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Liron: I like founders who are trying to solve a problem that they have personally — it can be in their family too. They’re facing some kind of a challenge, they don’t find the solution, they don’t find a product that solves it, and they say, okay, I’m going to find a way to make this problem go away for myself. What usually happens later is that as soon as they do that and find a solution, they find out that there’s a product-market fit — they’re not the only ones with this kind of a problem.

Host: Hey everyone, in this episode we speak with Liron Rose, also known as the investor in Israeli unicorns. He’s a serial entrepreneur and venture capital investor with a few unicorns under his belt — his portfolio includes companies such as SimilarWeb, Kenu [name uncertain from the audio], Dynamic Yield, Fiverr, and many more. He’s the co-founder of AfterDownload, a company he grew from zero to $30 million in revenue in three years; in 2013 he sold it to IronSource for $28 million. He’s the founder and CEO of Techstars Israel, the local branch of the prestigious global tech accelerator, and he does business consulting for global companies helping startups that are raising capital.

Host: So Liron, welcome to Real Life Superpowers!

Liron: Hi guys, nice to meet you guys online, and very happy to be invited to your podcast.

Host: Awesome. So what are you up to these days?

Liron: So these days I’m looking for specific startups in specific fields that can become the new unicorns of the next decade, so to speak. I’m not looking for traditional, more-of-the-same kind of startups — I’m looking for startups that can produce some kind of a magical return, because they tend to be a little bit on the fringe side of things. I’ll call them “fringe startups,” because they’re not mainstream, but if those startups manifest and those technologies do happen, I’ll see exceptional returns on my investment.

Host: How do you decide what are the unicorns, if everything right now is an opportunity — because there may be too many disruptions in the market?

Liron: I totally get what you’re saying. We’re going to see interest rates staying at zero for a long time, so that means you’re not getting any return whatsoever on cash balances or on bonds, and that forces investors to take higher risks and go to riskier assets — stocks, real estate, private equity, startups, tech companies, new ventures. So in that sense, yes, the market is a little bit different than what it used to be, because the price of money — the interest rate — is zero, and the market is flooded by liquidity.

Host: Flooded by liquidity, exactly.

Liron: One thing that is somehow a way out of this — and I’ve been watching this vertical for many years, and it’s booming again now — is the entire blockchain and Bitcoin industry. We see Bitcoin at an all-time high, and that’s some kind of an alternative to mainstream investing. We see companies such as PayPal, Square, and MicroStrategy putting hundreds of millions of dollars into Bitcoin and blockchain. Some of this is a hedge against money printing by central banks; some of it is more a conviction that cryptocurrency and blockchain is the future of fintech. I guess it’s a little bit of both.

Host: Do you mind if I challenge you on that?

Liron: Sure, go ahead.

Host: Okay, so this is how I see it, and I really want to see it in a different way. There will be different dips in Bitcoin or in cryptocurrency — there’ll be a high and there’ll be a low, and I think it’s actually done really poorly as an ICO concept, and everybody criticized it by being financially incentivized. What will happen is, because we’re printing money and doing really bad things with the economy — which is a flawed concept at its basis — it’ll blow up in its face, and then, because no one came up with any other idea, we’ll say okay, we’ll go with the cryptocurrency, even though that’s not thought through, and it may become new money just because we’re too lazy to think of anything else. But that’s not the problem — the thing is, I’m asking this as a VC: don’t you see that the opportunity isn’t with the companies that there are, but with the companies that aren’t — meaning, once Amazon or Facebook or any of those give out their own currency, none of this is relevant, not Bitcoin, not Ether, or anything else. So isn’t the opportunity not just hedging on Bitcoin, but actually helping those economies — because that’s their endgame, after governance of the economy — they own everything, and they’re just waiting for the right opportunity.

