1998, when you started your professional career, was a time of technological euphoria. The dotcom bubble would only burst two years later. As an equity analyst for Morgan Stanley working on the technology sector, you were in the middle of it. How did that time feel?
Morgan Stanley was an insane place to work. There were star analysts like Mary Meeker who were hailed as “Queen of the internet” and featured on the cover of Time magazine. But I was covering no-hype stocks in the technical software industry, which appealed to value investors. Many of these stocks held their ground when the bubble burst, because these were solid companies, unlike the many widely praised internet highflyers without substance. This was a formative time for my investing approach: I learned to look at fundamentals, the team, the technology, the business model. I found it quintessential to talk to customers of a company because nobody is better equipped to judge the product. My approach to investing has its roots in this era: invest in high-risk assets but do so in a conservative way. I was lucky to resign and came back to Switzerland in early 2000, just before the bubble burst.

Back in Switzerland, you did a short stint in Private Banking…
…which I did not like very much…

Why not?
At Morgan Stanley, my role was to know 8 stocks inside out to be able to advise institutional investors. In Private Banking, there were people responsible for the whole US market. That’s why I left, first to a corporate finance boutique, and later to join my brother’s company that developed banking software. I planned to stay for a year, but in the end, I co-ran it until it was sold to a French private equity fund ten years later.

How big is the gap between the banking industry and the startup world in Switzerland?
It is large, and this holds back the Swiss startup ecosystem. The Swiss banks manage the largest amount of private money in the world, but with a few exceptions, their appetite for venture capital and private equity is still limited. But the younger generation is very much interested in startups and technology. Some banks have started to realize this and adjust their offering accordingly.

After the exit of your family business, you started investing in startups yourself. Why bother?
First of all, because I have a deep love for technology. If you don’t have that, it’s pointless to invest in startups. From a financial perspective, it makes sense only if you have enough money to make many different investments. Venture capital is decorrelated from the public financial markets and a good way to diversify your holdings. But above all, it is fun and exciting. You meet people that are smarter than yourself because the typical founder is smarter than the typical investor. In the process, you learn a lot of things. Startups are a window to see what the future in ten years will look like.

The typical founder is smarter than the typical investor.

What can you give as advice for budding investors?
You should invest in what you understand. I used to invest broadly, now I’m more specific. I don’t understand B2C, retail, or marketing, so I feel more comfortable in the B2B space. I like recurring revenues from SaaS companies, for example, but I also made hardware investments like the company Devialet, which manufactures the speakers you see in my office. I’d say that it’s very difficult to make money investing in the seed stage, unless you have a vast portfolio. I prefer to invest in companies that already have revenues. The price premium you pay for revenue companies is not that big. Now, as an investor, you need to realize that you cannot predict the future and will not find the next Facebook. However, you should invest in companies where you can add value with your skills. But at the same time, you need to have the humility to accept that it is the entrepreneur who runs the show, not you. I remember speaking to the co-founder of Goodwall when I met him through Verve Ventures. I came up with a suggestion and he just shot it down. That’s a sign of strength. Subsequently, I decided to invest.

But isn’t the problem with giving advice that investors that have a lot of experience in a field probably also have very strong opinions?
You need to always be aware of your ticket size. If you invest just 50’000 in a 2 million financing round, just shut up! There is nothing more annoying for founders if they have to do shareholder management. In many cases, I’ve seen the tiniest investors also being the most annoying ones. Especially in bad times, when the founders need to focus on reversing course, it’s incredibly stupid if small investors bother a founder with countless requests. One of them once confessed that he spent 8 hours in one week just to answer the questions of a single investor. Imagine that!

Many startups are facing a difficult time right now. For investors, the question arises if they should reinvest or not. When is the right time to say no, and let a startup fail?
A good investor is a cheerleader for his companies and helps them through hard times. And as a board member, your relationship with the founders is even closer. But at the same time, you need to re-evaluate your decision every single time you invest. In the end, it’s a business relationship, it’s not family. I’ve learned from mistakes, from occasions where I spent one more year or joined one more financing round I shouldn’t have. You have to develop a shell to protect yourself with and learn to focus your energy on companies that are worth it.

You have quite a large portfolio of over a dozen startups and sit on a few boards. How much are you involved in those companies?
Less than I used to, as I’m more focused on fundraising for my fund JAL Ventures now. But I’m still fairly involved in about a third of my private investments. I don’t think it makes sense to join a board if you don’t add value and want to spend time working with the company.

How different is running a fund from investing privately?
When I invested my own money, I was foolish and instinctive. With the fund, we invest very prudently, very conservatively, in technology companies in Israel. It is a way to reapply the lessons I’ve learned on my own, and obviously it’s something different if people entrust you with their money. I am also a large investor in the fund, I think this makes sense. A big difference is the amount of resources you have. Instead of being on my own, we now have 5 partners, several analysts and specialists for different technologies. We raised a first fund in 2016 and are now raising a second one with a target of USD 100 million.

Last year, Israeli tech firms raised USD 8.3 billion, while Swiss tech firms raised USD 2.3. Why is there such a difference between these countries that are comparable in size?
The risk appetite is extremely high in Israel. The overall willingness to take a chance is more pronounced in the population. Then there is the problem of cost. In Switzerland, an engineer out of EPFL will easily cost you CHF 10’000 per month, while in Israel, which has very good tech-oriented education, the salary will be much lower. Then there is the quality of the entrepreneurs. In Israel, 8 out of 10 startups I meet are top-notch. This does not mean that I’ll invest, but still. In Switzerland, there are maybe 2 out of 10 entrepreneurs I find convincing in a good month. And in Switzerland, there is a certain reluctance or fear to go after big clients. Swiss startups want to build their customer base with small customers first, slowly.

Winning a large customer is essential.

In Israel, they understand that winning a large customer is essential, that it is a proof of quality. 4 guys in a garage will show you a big bank as a customer, that’s the norm. Fintechs usually have all Israeli banks as clients because these banks want to invest in a lot of things. While all of these factors slow down Switzerland as a place for startups, in some deep technologies it still has an advantage due to its amazing talent and technical schools. And thankfully there are setups like Verve Ventures, because otherwise, the choice of investors active in Switzerland is depressing.

What about the exit potential in the two countries, M&A activity seems to always be quite high in Israel.
All large tech companies in the world understand that Israel is a shopping mall for technology. They have established more than 350 R&D centers in the country. Their purpose is to do actual research, yes, but their equally important purpose is to acquire new technologies. In Switzerland, you have a lot less of these centers and technology scouts, the startups have to be much more active themselves. Concerning the M&A activity, I’ve also noticed that private equity funds have become very important buyers of startups in Israel.

Why?
Because in the past 4 or 5 years, they’ve managed to raise incredible amounts of money, and now they have a lack of opportunities to invest. As a result, they’ve become more aggressive risk-takers. They’ll buy startups with tens of millions of revenue, but I’ve even seen money-losing startups being acquired. They might pay a bit less than a corporate buyer, but for startups, this is great, as it is another avenue to exit.