 Hi there, good evening, good afternoon, good morning, welcome to joining us from. I'm sort of going to introduce you to a really interesting person today, this is my guest today is Iyer Rostovsky and Iyer is one of the top lawyers of Israel and you know he's going to talk to us about the Israeli people's group of startups but those of you who are following the news may be aware of you know the fact that there is a sort of a war going on right now in Israel as we speak. So I hope you are welcome to the show and I sort of you know say that we hope that you and your family are all safe. Where are you joining us from today? I'm joining you from Tel Aviv, I should be in my office which is also in Tel Aviv but I'm at home at the moment and unfortunately we could have we had last night we had some bomb scares in Tel Aviv in the area so we all had to go into the bomb shelters so if unfortunately there will be an event during our talk today I may have to take a break, I very much of course but unfortunately it's a possibility. And how far is that bomb shelter? It's in my house where every house, modern house built in the last 20 plus years has to have a it's a room, it's a room but it's reinforced concrete with special windows and special doors so if a bomb lands outside on the roof it won't you'll stay safe. So the trick is to get into the bomb shelter in time you have around about one and a half minutes from the siren, there's a siren and you have to be in the bomb shelter within one and a half minutes that's the drill. Okay I just do hope that you and your family are safe and yes at any point in time you know if you need to but of course that's a priority. Thank you so much for talking to us today and Ian I just want to understand your sort of involvement with the startup scene. Usually when you think about startups you don't really quite think about lawyers so how is it that you got so involved in the startup scene talk to me about that. Well yeah well Israel is maybe special in this in this matter maybe in America they also have lawyers like that but lawyers who rarely deal in the high tech ecosystem are very much part of the ecosystem like that at our firm we represent literally hundreds of technology companies and investors so you're very much at a crossroads that you see a lot of deal flow a lot of a lot of things happening so you know you're very much involved in the ecosystem and we we also try to take a very proactive approach and help our clients get finance and get investments and find and help our venture funds find companies to invest in so we very much involved and you know I've been doing this for 30 plus years so I know you know that the ecosystem very well and you know that's what I do for a living so I'm not on the technology side and I've learned that I you know things that I thought were great were not so great and things that I thought were less great and were great success so we we understand that we don't really understand a lot of investors think they understand but you know it's a lot there's a lot of luck involved but we know as as lawyers that you can't really evaluate something's going to succeed or not but have a lot of experience with work with founders and at the end of the day the management and the founding team that is what determines success or not you know you are absolutely spot on that the management team the leadership team and of course the rest of the team there actually determines the kind of success that you have but I want to you know do that in the second half I just want to first get an idea of you know just what makes Israel I mean it's the third largest startup ecosystem in the world and when you really look at Israel's startup system Israel from the size of the country Israel is about half the size of the state of Kerala in India is reasonable you know comparison right it's a it's it's about nine million people it's small country it's in in US standards it's the size of New Jersey which is a small state and one of the reasons for success is that it is a small country which means from practically speaking the ecosystem is very close it's all within a two-hour drive okay you can get from the most southern point which says Beresheva of the big high-tech hubs to you know going north south east or west it's a two-hour drive maximum maybe two and a quarter hour drive if you have a helicopter you can do it in 15 minutes but and so so so it's very easy to get around a lot of people know each other you know a lot of because of the school system university system the army system a lot of people you know coming through that funnel know each other okay so they they that that also helps to to create found founder teams which are you know successful more they understand each other they're less arguments and splits there are issues between founders that less I think and then in a lot of other countries because they they have a similar culture similar background similar goals so there's also very tight cooperation between the academic institutions which give a lot of in licensing to technology companies between the military where a lot of people are trained in technology and high-tech companies mainly in the cyber field so you know the whole ecosystem I mean it because the size of the country and the culture and the way the academic and school system and military system are built it all helps to create the the ecosystem perfect so thanks for the benefit of our listeners those who just joined us I'm talking to Ian Rostowski he's talking to us you know from Israel he's been an all-time observer three decades of working with the startup ecosystem in Israel and one of the questions that I was exploring with him is you know what makes the Israeli startup system so powerful because it's the third largest ecosystem of startups in the world and Ian talks about a couple of different factors eight the size of the country is small so you can go from one end to the other not to south east you can do it in all the three hours if you will and the other thing that is happening is that you know there is a very strong sort of a pipeline from the academic institutions so the school college and