Liron: Well, it’s hard to say. I mean, I’ve seen research done by some of the most serious institutions in the US, including Fidelity, Deutsche Bank, and JP Morgan, and their analysts have proven that having some sort of allocation — a single-digit allocation — to Bitcoin makes sense, because it has zero correlation to other assets. Right now I don’t know what the future holds, but I can tell you that if more and more institutions start to believe that Bitcoin or Ethereum are good stores of value, and those networks are stable and cannot be hacked easily — and Bitcoin has a history of 12 years of not being hacked — the more institutions go into this… And as time goes by — we had a Bitcoin halving earlier this year, so fewer and fewer new Bitcoins are being minted by the miners, so we have an anti-inflationary asset here, which you can store value with. It’s comparable to physical gold, but in some senses it’s even better than gold, because you can send it in a similar way to a wire transfer, to another person, to another company in another country, and you don’t actually have to transport physical gold bullion. So you have a store of value that’s anti-inflationary, and the number of Bitcoins that will ever exist is already known, so we know how many Bitcoins are in circulation and it cannot be more. The user base is growing by anything between 30 to 40% per year, so the more people use it, and the more people who believe in it and hold some of their portfolio in this asset class, we’re going to see the price going up, because there’s a short supply and higher demand.

Host: Got it. And Liron, I want to circle back to your request for finding a unicorn, and then I also want to touch on how you reached where you are today. So first off, what do you look for — how can a startup at an early stage know if they’re on the way to becoming a unicorn? And obviously nothing is guaranteed, but what are the indicators?

Liron: So it’s kind of impossible to know that, but there are a few common ways of analyzing the opportunity, and I think the most important factor in a startup is the team. The team has to be exceptional, and when I say exceptional I mean that at least one team member — and I don’t really like startups that have only one founder, it’s usually better to have two or three, and it’s even better if these people know each other for a while, and have not met at some kind of a meetup two weeks ago, but have known each other for a few years, and maybe even have previous experience working together as a team. Because, you know, they’re going on an expedition that’s going to be anywhere between seven to ten years, and they’re going to spend a lot of time together — so if these guys cannot stand each other after a couple of months, the startup falls apart. So we need people who can work with each other.

Host: How do you know if they can work with each other?

Liron: You don’t really know, but you’re trying to see the dynamics between the team — you try to look at their body language, to see if they agree with each other, if they argue too much. They don’t have to be the same — you don’t want founders that are clones of each other, you want founders that are complementary to each other. And you want at least one of them — preferably all of them, but at least one — who is a huge talent, an outlier — someone who is exceptional at something, two or three standard deviations from the norm. A very talented technical guy, way beyond — a very talented, gifted CTO who can be an X-factor, or someone with exceptional leadership skills, or somebody with exceptional marketing or business-development skills. But when I say exceptional, I mean something that’s way out of the norm — you need some kind of an X-factor, because the chances are so slim anyway.

Host: On the team side, which is really important — how would you build the correct team? Meaning, I understand the X-factor, but when you’re looking at it, it’s usually the leader — doesn’t matter if he’s the developer, he has the X-factor, okay, but that’s obvious. The other ones — how do they support them? What are you looking for, when you’re imagining what would be their stick in their wheel?

Liron: Okay, so what do they have to be, right? So first of all, it doesn’t necessarily have to be the CTO who is the X-factor — it can actually be the CEO, who is a very charismatic person who can raise a lot of money, because usually one of the main reasons startups fail or close down is when they run out of money. And if they’re close to running out of money, or if their runway is too short, then it’s up to the CEO — CEOs in startups have two main responsibilities: one is hiring the right people to the company, and the second is making sure the company doesn’t run out of money. Now, for the company not to run out of money — if investors are saying no when you’re trying to raise an additional round, and everyone is saying no, and you see your cash balance going lower and lower every month, you probably need to pivot your startup and come to the market with a new pitch, because investors are not believing what you’re actually saying — they think the potential is not big enough, and they’re refusing to invest. So a charismatic leader is usually another X-factor.

Liron: But let me turn back to technology, because I think the unicorns of the next ten years can come from technologies that don’t exist yet. When I started my career — and this is to your question — I started my career with startups and investing, as an entrepreneur, when the internet first showed up in our lives, about 20 years ago. So I started in online marketing.

