Impact investment blends business and social aims

Lior Shalev Photo: Shlomi Yosef
Lior Shalev Photo: Shlomi Yosef

Lior Shalev, grandson of Teva founder Eli Hurvitz, targets the 'double bottom line' - both economic and social profit.

Up until now, Lior Shalev has managed to keep under the radar. That is rather remarkable, considering the volume of capital that he invests. It is even more remarkable in view of his family background: he is the son of Dr. Vered Shalev-Hurvitz and the grandson of late industrialist and founder of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) Eli Hurvitz. In business, he has invested hundreds of millions of dollars up until now in technology companies with a dual goal: producing revenue, but mainly contributing to society - what is called impact investments. He manages several of these companies in educational and agricultural technology himself.

Shalev has no obvious reason for downplaying his involvement in these positive ventures, which can only contribute to their development. Nevertheless, this is the first time that he has ever been interviewed. During the conversation, he repeatedly wondered whether being interviewed was a good idea for him. He finds working under the radar, as he calls it, comfortable. Things are going great, he says, even without exposure. Entrepreneurs come via friends and work partners, and now it is clear to him that he will be swamped. He expects it but is also a little worried. After the initial hesitation, however, comes a flow of such rapid-fire and enthusiastic talk that it was hard to keep up with him.

"I have always been an entrepreneur. That's what I like doing; it's my way," he tells "Globes," "but I have also always tried to combined the business world with the social world. For me, it was an unsolved problem: why do people, including myself, have to make a living from one thing and then do good somewhere else?"

The desire to integrate the two worlds led Shalev four years ago to the field of impact investments. This is a relatively new sphere. It is not business in the ordinary sense of the word, but it is also not philanthropy; the rules in it are not completely clear. One key phrase in it is "double bottom line" - both economic and social. It is not always clear where the dividing line runs. There is an argument about whether there is any need for such a line. The only thing that everyone agrees on is that behind every activity in this sphere lies a good intention (or at least an intention perceived as such), not just a money profit.

"I reached the conclusion that it's very hard to raise money for startups that want to change the world and openly say, 'Maybe I don't want to make an exit, but I'm having a social impact and I don't make decisions motivated only by maximizing profits,'" Shalev says. "These startups know how to generate revenue and can make back the investment in them and even pay a dividend, but an exit is not what makes them go."

This attitude cannot be taken for granted, even in the area of making a contribution to society. Shalev finds himself being criticized by both venture capital investors who do not understand how it is possible to invest other than in order to make a profit and by non-profit societies and social organizations who do not understand how it is possible to contribute to society while at the same time aiming at a money profit. "It's always being the black sheep. In the startup world, you're a nut who cares about other things besides money and in the field of social consciousness, you're untouchable because you talk about money. It's all right to be in this limbo. I think it's natural."

Looking for untrendy entrepreneurs

Shalev's partner in impact investments is Vered Shalev-Hurvitz, his mother. This is also something that you don't see every day. The Shalev-Hurvitz team has never bothered with incorporation as a fund or a company. These are family and angel investments in the hundreds of millions of dollars, which to date have been made in nine different sectors. What they all have in common is that they are impact investments and that the Shalev-Hurvitz family's involvement in them has not been publicized.

"Globes": What makes you invest in one company and not another?

Shalev: "Investors usually look for buzz words like cyber or gaming. Anyone who can't provide these seasonal trends will have a hard time raising seed or angel capital. Talented entrepreneurs come to us with an impressive resume, phenomenal products, and amazing technologies, but their subject is unattractive to investors. We invest in entrepreneurs who believe in the ability of their products to make money while improving the world. We don't compromise for a moment on the product and the ability to generate revenue, but we're in no hurry for an exit. That doesn't mean that we won't have exits, but many times we encourage and help entrepreneurs reach a business situation that generates revenue for them in a way that will enable to them to exist without relying just on raising venture capital.

"We're looking for purpose and direction. I think that this is one of the critical things in the impact sector. We’re looking for the DNA of an entrepreneur sitting in front of you and saying that his fashion is to change the world for the better. If the entrepreneur in front of you explains how his startup will sell quickly, it will probably interest us less. In addition, we're trying to support entrepreneurs in order to keep them in Israel. It preferable for us to found a company employing staff in Israel and paying taxes here and sending amazing made-in-Israel technology everywhere in the universe. I prefer management to be Israeli, not to be ashamed of it, and not to hide. There are such things, unfortunately."

The criticism you have received is understandable. Putting non-economic considerations into the equation is something perceived as threatening to profits.

"Who says that it has to detract from profitability? Look at gender equality. Studies show that companies with a larger proportion of women on the board of directors generate better than average business results. I find gender equality an irritating subject because it's obvious. It shouldn't be a goal or even a discussion. A company that does good for its environment, however, that is concerned about how it is perceived and how it treats its employees and takes care to narrow salary differences or thinks about what contribution it is making to the community - not just in the sense of corporate responsibility, but of its business development - is a company that will be more successful.

"Today, companies already realize that they have to do things in such a way, because they have grown within the community. In 20 years from now, we'll no longer talk about the double or triple bottom line, but only one. It will be obvious that every company is apart of the DNA of the community from which it came. It will be unable not to be concerned about the community or to hurt it. A company can't afford to make social mistakes."

"The state is driving edtech entrepreneurs away from the country"

Shalev's journey to the world of impact investments began seven years ago even before he started investing in the field, when he founded Infogan, a company dealing in educational technology for preschool children. A check he conducted at the time showed that preschool education was more neglected than at other ages. "The figures show that for every dollar invested in a child's education from birth until age four, society receives $14 when he grows up. Government investment, however, is upside down; it increases with the age of the children. Infogan was founded in order to try to rectify the situation. It developed a digital platform for education and improving communications between home and kindergarten and also did mapping that had not previously been done of all preschool educational frameworks."