you know you also have the military service that people have to negatively go in at which stage do they get in for military service Ian and Israel at the age of 18 the age of 18 you boys are supposed to do three years and girls two years quite a lot of people get exemptions for some reason or the other but there's a lot of people who do their military service and a lot of them go into units that are that they actually get trained in technology whether it's with weapons the Air Force Navy you know the the cyber units their intelligence units that they trained in computers and technology which gives them an advantage because it's it's not as if you go to university and have academic education and learn mathematics and you know it's actually very practical stuff so the the Israeli entrepreneur has a very practical approach to solving problems because that's that's how they are taught to to deal you just have to solve problems find solutions in the quickest way the most cost-effective way and you know to learn on your feet kind of thing yeah and you know I've been fascinated with the you know the ecosystem which is so strong in the area of cyber security you know if you look at intelligence cyber security these are some of the firms in Israel are really well known for the work that they do in this space what gives them the kind of an advantage why is it that Israel is so strong specifically in you know the cyber security yeah the cyber security is definitely tied to the military because as I said there there is a lot of elite units that deal with with cyber issues things that you know are not not public knowledge and people don't don't exactly know what they do and what they but they they come out of the army as I said you have to sign in for three years which is the basic training but people who who advance in in the cyber units a lot of them sign on for four five six seven years okay so you come out of the army say at the age of 24 25 you've had like six seven years of dealing with cyber you know in the in the in the highest levels and so you then maybe going to university or maybe during your army service they will pay for your university education so you come out of their fairly highly skilled with with a skill set that you know the average student from other in other areas of the world would not have any anything near the same kind of the same kind of background education experience in fact yeah and and you know a lot of it has to do with the fact that you're saying the six or seven years of working in the cutting-edge technology in the cyber field gives Israel that advantage what other you know you get the unicorns in Israel what are some of the broad clusters where you see a larger number of Israel at the moment has about 65 unicorns which is the third biggest in the world and it's more than Europe you know and and and a lot of those are cyber the reason is that because of people somehow come through that funnel of the army and whatever with with ideas of how how they can deal with with real issues real cyber issues and and they form startup founding teams that have succeeded statistically building significant companies they have really brown groundbreaking technology they get you know a bit of government funding and a lot of funding from from funds funds like to to bet on these kind of teams because they have good ideas and statistically a good fairly good chance to to succeed not all of them succeed but statistically a lot of them have succeeded and succeeded in a big way so and and and they even and they even entrepreneurs on their third fourth fifth startup having sold or IPOed others you know and also in in Israel if you fail in a startup you know that that doesn't mean that you necessarily are out of the game you can fail and and you know form with another teammate another startup and it doesn't you know you learn from your mistakes it doesn't mean that you burnt and and no one will will touch you anymore okay so so you know how how does that tolerance for failure risk you know comfort with risk where does that come from what is the origin of that I mean you know what does Israel do as a society when kids are growing up in school college and the family system where does that risk taking element come from well because it's a it's a country born out of war and conflict and you know and and the people who a lot of people immigrated to Israel you know or the you know the founding fathers were a lot of them were Holocaust survivors coming from the Holocaust from from Europe from other area so so they they say no you know we've we've a lot of them also in the army they see you know very serious things going on so they they say you know we prepare to take risks you know the worst worst we can do is fail and failing as a start is not the worst thing that can happen and statistically uh quite a lot fail but quite a lot a lot of succeed succeed and people remember their successes they don't remember the failures okay and we've seen investors who have lost money with founders and some of them set up with a different team if it's the same team that's not going to work but they set up a different team maybe founder here founder there and you know people are if they've got a good idea and and they didn't you know they they failed not because they they were dishonest or you know or crew people you know they failed because not a reason to start a fail start up or fail so uh often they they get a second chance maybe because of the other founders you know or um the founding team is more well-rounded or the other factors and so you know people are prepared to take risks the whole society is tolerant of of failures and you know don't write people off because someone maybe failed in a start up once and and uh I would agree that you know the ability to take quick you know responses be comfortable with you know war potentially comes into you know the degree I was taking but I also agree the role of the government can be the start up I I'm not trying to understand the question I'm sorry so you know does the government have policies that support uh fail or when they want to try out something what is the role of the government