Host: Was that your first job, or did you first work for someone?

Liron: No, it was a job — it was an online marketing job, in an online gaming company, about 20 years ago, and no one had a clue about this field at all. I studied management economics, and then I did an MBA, and I was supposed — people like me were supposed to go and work in banks, or in marketing, or business development of some big companies — and no one had a clue what this “online thing” was. But I was passionate about the internet when it first started, and I was lucky to be there as a pioneer. And I think this is always the same, when new technologies appear — you need to be first. So if I was there as a pioneer for online marketing, you know, the people who are now into — just as an example — drones, or electric vehicles, we’re underestimating the rate of change of certain industries. We don’t have Teslas in Israel yet, we might have them next year, but as soon as electric cars such as Tesla start to hit the roads here and capture more and more market share — five, seven, maybe ten years from now — it’s quite likely that most cars on the roads here in Israel will be electric. It’s kind of hard to imagine that now, because we see a hybrid car here and there, it’s hard for us to estimate how fast things go. Another example is the iPhone — if you look ten years ago, we all had Nokias, generation-one mobile phones, and at some point the iPhone version one showed up, and some cool people had them because they were a little bit more expensive.

Host: You also couldn’t bring them to Israel — like, I remember I had a flight attendant bring one in for me.

Liron: Right, they were prohibited, right? And then each year, these smartphones captured market share at the expense of traditional mobile phones, and now everyone has smartphones, even little children from the age of six. So the same can happen to other technologies, which we think are kind of far-fetched now but can become more mainstream. I can give you a couple of examples — quantum computers is one of them. I’ve seen VCs investing in quantum computers — these are computers that are not fully operational yet, maybe Google and some universities have them — but if these things, and it’s not an “if,” it’s probably more of a “when,” start to become more mainstream, and they’re going to be produced on a larger scale — not a mass scale, but a larger scale — we’re going to see a revolution in computing. These things are probably orders of magnitude stronger than the strongest supercomputer we currently have. So that’s an entire revolution, if that’s happening — the AI revolution that everyone’s talking about is going to speed up in such a way that we can’t even imagine. So that’s one example. And we’ve seen other examples with medical cannabis, which used to be a street drug a few years back, but now medical cannabis, and even recreational cannabis, is totally mainstream.

Host: Yeah.

Liron: And these companies are in the stock exchanges, both in the US and in Israel. I think I’ve read that — I think it was Oregon — just approved psychedelic medicines, back in the US there’s an entire revolution going on there. I think I’ve read about Peter Thiel — Peter Thiel has invested a hundred million into a startup that’s researching psychedelic medicine. So things that used to be drugs are now becoming mainstream — as soon as the doctors say “yes, this has a medical use,” things get reclassified, and then you have an industry such as cannabis becoming mainstream, becoming a vertical in itself. So these kinds of trends that you see evolving from zero, that start as fringe, and people don’t believe them, and they say “this is nothing, it’s not going to influence the world” — sometimes these things become huge.

Host: I definitely agree — everything, I agree with the computers and cannabis and everything. The problem is the timing. Like, the electrical cars — we had [Shai] Agassi in Israel trying to implement it, and he did the education, and Tesla will take the reward. You know, Steve Jobs got the Windows from Bill Gates, and he got the reward, and each time we have these stories about education. So the thing is, as a VC — and this is what you’re doing also, successfully — is trying to go in once it’s after the education of the market, but it’s still a trend that’s booming. Bitcoin, if you take it for example — investing in 2008 and investing in today is a totally different thing, and they’re both right, right? So how do you differentiate that — it’s like something that’s evolving business-wise, and not as a concept?

