've got some of those that refuse to die, right? And so, I mean, you, you funds can go back to the LPs and, and, and get input from them. But I think having those communication conversations earlier on when you're raising capital is incredibly helpful.

Yeah, I guess it depends on your investor mix as well. Having the right kind of investors that.

Have that mindset and understand the issues. Yeah, I mean, just like a company has an ICP, an ideal customer profile, I think it's important that firms like ours has an IIP, an ideal investor profile. Understanding who's your target market, who resonates with what you're investing in, the timelines, the cycles, the verticals, you know, whether they want to be proactive in specific areas or whether they just want to be passive investors. For me, the one, you know, the one must-have is, you know, be a mensch, be a good person. I much prefer to be able to have, you know, have good people that have capital behind them rather than having capital to have schmucks behind them.

So can you put that into your data-driven model?

Minches, not schmucks? I've not tried that yet.

I think that's maybe a first go-to.

No data there out there on that. I don't think they've tagged the schmucks yet. Right. But we do a lot of references on the LPs that we bring in. Most of them are by referrals. So if they come in from good people and I'm a connector, I like connecting people and If I have someone from the get-go that I don't think is a reliable, trustworthy, or good character person, the ability, and they need me to, or they request for me to introduce them to someone else. And if I can't do that in good conscience, then that's not an LP that I think is a good fit for the fund. On the other hand, good people, I want to connect them all day and every day to the right people.

Right. Real quick, just because you said It was interesting, you know, and it was kind of a throwaway comment, but it made me think. You talked about how some funds or some placements, they— investments, they go to the moon and some refuse to die. From a VC standpoint, I mean, nobody wants to lose money, but sometimes you're just like, is that thing going to die off? Like, if it— those refuse to die investments, is it better off that they die off? Or is there always, you know, that.

Glimmer of hope it'll come back? No, I think, I mean, you can get a really good idea from an early, from early on whether they're gonna have a healthy future or not. There's, you know, obviously as fiduciaries of capital, you want to be able to make the best decisions to be able to get the capital back. I'll give you an example of, I'll give you an example of, you know, think about a company that that loses a large customer, call it 50, 60%, and they were valued at X valuation. And in a best case scenario, it takes them 4 to 5 years to come back to that same valuation. Or you've got an ability to be able to get some money, you know, call it 40, 50 cents on the dollar back. Which one is better use of your time as a fiduciary of capital? Do you prefer to take that 50 cents on the dollar and go and reinvest that into a new company? Or do you prefer to try and hope, you know, and pray that year over year they're gonna grow 100% and it's gonna grow into the valuation that you invested in them 5 years back? So that would be an example of like, which way do you go? And I think the former one of get some money back, redeploy it rather than hang onto that company hoping that they grow year over year. So I think each one is, you know, you wanna be conscious of your time. Like I mentioned, time and people are the most important things. You don't want to be dedicating time to a company that is going to be bad for the portfolio. You want to help the people as best as they can, of course, but just to hang on for 5, 7, 8, 9 years sometimes, it's probably not in anyone's best interest. Now, there could be exceptions to it, don't get me wrong, but I think.

Overall, and that's probably the best approach to take.

So you've done 5 Ironmans?

I've done 5 Ironmans, yes. And you have 6 children. I do. So what are the odds that the next time we talk to you, would it be more likely there'll be 6.

Ironmen or 7 children? 6 Ironmen. I could be wrong, but I think it's 6 Ironmen.

Yeah.

You have another Ironman in you? I do.

Okay. I do. Yes. Yeah. I've done the regular course.

I don't— they don't call that Ironman. There's generally that you've got a— you've got a sprint triathlon, you've got an Olympic triathlon, you've got a half Ironman and an Ironman.

So I guess I'm in the— when I did it, which was a number of years ago, it was the 1-mile swim and the 20-something-mile bike and then a 10K.

So 10K is going to be— so that's going to be the Olympic distance. Yeah, right. Yeah, that's generally— it's a 1,500-meter swim.

Right.

I think it's a 25 or 26-mile.

Bike ride and a 10K. Did a few of those. Enjoyed it.

Yes.

I think the last one I did the run, which is the end, right? It's the last event. It was in a location where they had you run, you know, 5K out this road and then run 5K back. There was something psychologically about running back from where I'd already been that was very deflating. But like you, I didn't want the DNF and I wasn't racing against other people. Because there were a lot better athletes. I was working against myself and my time and finishing.