okay so the the government has a has a history from even the 70s and the 80s in supporting the startup industry where it was rarely in its in its infancy uh and uh so so today the government provides financing through all kinds of programs for the for the startup it's it's generally matching funds so you have to bring funds from investors as well the government says that if investors are prepared to match it's between uh the government will give between 30 to 60 percent of the funding okay so there has to be matching and they say if it's matching from investors we we prepare to take the risk so so they um you you obviously have to uh file applications and have the startup checked out by people who you know have experience in the field so so the government on balance hasn't lost money it maybe makes money because the startups have to pay back if they succeed okay if you fail you fail you don't pay back anything if you succeed you have to pay back so so the government um on balance has has done well but because it created jobs created tax revenues if a uh you know people get salaries they pay tax on that people buy food who the money buy pay rent and everything comes back somehow to the government so so it's an ecosystem that feeds itself and and grows it's not that the money is thrown away and uh uh you know what happens when let's say if the government has invested 30 percent or 40 percent of the startup capital and the company just you know collapses it goes into liquidation it fails the idea doesn't take off the there's no market all of that you know and we know that it happens um in the situation what happens when you don't do the people need to pay back to the no no you only pay back from success so so uh the startup writes off the government writes it off uh sometimes you do a fire sale of the technology for for nothing and someone else takes it on uh you know uh sometimes you you know freeze it and maybe in two three years time someone can use it there are our cases like that but but if you fail and and and you haven't done you know you haven't frauded the government or you know it just failed because it didn't work out fine people people accept that you know there's no personal guarantees so when you uh you know when you look at the ecosystem of uh Israel as it has evolved let us say over the last um yeah let's take last 10 years what seems to have changed uh in the patterns that you see as compared to when you started 30 years back as compared to that where do you see the uh release what is what do you notice right so so their internal factors within israel and obviously macroeconomic factors all israel is very uh um close to the to the uh u.s. hub technology hub silicon valley new york uh boston area a lot of medical devices and cyber companies there a lot of venture capital funds a lot of money in the israeli high tech in in um uh ecosystem comes from the us so so um trends in the us find themselves to israel sooner rather than later so so what's happened the last 10 years is that first of all the ecosystem has grown uh people have become more mature people have uh more experience there's there's more money generally in technology these days than the world was back there there's just more money um a lot of i i don't think there's any technology company in the world any significant technology company in the world including indian companies like uh you know all uh i think the the top uh indian technology companies also have a uh r and d center in in israel okay what what the companies do is they i know investors have and a lot of others um so what they do is they purchase an israeli company and that as their basis for r and d centers now they're literally hundreds of those multinational or big technology companies all over the world a lot of them have done a lot of acquisitions in your microsoft ibm facebook apple um uh cisco a lot of companies have done double digit acquisitions as well so they build intel so they build an israeli r and d centers mainly r and d okay so those so those people get a lot of good experience and then um at the age of 35 40 they leave the multinationals and they start and they set up their own startup with with other teams from the same companies from other companies from the army from academia and and those are very fundable teams because people have experience they have good ideas and and so as as the ecosystem has grown and and people get more and more experienced more and more that the world becomes more technology driven so the ecosystem grows there's more demand for the products so i think that is what's happened in the last 10 years now now also what's happened is that uh israelis used to sell out early okay they used to uh intel would come and say you know we want to buy your your company um you know google bought ways for a million dollars in like for a billion dollars in like five years ago or six years ago today you know uh people okay that's okay we know we'll sell today you know and people rarely think they have a a good product and they can compete and they can grow the company and then and their investors who can continue to finance it they will hold on they will grow the company so it won't be sold for a billion it will be sold for 10 billion or 5 billion or 3 billion today okay so people there's more financing for later stage companies that can keep them going and the investors say don't sell out now we'll get to another couple of milestones and then you can now at the at the end of the day you know it's very difficult to compete with the big big technology companies and so at the end of the day people get bought out most of the companies get bought out sooner or later it's not only in israel it's in the us as well there's a lot of consolidation but the companies are getting bigger and bigger and the the israelis are becoming more and more experienced in managing big companies which which we didn't have that before people just didn't know how to manage a a company that sells 10 for hundreds of millions dollars of revenue you know they can develop the product but as soon as the company started becoming a real company that that has income and clients