Liron: Yeah, so take Bitcoin as an example here — of course, if someone was a friend of Satoshi and invested in Bitcoin, when you needed maybe like 20 Bitcoin to buy a pizza or something, and you kept those Bitcoin for ten years, you’re probably worth a hundred million dollars now or something like that, if you were one of those early miners. But I think there aren’t too many people like this, and trends gain momentum, so I think it’s good enough — you don’t have to be the first, or among the small minority of fringe pioneers, but if you adopt the technology early enough, that’s good enough to benefit from. Just to give an example here — if you invested in Bitcoin in 2015 or 2016, which many people have, you’re way ahead with your investment, probably 10x or 20x over your investment now. So you didn’t have to be one of those weird people who started this in 2009 — you could have heard about it in the news in 2015, and said to yourself, “yeah, this is interesting, I’m going to do this.” And I think it’s the same for every technology — I think you have to be early, you don’t have to be first, you just have to be early enough.

Host: That’s the hardest thing, I think — like, as a VC, this is something I always wanted to understand. You’re managing so many investors — okay, so you’re wrong till you’re right. You invested, let’s say, in a few things, and you have your portfolio — and you’re always wrong, wrong, wrong, wrong, for so long, till you’re right. How do you manage that? Because they were looking for ROI, and you’re in front of the entrepreneur — you have to help them on one side, and you have to give ROI back. So how do you manage that?

Liron: So first of all, I’m not a VC — I invest my own capital, I don’t manage other people’s capital, so I’m not boxed into this seven-year cycle that VCs have. VCs usually have a seven-year time horizon, and they have to enter their positions and basically sell them, or exit, after seven years. I don’t have that, because I’m managing my own capital — it’s permanent capital.

Host: But you still have to believe in yourself — how do you explain it to yourself?

Liron: The more I’m doing this, the more modest I become. I’m not doing a ton of investments — to be honest, I get a huge deal flow, I get approached by many entrepreneurs and founders, and it’s all about the selection process, about reviewing a lot of companies before making a decision. I think what I’m looking for, when I do early-stage, pre-seed, or seed, is those one-in-a-thousand outcomes. If I give you an example from poker — I’m trying to go for a straight flush or something like that, which is very uncommon, and probably I’m not going to get that, but if I do, then I might hit 100x or 500x return.

Host: And talking about that — success rates — you had a very successful exit. Was this your first company, or did you fail before?

Liron: No — this was actually my second company, and it was acquired by IronSource a few years ago. No, I didn’t have that failure yet, but what I did have is many startups that I went into as an investor that didn’t make it. I’ve had at least five or six companies, probably more, that I came in as an investor and [they] failed. So I’ve seen many failures, actually, as an investor.

Host: So you were saying that the company you sold to IronSource was the second startup you started — what happened with the first one?

Liron: The first one was actually a one-man-show company — I said I started my career with online marketing, it was a one-man-show company in online marketing, running search engine pay-per-click ads. I used to do that even before there was Google AdWords — there were other search engines doing pay-per-click before Google even existed, so that’s 15 years ago. Not too many people did that, and the market was so much less competitive than it is today in terms of bidding. Google AdWords or Facebook ads are so mainstream today — everyone advertises on those platforms — but 10, 15 years ago, it was an innovation. People were advertising in the Yellow Pages and in newspapers, and no one even knew what a Google ad was. That was the time to do it, because the profit margins on online advertising back then were high.

Host: How did you find customers?

Liron: I started with affiliate programs. I was selling mostly online software — all you had to do was sign up to certain platforms that were aggregating software companies and providing their reseller affiliate technology, and basically use the links and advertise those. I’m oversimplifying this, of course, but that’s how it was. And by the way, this industry is still there — it’s even bigger than what it was back then, but the profit margins are smaller.

Host: And by the way, why did you love it — did you like it because it was self-reliant, like you’re making money out of something virtually, or because you can just get out of something, affiliate and get it — like, what excited you about it, what caught you?

Liron: Back then, it was one of those businesses you could start on your own as a freelancer, a one-man show, and being self-reliant, you could reach a scale and grow this business at rates you couldn’t in the real, brick-and-mortar world. To have these kinds of revenues or turnover, you’d probably have to have 50 stores — like a franchise of 50 shops — to make the revenues you could make over Google or these other search engines.

Host: So why did you stop?