Isn't this a project that generates expenses instead of revenue?

"The opposite is true. The fact that we've been sitting in our offices for seven years, employing workers, and growing is the best proof. The product we supply generates revenue, and there is no need to talk about an exit. This doesn't mean that it came easily. There's a lot to improve and the government and the local authorities should get to know the educational technologies springing up in Israel. The Israeli industry is still at the beginning of its incubation. Some of the activity we're doing is to incorporate this industry under a single roof and generate power."

How many ed tech companies are there in Israel?

"A rough estimate right now is several dozen that are already past the stage of an idea on paper. They're simply below the radar. Government ministries should look at this industry and realize that a change is taking place here; otherwise, many of these companies will skip over Israel and that will be a pity. We're a society that advocates work in Israel for the educational system, with or without help from the government. I don't think that all of the companies are built for it."

Is the Ministry of Education involved in your activity?

"The Ministry of Education has great people and we work in full cooperation with them. The thing is that in the end it’s the local authorities that are our customers. When we read the list of people being marched into the room for questioning by police, I think there's a lot in this area that needs to be fixed. To send an entrepreneur to meet with some of these people is probably not a wise decision. An entrepreneur isn't supposed to know how to deal with this kind of politics. There's no reason for an entrepreneur to sit with a customer who demands a product for free, for example. This means that the country is sending an entrepreneur every day to another country where they will pay him for the product."

What technological developments do you think should contribute to education?

"If you put a child in front of a screen in a classroom, tell him that it's a smart screen that is a substitute for a blackboard, but go on teaching using the methods they taught us 30 years ago, it won't work. One thing we know for sure is that there is total uncertainty about the occupation that the child will work in when he finishes with the educational framework. We have to provide the children with entrepreneurial tools - soft skills. A mathematics application will be able to teach mathematics much better than a mathematics teacher and then the teacher has to impart values, leadership, and the culture of discussion. I think that this can be a national project and I wish they would put a focus on it. Education is the only think that will determine our place in the world 20 years from now."

An unending list of activities

In addition to Infogan, Shalev and his mother have invested in agritech startup AlgaeMor, which has succeeded in growing spirulina algae, a protein-rich food supplement. Another company they invested in is water.io, which has developed smart bottle stoppers for beverage bottles based on Internet of Things (IoT) and containers for drugs, cleaning material, and cosmetics. The company's application is able to remind a child to drink from the bottle and facilitates monitoring of patients' use of drugs. Other companies include Intendu, which has developed a game platform for brain training for people with cognitive damage and disabilities that is already used by rehabilitation hospitals, and Imagry, which has developed technology for identifying objects in pictures and video.

The family has also invested in the Ehealth Ventures incubator, which fosters digital health companies. Partners in this incubator include the Cleveland Clinic hospital, Maccabi Health Services, and Chinese company SCI. "We were among the first investors in this incubator," Shalev says. An equally interesting project is the Takwin Labs incubator in the Arab sector, in which Chemi Peres, Erel Margalit, and Imad Telhami are partners. "A very attractive venture with an impact on everything it touches," Shalev remarks. Shalev and his mother are also involved in the EdTech Israel organization for educational technologies in partnership with Dr. Jacob Dayan.

This, however, is not the full extent of Shalev's activity. He is also a member of the board of UNICEF Israel. He has initiated an innovation locating center in Israel that can help children in developing countries, while also serving as a pilot sites for companies that will help them by demonstrating feasibility. He is also a cofounder of the Insights in Education organization, which began by supporting the Bialik Rogozin high school in southern Tel Aviv and now extends to 24 schools in Israel. He was also previously active in Elem and was a cofounder of Topaz - Leading Social Innovations and the Takdim Foundation.

Now comes the social-tech part - the new term for social technological ventures. There are already several activities in this area in Israel that have won exposure, but Social Tech Israel, founded by Shalev with Efrat Kotler Barak, is not one of them. Nevertheless, it appears to be the largest community in Israel in this sphere, with 1,000 active entrepreneurs. "We realized that this ecosystem had to be institutionalized by taking all the scattered entrepreneurs who were each sure that he or she was one-of-a-kind," he says. "If you ask me, there is no separation between social tech and impact. Today, everything fits into the same spheres."

Hurvitz, the legendary founder of Teva, died at Sheba Medical Center in November 2011. In his last moments, he suffered from complications resulting from a bacterial infection. The family and the hospital conducted a prolonged struggle, extensively covered by the media, over his treatment at the hospital. The main responsible for creating the Israeli pharmaceutical sector did not receive the best medical treatment in his last moments.

This sad history is the background for Dr. Vered Shalev-Hurvitz's initiative, called Treat - a project funded by the Hurvitz family in order to combat infections in hospitals. Shalev says that it is a big data technological system for supporting decision-making that monitors the taking of antibiotics in hospitals and helps doctors select the optimal type and dosage in order to prevent infections from spreading within hospitals and between hospitals. "This is an amazing company with a clear impact: reducing the use of drugs and mortality in hospital wards," Shalev says.

I there a connection between the legacy that your grandfather left and the selection of the impact investments field?

"Because I realized the challenges, I offered it to my mother, including as a continuation of my grandfather's world view. I think that he represents this social-Zionist-patriotic world that puts the country, the company, the workers ahead of private benefit. It's a concept that we're unfortunately seeing less and less. It was a generation that if it hasn't vanished is well on the way to vanishing."

Published by Globes [online], Israel business news - www.globes-online.com - on July 1, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Lior Shalev Photo: Shlomi Yosef
Lior Shalev Photo: Shlomi Yosef
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