they did not manage that and sold out you know so the world is changing israel is becoming more mature the ecosystems becoming more so it's internal factors and also external factors fabulous so just for the benefit of all our listeners I'm talking to Ian Rostowski joining us from israel again is one of the top partners the law firms there and he's got about almost 30 years of experience and you know funding startups so a couple of things that Ian has talked to us about you know is the fact that A i think you have you know a couple of streams that work together so you have people who get into military from in the age of 18 you know boys do about three years girls do two years and this in turn gives them exposure so there's a large number of people who get exposure to the cyber as sort of the israeli army and that becomes part of the reason they form a number of these products here I think you may want to just serve me on mute this background so set up okay now hold on that that's that's fine I mean that that's fine so so I think you know that's one part of it the other part of it is also that you know I think Ian talked about a very powerful example that you have a great academic collaboration here so people sort of look at that the government looks at funding the ecosystem and if your company grows then you know you pay back the government and you sort of pay taxes you employ people so it's sort of in some sense is an incentive but also more importantly people can take risk because if the company genuinely fails then the government is willing to write it off so that's a very powerful incentive system the other part of it which I really think you know I liked in the way Ian explained the center to us is the fact that it's it's a you are seeing a trend that a number of companies which earlier let's say you know 10 years back or five years back they used to sell out at a pretty early stage so the example of that being you know Google bought the navigation company Waze they bought it for about a billion dollars but today companies are willing to hold on longer because of the fact that they are better risk takers they also think that you know if people have learned to manage larger ecosystems and that really makes sure that you know people can hold on and instead of you know this company selling it out at a billion dollars they are happy to you know hold on and sell it at 5 billion or 10 billion so I think that's another shift which is an interesting shift the third byproduct that I think which was interesting is that these same people once they sort of even if it fails you know they these people will find another combination of talent which could be that maybe the founder of one startup which failed another one which is working they get a few friends together friends could be from the army friends could be from the startup world or because a number of you know leading companies have put together their offices and things you know from Facebook Google Apple Amazon a lot of Indian companies as well and so people get the experience of working with these they also build their own teams for the future from these companies and that's so far been some of the fascinating things that Ian has talked to us about the startup system in Israel Ian have I missed out anything that you know you would have wanted to say did I miss that out you have to unmute and then just respond no I think that is the main reason I think you know technology the technology ecosystem is very international so so you know people look you know there are a lot of sources of funding as I said the main source is the US but the other you know the Europeans the Japanese the Chinese which is an issue in itself you know because you know whether how much Chinese money to get especially when you have American money you have to choose sometimes between you one American funding or Chinese funding and that's where we are today basically maybe in India so but but it's you know there are a lot of sources of funding and technology cooperation there's also bilateral agreements maybe I can mention I think there's with the India as well between Israel and and Europe America Singapore there's also there's some joint development projects that get financed by government funding or government related R&D grants it's many for generic technology like platform technologies and from then on there everyone can build build their own product so that that's also a source of technology fabulous so we have a question from one of our viewers you know what to understand a little bit in depth about the academic collaboration you know between the academics and the startups what is the kind of floor okay okay so so every academic institution in Israel or any any of you know Israel only has like five or six universities and and a few colleges as well so all of the universities have a commercialization arm which is a significant entity that that deals with licensing technology to to the startups to the private sector so a lot of startups are based on a license from an academic institution they'll give them a license to patent and know how each of those institutions also has a very organized charter of how the cake gets distributed inside the university how much the university gets how much the professor gets you know the professor who who is in charge of that technology or it's his team that that is responsible for that technology so there's there's a lot of incentive for for professors also to do to develop technologies to do research which has real life applications because they know that they can like you know there's a reasonable chance that they can license that technology out and get something in return not not only academic recognition but also real you know real money thanks sorry please continue right so so so there are a lot of a lot of projects like that most of the projects I think you know percentage wise are in the healthcare healthcare medical devices food sector maybe maybe maybe a bit in the in the cyber technology but you know we talk about sectors that are very heavy technology you know projects that need heavy technology okay that that it helps that someone already