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Chat with the Chief: Matt Whineray

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SWFI interviews the CIO and soon-to-be interim-head of NZ Super on how to pick the right managers, the importance of investment beliefs in times of volatility, and what to expect from the One Planet Working Group.

Matt Whineray has a lot on his plate these days. On top of his duties as chief investment officer at the New Zealand Superannuation Fund, Matt will soon be taking the helm as its interim head following the departure of current chief executive Adrian Orr in mid-March. But with a career in investment banking and nearly 10 years at the Fund under his belt, the 48-year-old New Zealander is more than capable of leading during the transition.

A lawyer by training who came to NZ Super in the midst of the Global Financial Crisis, Matt has been instrumental to the fund’s growth and evolution in the decade since, building out a robust, in-house process for evaluating asset allocation and manager selection that has helped keep the fund nimble, self-sufficient, and one of the strongest performing sovereign wealth funds in the world.

In this brief interview with Spencer Ward, research associate and writer here at the Sovereign Wealth Fund Institute (SWFI), Matt reflects on building close partnerships with managers, what the Fund has done in the past to deal with the inevitable adversity of the future, and the role of the One Planet Sovereign Wealth Fund Working group in fostering a dialogue around responsible investment at the board-level.


SPENCER WARD: Why don’t we start off by telling me a little bit about yourself and how you got started at NZ Super?

MATT WHINERAY: Well I did law and commerce at university, and became a lawyer straight after that. I was keen to go work in New York at the time, but I had a mate who was doing investment banking for Credit Suisse, so I switched over and worked for them down in New Zealand for a little and got up to New York in the late 90s. I had three years in New York and then came back to New Zealand, still in investment banking and then went up to Hong Kong, still with Credit Suisse.

In 2008 got a call about a role at NZ Super looking at the private markets, and that sounded like a great opportunity. But we also had two young kids at that stage who were two and three years old, so the idea of coming back to New Zealand with them was quite popular [laughs]. So I’ve been here coming up 10 years. I started in May of 2008, so in three months I’ll have been here 10 years.

WARD: Congratulations are in order then! Can you tell me a little about how NZ Super changed over the years? And this can be in terms of culture, the size of the team, investment climate, and what have you.

WHINERAY: We’re about 130 people now, roughly, and it was probably about 40 when I started. So it’s changed in terms of scale quite significantly and in terms of what we do ourselves quite a lot. When I first got here, we were very traditionally outsourced with external managers doing pretty much everything for us.

When the Global Financial Crisis began to kick off in 2008 and 2009, we had to rush to try and figure out what was in our portfolios through managers, tried to see if we had the liquidity we needed. Since that time we have been growing our capabilities internally a lot. We started with a treasury function that manages our own derivatives, cash, and collateral pools, before building out some of our own direct investment capabilities.

So we’ve really grown quite a lot as an institution and adapted our strategy where we can along the way. We do a reasonable amount of work in-house, not everything ourselves. We’re geographically blessed in some ways to be in New Zealand, but also somewhat at a disadvantage in terms of where the major investment markets are, so we’ll always have a need for some external managers. But I guess what we’ve been trying to do is figure out where we should be running stuff ourselves, and where we should be relying on managers to do that for us.

WARD: I see, so taking a more hands-on role when and where you can. Now, it’s been a very strong past few years at NZ Super – 2017 was one of your best performances ever with a pre-tax return of 20.7% – so what’s the game plan moving forward to carry on that success?

WHINERAY: Good question. In terms of what was driving last year, markets played a big part of that. Now, we used to use a strategic asset allocation model, and in 2010 we switched to what we call a reference portfolio, and that’s our benchmark that’s a notional portfolio which is our Board’s key risk decision. If we don’t do anything else, if we don’t do any active management, then the reference portfolio is what we have.

So it’s a portfolio construction tool as well as a benchmarking tool. Last year, markets were obviously very strong. The reference portfolio returned 16.3% for the June 2017 year, and that’s basically because of strong equity markets in both developed and emerging markets. Fixed income was a very small contributor.