Liron: The margins actually started to decline a while back, about at least ten years ago, and that’s where I came up with the idea that I should do something that would endure for a few more years at least — and that was the start of AfterDownload, the company IronSource bought. I saw the margins decreasing year after year, and Google’s policy becoming more difficult to handle every year, and I thought it’s probably better to launch a company that’s not reliant on these giants — and that was the startup, AfterDownload.

Host: Did you have co-founders with this, or was it still solo?

Liron: No, no, no — we had a team of three, the three of us co-founders. We didn’t have too many investors, actually — only had two investors, which didn’t invest a lot of money. It was mostly a bootstrapped company. It grew quite fast — I think we went break-even in about six months or so — and then the company grew at a very fast rate.

Host: What was special about the team?

Liron: Well, I don’t want to give too many compliments to myself, but I can give some compliments to my co-founders, which were exceptional — I think we were a good team together, and the hiring process was pretty good. The entire team, or at least the core team, was like a family — everyone was handpicked, and I think the results prove that. It’s never easy to scale a company from three founders — I think we went all the way to 50 before we were acquired, and these days IronSource — they’ve managed to take this to the next level, I think they’re about a thousand people now. So growing and scaling a company is always a challenge, and it’s a different sort of challenge — scaling a tiny team to a medium-sized company is a different challenge altogether than scaling a medium company to an international conglomerate.

Host: Was it scary, scaling it?

Liron: No, I don’t think so. I was in charge of cash flow and finance.

Host: As you did a great job — we know the cash flows, that’s a hard job, man.

Liron: Thank you.

Host: I think you’re probably very good at mitigating risks, because you put yourself in very high-stakes situations, but it sounds like during the entire journey, from what we’re hearing, even though there were very high-stakes situations, somehow the risk and the downside wasn’t high — it sort of contradicts, but still —

Liron: I think you’re right on the ball here, Noa, I think you got it. It’s true that mitigating risk is — you want your upside to be unlimited, but you want to protect your downside, just the way you said it. I always, in my entire career, tried to do this. In the last few years, my strategy was not to be entirely exposed to startups and tech, but to diversify into other asset classes, such as real estate and more of the stock market. You want to be in a position where you don’t have a single point of failure that can collapse the entire building, especially as time passes and you accumulate some successes — you want to mitigate the risk of losing everything, you don’t want to be in that scenario. It’s a little bit like buying insurance — you sacrifice a little bit of the upside just to protect the downside. I think risk tolerance in general is different between people — people manage risk in different ways. I don’t consider myself a risk-taker, although in other people’s eyes I might look like one — I’m trying to maximize the outcomes from particular situations while protecting the downside. I think, as Warren Buffett said, the first rule of business is not to lose money, and the second rule of business is not to forget rule number one. So yeah, you don’t want to lose too much — I mean, obviously you can lose a little, but you don’t want to lose too much.

Host: You sound to be really good at thinking about different scenarios and fallbacks, because strategically, also in this conversation, you’re very calm, and it sounds like in everything that you’ve told us — which is really impressive — you’re saying it with humility. You always had kind of a thing where you think other people perceive you as risk, but you always had this fallback, or plan, or something — like you took the poker thing, the royal flush, but at the same time you gave the example of not building on the royal flush, and hedging with Bitcoin. So it sounds to me like one of your big skill sets is not only mitigating risk, but just planning out — like, if it would happen or not happen, if it doesn’t happen, have a plan. You’re like the plan guy.

Liron: Well, it’s — yes, you can look at it in such a way, or, yes — it’s not just fallback plans, it’s actually spreading your risk over various uncorrelated sources of income.

Host: How do you do that — uncorrelated sources — how do you do that, like, what’s the — how’d you learn that skill?

Liron: Well, it’s not something that I don’t think you learn in university, or —

Host: No, but you found out you have it — how did you find out?