has done research has a patent you know so you you you hit the ground running kind of thing you don't start from scratch perfect when you look at you're the way forward I mean you sort of emphasize a lot on the um technology driven innovation yeah when you look at that technology driven innovation and you are also sort of you're into the fact that besides technology you also focus on the teams so I want to spend a couple of minutes really talking to you about you said you look at the founding teams you know when you start to work with a product what are some of the worst yeah so you know I'd say it's evolved evolved evolved over the years but I think you know when we see a founding team and we we talked about the importance of risk taking if you see a founder team and they say you know say there's a three three founders and uh all three of them have a day job and say you know when when we get funding we will leave our day job and we'll do the startup that is probably not gonna work out okay most of the time when people are invested and that is their job and that they know that you know they've taken the risk and they have to uh and and they've decided that this is their baby and and they need to bring it to fruition there's much bigger chance of success um we you you also look at the background of of of the um founders uh the balance between the team if they're all marketing guys and don't have any technology guys and and they need technology for their product it's probably not gonna work they can do it theoretically outsourcing but it generally doesn't work that way uh if if they don't have any a lot of experience you know they just come out of university or had a relatively low level job in a in google or something like that then you know the the chance of them succeeding are probably less than then it's worth betting on um and um sometimes you have founding groups and we see it more and more coming to the table we're already investors willing to invest is it just start started up and we'll invest okay and those have funding from day one and can build a proper startup from day one instead of bootstrapping a lot of bootstrapping startups do succeed but if you have funding early on so you can get proper ip protection proper legal documentation you know everything you build it the right way from the start obviously you improve your chances of success so um so a couple of things that you mentioned that you know you notice that when people come in and they've got a you know they don't have a day job this is what they're going to do they are fully vested that actually increases the chances of success no question I heard you say is that if these guys actually have a techie in the founding team that makes sure that you know the thing that sees um I have a corollary to just clarify do you see a lot more of two member three member teams kind of thing or do you see solar founders also succeeding which of the two solar founders do exist the chances of funding and succeeding are lower statistically more mostly teams are two or three sometimes you even see up to five but solar founders it's a very difficult very difficult why why is it difficult for a solar founder because it's a it's it's not something today to have a successful startup you you need multi uh disciplinary team to to to really see it through it's very difficult to do that without sourcing and if uh you know if you have a founding team like ever say you know you start the startup with with three founders everyone has say for argument sake a third of of the startup to maybe one guy has 40 percent others have 30 percent each but you know they have real skin in the game right if you are a sole uh founder and you're bringing people you'll give them two three percent you know you'll never have uh real co-founders so it will never be real corporation or you'll never have a team that that are really with you really behind you working in cooperation will be a boss and has people working for him which can work by the chance of as compared to a proper founding team or less and when you think about um uh you know the uh the people working together but what is the median age of successful founders so founding teams what is it you know you you because and the reason why I asked that question is you're very interesting observation that if somebody is worked at a new level even if it's in a very well known company you you're not that impressed with I mean why because you you uh you wouldn't have you wouldn't have the necessary experience maybe I'm not saying it's it's not uh you know it's a it's quite a fine fact in in all cases but someone who's who's led a development team or product development team or some like that or marketing team instead of being just you know one of the marketing people obviously has been experienced sees the the whole picture rather than then you know just uh part of the picture um the the medium age I think you can say it's a young people young people's game startups the average founding I I'm not sure I have the statistics but I would say the average founding team is between uh made early to mid 30s to 40s 40s that's an average founding team if you over 45 you probably won't get vc funding ah so uh no one writes it and no one says that but a lot of teams when they older say over 50 you probably won't get vc funding that's interesting uh you know they they look for people who are younger sure I mean and everybody can have their own there are exceptions there are exceptions uh maybe 30 percent of the the startups are are 50 but most of them are young teams and one of the one of the uh you know reasons that if you sort of talk to many of the people in the vc ecosystem they all will say off the record because they want the people to be working 80 hours a day and uh you know if you have a family to go back to and all of that then many people they say don't put in those kind of arse so uh that they crunch the one people to crunch the time is that uh is that a commonly held view yeah yeah yeah I I think so um I think they look for for people who who are hungry okay and a lot of people who have made it and or have been around for a while are less