On top of that was the value that we added. Last year the value-add was 4.3%, and that’s a big number for us because in fact our total return and value-add were both the third-highest since we started investing in 2003. We would expect that, over time, over the long-term, the reference portfolio will return 7.7% per year, and that our active investments can add about 1% per year. So you can see that 16.3% versus 7.7%, due to strong markets, and 4.3% versus 1% is quite a good year for our active investments as well.

So we try and control what we can control, which is the value-add, and the markets will do what the markets will do. So as far as what we see moving forward, that depends quite a bit on what equity markets do and how well we can do on our own value-add. We had a good year last year, and we’ll certainly bank that, but of course that makes it tough going forward because equity valuations are higher, and it’s harder to continue to generate those returns above expectations.

WARD: Well you take opportunities where you can find them, then?

WHINERAY: Yea, that’s right. I would say we’re using less active risk. To us, active risk just means the difference between our reference portfolio and our actual portfolio, what we actually own, and we measure that difference and call that active risk. If we see a lot of opportunities, we’ll see more active risk, more difference between the reference portfolio and our actual portfolio.

At the moment, we don’t see a lot of opportunities, and as a result our active risk is about as small as it’s been since we moved to the reference portfolio model. What that means is we look at global markets and think, “Well, there’s less interesting stuff to pursue,” and as a result we’ll tend to own more of the reference portfolio, and not do as much on the opportunistic side.

WARD: Now in that same vein, in terms of moving away from external managers where you can, you talked in your most recent “How We Invest” whitepaper about your desire to have closer relationships with your external managers. So I was curious, when you’re looking at external managers, and hashing out those mandates, and working on fee-structures – which is obviously a big component of the relationship – what do you look for in external managers that are good indicators that you’ll have a good relationship with them?

WHINERAY: I guess at it’s real core, trust and alignment are really the key for us. We break those down into a bunch of different factors that we use, and we’ve published a whitepaper in the past on manager selection and monitoring and also about how our conviction process works. Perhaps we could pick a better name, conviction sounds vaguely criminal [laughs].

What I mean though is how much conviction we have in managers and how we get to that conviction. In those papers we outline the eight factors we use when we evaluate managers, but what it really boils down to is do we trust the managers, do we align with the managers, and do we believe they have the capability to execute against the opportunity that we’re looking for.

We started a few years ago on this conflict of having fewer, deeper relationships, and certainly that’s what we’ve been focused on the past few years, having not quite as many managers working for us. More risk and more dollars with each manager makes us more important to that manager, but it also makes it easier to allocate the right resources to monitoring that manager and making sure we’re getting the right exposures that we want.

We’ve been reasonably clear with managers about what we’re looking for, and we want to have long-lasting relationships that are flexible, where we can allocate more risk to a manager where the right opportunities are there, and allocate less risk to a manager if opportunities are not so good. So that’s what drives us in that approach.

WARD: Now in terms of picking external managers, do you tend to look mostly in your own-backyard in the Asia-Pacific region? Or would you say you go more international in scope to cover the field?

WHINERAY: I would say we’ve got about a handful of managers locally that do some public equities for us, as well as private equity and farmland management. But the majority of our managers are offshore, and that really reflects the fact that we’re a small country, so you would expect that the majority of investment opportunities aren’t going to be found here in New Zealand.

So there are a bunch of opportunities out there in the world that we can’t access from here directly, and that we need managers to help us get exposure to. As a result we’ve got more managers internationally than we have domestically by quite a big margin.

WARD: And does that factor as well into your long-term goal for 2018, which was mentioned in your annual report, of driving capital to New Zealand and streamlining the process for foreign investors?

WHINERAY: That’s a little bit of partnering. One of the things for us on the direct side is our legislation restricts us from controlling any domestic entities. So if we want to do a direct investment, we need a partner. At its highest, that might be a 50:50 split, where we own half, and some other investor owns half.