Yeah, that's again, another common theme is, you know, with, I would say, triathlons in sports as a whole is, you know, you are competing against yourself. Who is the best version of yourself that you want to become? You know, on that note, I was racing Galveston probably back in 2012, 2013. I was doing the half Ironman there and they had an out-and-back bike. So you go right along the coast and I had this tailwind going out and I was, could not think about how brutal it is going to be coming back. And about 2 miles before the turnaround, I get this big headwind and I've never been so excited about a headwind because I had 2 miles of headwind and then I had a tailwind coming back as well. And again, it's all in the head, right? All in the head. And, you know, sometimes even in business, some of those things come out of left field. You just— you're not expecting it. And those big, great things happen as well. Sometimes it's circumstances, sometimes it's customers, sometimes it's management, new additions to management teams. But I think always being optimistic, being real, keep your feet on the ground, keep your head on your shoulders, but know that there's some good, good things.

Out there as well. And how you react to adversity, how I react to adversity now at 66 versus when I was in my 20s and 30s, you know, everything was a crisis. Yeah, everything was so important. And it's one of the interesting parts of aging is looking back, you go.

Wasn'T a big deal. Yeah, I'll tell you what, one of the— one of, if not the most important thing I've learned from my partners at Greyhawk is the art of patience. Yeah, and I don't take it for granted.

It is a virtue. It's not a virtue that I have been able to embrace successfully, constantly or consistently, but it is a virtue. And it's now sort of cliché, but living in the moment, being present, and not living in the future and worrying about everything, living in the past and replaying all that. Is challenging. But if you can, if you could master that or even partially master that, I think it makes for a calmer.

Higher quality of life. Yes.

Yeah.

Are you a big reader?

I do.

What are you reading right now? I've just finished Power Law, which is a great book on the history of venture capital. It was produced again in 2022. It's a great read. Power Law? Power Law. Yes, Power Law. A big fan of Adam Grant. The Originals is another one that I think a lot of entrepreneurs would enjoy reading. Sheryl Sandberg's Plan B is another one that she co-wrote with Adam Grant.

But those are my— Have you read.

The Fish That Ate the Whale? Yes, I have. Adam Zemmourai. Samuel Zemmourai. So yes, I've read that book. I've recommended it to a number of people. It's fascinating. Yeah, that would be taking capitalism at its rawest form and his story with the bananas in Guatemala and what he did. And the bananas that we eat today are not the bananas that we had here 50, was it 50, 60 years ago or so? I mean, it was probably like 80. Maybe 80 years ago, but yes, it's a great book.

Well, yeah, because he's the whole reason that you have banana republics. Because he basically— not to recap the entire story, but he was an importer of— he became the biggest banana king. And then he had some issues with one of the— with some of those countries. And then he realized, well, wait a minute, I'm— my, my company is bigger than your country. So maybe it wasn't him, but somebody in his company basically were like, well, we'll just, you know, overturn the country. But, but the other aspect of it was his involvement post-World War II with the formation of Israel. You know, so he, because he had all these boats, he lent— well, I don't know if he lent, but he was— and there's one thing that I love about that book that I was not familiar with was post-World War II, all the embargoes on the Jewish population of Europe, they didn't get lifted. They were still there. So, and they were still being murdered. And, you know, they sent all these banana boats over there, or at least one. And, you know, so some of the first early population of Israel came from his boats. Yeah, interesting. But he wanted to keep his name.

Out of the public because of politics. He was, he was able to overthrow governments. He was, he became, he was the CEO of, I believe it was United Fruit. United Fruit. It's a fascinating story. Someone who come, you know, an immigrant to the United States, came here with nothing, was selling the leftovers of the, of bananas and fruit at the end of of every rail of a railway track, uh, and then he built up an empire. There's so many lessons.

Yeah, it's a great book. One of the things that I was thinking, the reason I want to bring it up was, is there was one moment in that book where in World War II he lost his son to— I think he was a pilot, or his, his son was lost in combat. And then one of the early diplomats from Israel came to him and, and he was just like, well, what are you asking for me? And they're We're asking everything of you. It's like, I mean, I'm not Jewish and I'm not Israeli, but it was, it was powerful. Yeah. You know, like, we want everything. You know, we expect everything. You know, I thought that was a powerful— and, you know, obviously it's a book, so who knows how legit it.

Is, but it was, uh, it was powerful for me.

It's a good read.

Yeah.

But you lit up when I brought it up. Well, hey, we appreciate you joining us on The Deal Paper today. Any final comments?

Any parting thoughts for you? Surround yourself with people.

Yeah. Yeah.

Makes a big difference, doesn't it? I don't want to put a hat on a hat, but the whole— you wanted— you're like, I'm always in either.

Fundraising mode or friend-raising mode. Yeah. Those are two states I think people, you know, I get asked fairly often. So you're raising a new fund? I said, either I am or I'm not, but I'm always in a raising mode. It's either with friends or funds. And I think cultivating good relationships, long-lasting relationships are really the key to many, many good things. And if it's just transactional. I think everyone can be transactional at some point. Not everyone can be elite, can be there over the long run, understanding vision, understanding purpose, understanding mission. And those are things that I think are, when you've got two that align like that, it's just something very special.

Very neat.

Yeah. Thank you for being here. Thank you for having me.

It's been a pleasure.