hungry you know less dynamic less hungry um also the the um people coming out of the army and the university is looking looking for jobs or in their mid mid 20s or 25 26 and they they they like working with with people who are not that far from their age right so so I think that's that's another factor so you know you've actually worked in this particular space for about three decades do you find that you know your perspective on what to look for in in a firm the investment the probability as it says your prediction all of that has improved with with your experience of three decades or do you feel that you know it was pretty much the same the processes have not changed what's your take on that um I think maybe uh in in the in the past I'm talking about 20 years ago you could maybe understand the founder would say you know have a day job and I would you know if I have finally I'll start start up nowadays it doesn't work but it's it's very difficult for us to evaluate the technology so you can only evaluate the the founding team okay the balance between them experience and and and the fact that they this is what they've decided to they've taken the risk gives a lot of confidence because they're intelligent people and they know what they're doing and if if they say you know we think we have something and we prepare to see it through and take the risk I think that that says a lot and so I think what we've learned over the years is that the chance of success if you have people who have not made that leap of faith much less much much less Ian when you look at the Israeli ecosystem of startups I mean obviously there are loads and loads of really impressive things what would you define to be you know if you want to look at it from the outside what are some of the gaps that you would see where you know you wish it had those elements as you know what would those people what would be a couple of those elements that you would add in to make it even better what would that be? Well first of all there's a big shortage in Israel of qualified technical people even though Israel has percentage-wise a very very I think one of the highest in the world percentage of academic degrees among people but there's a shortage of skills a serious shortage of skills so a lot of people you know are outsourced to other countries development work or programming or things like that including India and including other places which is maybe good but I think the experts say that that's something that's holding back the whole the whole ecosystem right to a certain extent the other thing is money you know there can be there were cases I'm old enough to have experienced the the internet bubble of you know before 2000 where everything any project you added a dot com at the end and you can raise financing so there maybe there was too much money you know there can be a case that there's too much money chasing startups and then there's a lot of junk around but I I don't think we're there yet and there are areas that that there's a shortage of financing for instance in I think in in a clean tech and water technologies which is very very prominent I think that there is an issue with with funding so in cyber there's a lot of funding and a lot of other areas there's a lot of funding there's some areas which are important and have a lot of potential that they're just not a lot of funding sources in those areas and I think that's a significant issue you may have government funding that can get you started but then you get stuck for the growth fund or you know to move to the next stage clean tech water technologies to a certain extent in medical technologies I think the funds look for more mature projects so there's a stage that there's a funding gap which is difficult to bridge. One of our listeners asked this question that you know talking about lack of technological skilled people does it include biotech as well I mean it includes biotech definitely definitely I don't think there's a single field in which we don't have a lack of or we have a lack of engineers or people you know with with technological skills there's a they're talking about 10,000 by Israel 10,000 people missing who need so what happens is that companies post from one another and they have to compete with the multinational companies I mean Google they pay salaries which are outrageous okay so why would someone work for a startup but not for Google the startup has to pay maybe not what Google pays but a significant salary enough to to live quite well and then you and the equity in in addition so startups burn a lot of cash a lot of cash because because and a lot of that goes on people okay they just there's a lot of competition for good people. You know Ian I just want to say thank you so much we are coming up to the end of beyond I want to say thank you for taking the time today especially at a point of time when you know as we started by saying that there is a war going on in Israel and you know as we said you could have at any point of time the silent go on and you would have to take I'm thankful that they gave us a reprieve I also wanted to say that our firm has a dedicated Indian desk we have a partner I have a partner his name is Benjamin Grossman and that's what he does before COVID he you know India doesn't allow any foreign legal presence the the the Indian board or whatever the legal profession have succeeded keeping off but so so you know we so we have a desk that Benjamin Grossman spends a lot of time in India helping Indians do business in Israel Israelis do business in in India and you know we we believe in in the connection between Israel and India there's a lot of a lot of business has been done and there's a lot of business to be done and a lot of synergies so you know it's not not something that should be taken likely no I totally agree with that and you know and our our friend Gary you know so Gary is also here and he's a common friend and you know so it's very good to good to have guys like you as part of our legal system look forward to conversations all the way to stay safe you know look forward to catching up take care thank you thank you very much goodbye bye bye