We work with a number of peer funds internationally who have a similar approach to us, and it’s all about teaming up with them to access different opportunities, whether it’s here or offshore. Obviously, we’ve got better access to the ones in New Zealand and we can introduce them to those, and vice-versa internationally we’d like to be able to rely on those investors to bring us along as partners where they have more local expertise.

WARD: Those kinds of partnerships sound like they are really going to be crucial moving forward as sovereign funds become more prominent players in the global investment community. Now, let’s shift back for a second to what you called your conviction process. You talk quite a bit about investment beliefs at NZ Super, about how they’re formed and implemented effectively into a cohesive strategy, and – perhaps most importantly – about how to reevaluate those beliefs during times of market stress and dynamism. How do you expect your investment beliefs to be challenged over the next several years?

WHINERAY: We’ve been through this process before back in 2009, and the beliefs are really important as an expression of our view of how markets work and what we need to develop and execute our investment strategies. They’re also really useful when you get into a period of poor performance because you can sit down and have a discussion with your board and your investment team and ask ourselves, “Have these changed? Do we no longer think that investors with a long horizon can outperform investors with a short horizon? Do we no longer think that asset class returns are at least partly predictable and revert to the mean?”

So you have a framework for dealing with unpredictability, because what happens when you start getting bad returns is you can get pulled into this hysteria like in 2009 – which I believe was our worst year at -22% – you get a lot of people saying, “Oh, well you should have had it all in bonds,” or, “There’s no reward for risk,” and on and on and on.

So the beliefs are very helpful for structuring that conversation, because when you boil it down there’s three components you have to ask yourself. First, do your beliefs still hold? Are the markets still operating efficiently? Next you have to ask, if your beliefs about the market do still hold, does your strategy align with those beliefs? And you might find that your strategy isn’t particularly useful anymore and you can identify where some of your underperformance is coming from.

Or, if your strategy is sound, you have to ask yourself, well, do we have the capabilities – either through ourselves or our external managers – to properly execute your strategy? So that framework is quite useful for breaking down the generic slings and arrows that you get which generally say, “Your returns are really bad, so you obviously are a bunch of idiots.” So you can go back and say, “Ok, what are we concerned about? Are we concerned about our beliefs? Are we concerned about our strategy? Or are we concerned about our capabilities?”

Those questions really helps put some borders around the conversation with your board in particular to ask, “Well, should we hold onto these positions?” That helped get us through the Global Financial Crisis as we continued to rebalance because we continued to buy equities as equities were falling, and I think that ultimately paid off down the road, but it was a pretty painful process along the way. We’d buy equities one day, and then the next day they’d go down. We’d buy equities again, and again the next day they’d go down.

At some point in 2009 they started to go back up again, so that discipline was rewarded. But having that framework to reassess yourself in place is incredibly useful. It’s also useful to have some experience in an organization that’s seen this before and is not going to immediately run screaming for the exits.

WARD: It’s quite a clever safety valve of sorts for setting aside some of the emotional aspects of the ups-and-downs of long-term investment, gives you a discipline you can fall back on.

WHINERAY: I would expect we’ll have some of our beliefs challenged over the coming years, not withstanding that we’ve had very little volatility in the last little while. Obviously, we’re getting a bit now though! The periods of calm we’ve been having is certainly not the norm, so our expectation is that things will get more volatile, and we’ll need those beliefs when that time comes, as it always eventually does.

WARD: Now let’s take a step back, looking at sovereign wealth funds and public pensions and their growing role in the global investment community. This past December you helped establish the One Planet Sovereign Wealth Fund Working Group alongside some of your peers at this year’s investor-focused climate summit in Paris. What do you think is the best way forward for sovereign funds who are struggling to integrate financial risks related to climate change when considering long-term projects, and what can kind of ESG recommendations do you think we can expect from the Working Group when it publishes its findings later this year?

