One thing that can't be said about Draper Fisher Jurveston (DFJ) managing director Jennifer Fonstad is that she doesn't know how to take a risk. She is one of the most powerful women in Silicon Valley, and she will now represent DFJ on the joint investment committee with Tamir Fishman that will be set up following Tamir Fishman's link-up to the DFJ network, announced this week.
"I'd say that any investment is some kind of adventure," Fonstad says in an exclusive interview with "Globes" marking the newly signed partnership with Israeli VC firm Tamir Fishman. "There's no doubt about that. Some end successfully and some less so. It's not science."
Fonstad's words have to be looked at in the light of her life experience, part of which is a year spent teaching in Kenya after she finished college. After that she moved to Eastern Europe, working on turning state-owned companies into private ones, after the Soviet bloc crumbled.
There, during a visit to Moscow, Fonstad underwent an experience that would have taken aback even Israel venture capitalists, including the combat pilots and former Sayeret Matcal reconnaissance unit soldiers among them. Fonstad almost became part of the sad statistics of Western citizens kidnapped in Moscow in the mid-1990s. Only her and her companion's presence of mind (and a lot of luck) brought that adventure to a happy end after they jumped from a moving vehicle in Gorky Park. "There are certainly a few personal criteria involved in the ability to take a risk in making investments like these," Fonstad says by way of agreement with the proposition that it takes a personality somewhat more adventurous than the average to be a successful venture capital investor.
DFJ itself has a profile different from that of most Israel VC firms. Most of its senior managers have backgrounds in finance and consulting, rather than in the high-tech industry itself, where most Israeli venture capitalists come from. Fonstad herself, apart from her experience in Africa and Eastern Europe, completed an MBA at Harvard Business School, worked for Bain and Company, and joined DFJ in 1997.
"In Silicon Valley, and in other places around the world, no-one in venture capital has the same background," she asserts. "In this field you'll find journalists, bankers, consultants, technologists, medical doctors, lawyers, and people from many other professions. Success in entrepreneurship comes from the ability to identify new patterns of behavior and new industries, and that ability is unconnected to any specific profession. In our firm, for example, there are people with backgrounds in consulting who learned at a very early stage in their careers how to identify changes in patterns in the industry very quickly."
But how do you find people like that? How, for example, did they discern in you the ability to spot trends in the industry after work as a consultant and an MBA?
"I think it's a bit like taking a risk on an entrepreneur. You check out his background and talk to him to see how he thinks about opportunities and problems. There is also a certain philosophy at the firm, and they want to see that a newly-recruited employee share that philosophy. The fund can succeed or fail on the basis of how this philosophy is put into practice, something that depends on the ability to rely on the partners. It's not just a matter of understanding their ability to decide on making a successful investment; it's also a question of how they fit into the organizational culture. There's no way around it, it's more art than science."
DFJ's timing in choosing to enter the Israeli scene is a little odd, a long time after other prominent funds such as Greylock, Sequoia, and others, and at a time when investments in Asia and Eastern Europe are growing. Fonstad explains that entry into Israel was on the agenda for a long period, but that it didn't happen because the fund failed to find suitable partners. "We had talks over several years with potential partners in Israel," she says.
The transformation of DFJ into a global fund happened at the end of the 1990s. The firm made its first foray into investments in the East, in Europe, and in Israel via a fund called DFJ ePlanet. After the first fund ended, the firm began to work on the model of a network of local funds. Fonstad did not see investments in the East as preferable to investments in Israel. "Our investments in Israel and China date from about the same time, from the beginning of the decade," she says. "There's no doubt that a lot of dollars are going to investments in China, but China is a very large economy and with a lot of people. Entrepreneurship is an international phenomenon, and successful entrepreneurship in Israel has a long history, so I think that people will continue to invest in Israel regardless of what happens in the East.
"Investors like investing in teams that know how to develop businesses, and there are quite a few good entrepreneurs and businesses in Israel. I imagine that there is far lower risk in teams that have already done it once in Tel Aviv, compared with the emerging markets, even though there are quite a few attractive things there."
What does the fund look for in a company in which it invests?
"We invest in people. The teams in Israel know how to build companies and how to identify technologies that can change an industry, and we're looking for those people in Israel."
Fonstad is an enthusiastic devotee of the "green wave" sweeping over venture capital investments that of course finds expression in investment in cleantech companies. DFJ has a respectable portfolio of companies in the field. Its latest green investment was actually in an Israeli company Arnold Goldman's Luz II via its US parent BrightSource Energy, Inc.
Fonstad doesn't intend to stop there. "I think there are several areas in the Israeli market where green energy investments will pop up. Areas like water filtration, in which Israel leads the global market, or new water systems relevant to supplying clean water, a problem the whole world suffers from. I think we'll see a few interesting technologies emerging in this area. One of our companies, for example, Greenfuel Technologies, is working in Israel to develop a biofuel system. Israel also has a very advanced academic set up in this area, so I believe we'll find interesting investments."
Another field that DFJ invests in intensively is nanotechnology, a field that not many funds have yet dared to enter. "There are nano applications relevant to cleantech, for example molecules that can be exploited for clean energy. In Israel there is also a lot of academic research that helps in developing these kinds of applications. We want to make investments in places where we can really change the world, or at least change a market. And in nano there are tools that can do that. As far as the risk goes, a fund is supposed to develop tools to examine the worthwhileness of the risk taken in an investment. We think that, from this point of view, nano is a fascinating field, and it can change things in several industries."
As mentioned, Fonstad is one of the most influential women in Silicon Valley. The gender distinction here is material, both because there are not many prominent women in high tech in general and in venture capital in particular, and because Fonstad has in the past won two awards from an organization called Astia (formerly Women's Technology Cluster), whose mission is simply to encourage women to found start ups.
It would seem that in Israel you wouldn't win an award like that. There are almost no women involved here in technological entrepreneurship. Why do you think that is?
Fonstad doesn't feel entirely comfortable with the question, but eventually answers, "There are more and more women getting into entrepreneurship in the field. Just as there's a burgeoning of new fields, and when someone succeeds people say, 'Wow, I know them,' and that encourages people to take a risk and do it. The same thing happens when there are examples of women in the business who cause many others to follow suit. It's starting to move, and there's also a network of support services and assistance that encourages this. I think it will happen in Israel too."
In DFJ itself, incidentally, there are three women partners in management positions.
Published by Globes [online], Israel business news - www.globes.co.il - on October 11, 2007
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