Liron: Well, it’s something that I think you can pick up from books — there are good books on this. I would say it’s probably also a matter of personality — some people are high rollers. I’ve met more than once people who have made a million dollars or more, whatever, and lost everything, and then started from scratch. I’ve met these kinds of people who can tolerate that. And then there are also other people who are more confident in more stable situations — all they want is their salary to increase by five or ten percent every year, and that’s enough for them. So those are the two extremes, and every person is somewhere on this line, from one extreme to the other. I would say I’m probably more to the riskier side than the average person, but I’m not a total risk-taker — I always want to play it safe, because I think if you lose $1,000, or $100,000, it’s probably more painful than if you make $1,000 or $100,000 — the pain of losing is more than the enjoyment of winning. I think that’s been proven over and over again by people like Kahneman and Tversky — these researchers — and Dan Ariely, and these guys have proven, many times, that you want to avoid losses, because losses are painful, and if you can avoid losses while sacrificing a little bit of the upside, that’s okay.

Host: What advice do you have for entrepreneurs?

Liron: I always like founders, entrepreneurs, who try to solve a problem that they have personally. I don’t — it’s probably not the right way of saying it — but, you know, trying to solve the transportation problems in Sweden —

Host: Right, I mean, probably — this is not something you’re facing as someone who lives in Tel Aviv, you’re probably not — this is not a dilemma that you kind of face personally, on a day-to-day level.

Liron: So I like founders who are trying to solve a problem that they have personally, or it can be in their family — they’re facing some kind of a challenge, they don’t find a solution, they don’t find a product that’s solving it, and they say, okay, I’m going to find a way to make this problem go away for myself. What usually happens later is, as soon as they do that and find a solution, they find out that there’s a product-market fit — they’re not the only ones with this kind of a problem, there are more people on the planet facing the same problem, and if they found a good solution… I can give you an example for this: monday.com — this unicorn that’s worth now, I don’t know, two, three billion, whatever — they started as some kind of a small startup. I think their name was Pulse, and they started this project management tool just for internal use, I think it was internal Wix use, and then it was a spin-off and became an independent company — that was even before COVID. And then all of a sudden, it looked like the entire world needed some kind of online collaboration tool to make teams work together online, and the market is huge. But when they first started, all they wanted was to solve this little problem of how to make remote teams within the company work together — so they solved it for themselves, and they just discovered that the market is basically infinite.

Host: We get this a lot, and I think it’s superb advice. I’m not going to let you off the hook without telling us what your superpower is.

Liron: My superpower? Yes, I don’t know — I guess I would say that I rely a lot on my intuition. I’m a little bit of an analytical person, and I do analyze, but eventually, decision-making is something that comes from the inside, so I rely a lot on intuition, on how it feels — gut feeling, basically. It’s not that I can prove I’m better at this than anyone else, but it still probably makes me feel good, and the outcomes so far have been good, so I rely more and more on this. And as time goes by — and I’m in the middle of my career now — I tend to see that the times I didn’t trust it, and I did some kind of a deal anyway, but I had this feeling inside that something was wrong, it was a red flag — I should have listened to that kind of internal voice, intuition, and walked away from the deal.

Host: I’m sorry, I have to help you out, because I think your superpower is lying in exactly what you just explained — the superpower and your “fault” — because I think approachability is really strong. I think you’re very trustworthy, and I think you’re approachable, meaning I would advise people — and I’m not saying this because I know your track record — but if you’re their investor, it’s someone who’s a confidant and will help you, in a simplified way, and with humility, which is hard to find. I’m sure that’s the reason a lot of people want to work with you — and it’s using your intuition too, saying that sometimes you have mistakes, which is very rare and respected for someone who has those wins behind him. This makes me understand why people want to work with you.

Host: And if people have a unicorn on their hands, how can they find you, to pitch you?

Liron: It’s very easy — they can look me up on Google, just look for Liron Rose, L-I-R-O-N R-O-S-E. I have a website, a landing page, or they can find me on LinkedIn or Facebook — just Google the name, and you can find either an email, or send me an email, or just approach me on LinkedIn. I’m usually very reachable.

Host: Superb, thank you so much for giving us your time, for speaking with us.

Liron: Happy to do this, thank you for inviting me, it was a pleasure.

Host: Awesome, and lots of life with your next unicorn — we believe in you.

Liron: Thank you so much, thank you, bye-bye.

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