WHINERAY: Well the idea was to come up with a framework for how to address climate change issues, particularly in the context of ESG considerations. And that includes methods and indicators that can help investors quantify and deal with risk related to climate change, because it’s not an easy thing to get your arms round in terms of where to start.

It depends a lot on your investment beliefs as well, so some investors might respond to those issues in a lot of different ways. Anne-Maree O’Connor, our Head of Responsible Investment at NZ Super, is quite involved with the Working Group at the moment, and I think a lot of the recommendations to investors will revolve around creating a framework for having a conversation about climate change-related risk, primarily with their boards, but also their investment teams.

In terms of the best way forward, the most critical component is that the board and the senior investment committees are aligned and have the same agenda, because if you delegate it to one part of the investment team, you’re not going to treat it as the whole portfolio issue that it is, because this really is a problem that requires real commitment and ownership at the board level.

WARD: In terms of the general attitude of long-term investors towards sustainable investment, do you think that investments which promote the transition to a low-carbon environment has been accepted by the broader community as more than just a feel-good initiative for the health of the planet, that it also just makes better business sense over the long run? Or is there still quite a bit of resistance on one, or both of those fronts?

WHINERAY: I think that people have responded in a lot of different ways. We published our climate change risk strategy last year, and for us this is really more of an investment risk question. At the moment, it’s not an ethical question, it’s not, “How should we be investing to make the planet a better place?” It’s more of, “What risk do we run in our portfolio as a result of climate change and all the consequences and impacts it might have?” We might get to the point soon where it’s an ethical question, and some investors have already made that decision on an ethical basis.

But we were quite clear that this is an investment risk practice. We think there is a risk that the markets don’t deal with climate change very well. We believe that markets are, in most cases, quite efficient, but we think on this issue they’re not pricing the risk of climate change very well. That’s partly a horizon issue, in that many investors have shorter horizons than they think climate change will manifest itself over, so they don’t believe they have to take it into account. I think it’s really developing quite a bit of momentum, however, across investors.

The place we typically start is on the risk side of things, and then you get to the opportunities side, where you ask, “What are the opportunities that arise from an investment perspective out of climate change, and how can investors take advantage of them?” But I think that before you dive into that, you make that decision about whether this is an ethical question for you or not, and if it is, then maybe you go and knock out your carbon-heavy exposures.

If it’s not, then you’ve got to have a discussion about whether you think it’s an investment risk that’s not properly priced, and that’s a more difficult question. But we worked our way through that and came up with investment strategies that reduce the risk for ourselves and our portfolio from what we see as the impacts of climate change.

WARD: NZ Super has been a leader in the field of sovereign wealth management and best practices for some time now, and helped in the creation of the Santiago Principles in 2009, but a lot has changed since then. As the size, number, and capacity of sovereign wealth funds grows, we’re starting to see them be more active and visible on the world stage, not just as responsible managers of capital, but in some cases as tools of foreign policy and development. What kind of role do you envision them as having in the global investment community and the world at large moving forward?

WHINERAY: Well I think the sovereign wealth funds – and it’s important I think to distinguish them a bit from sovereign development funds – as managers of capital and custodians of a country’s assets tend to have long-term views that should be more conducive to adopting a broader range of strategies. I think the important point about the Santiago Principles is that they were really about taking a look at how those founds ought to behave so that they’re not seen to be tools of foreign policy, so that’s why it’s probably important to distinguish between sovereign wealth funds and sovereign development funds.

We’ve been quite active in the International Forum of Sovereign Wealth Funds (IFSWF) – Adrian Orr, our CEO, is serving as chairman at the moment – and have been using that to try and drive some leadership from sovereign wealth funds on both how they invest along with ESG considerations. We had a big discussion at the Auckland 2016 conference around climate change and how to deal with the risks associated with that.

The other big thing we’ve been focusing on is how we can all leverage off each other. We utilize the three C’s on that front, so the first is comparison, or how sovereign wealth funds can share best practices and experiences around what strategies they use, or even just comparing costs and expenses, and that’s at the most basic level. The second C is collaboration, thinking about the Principles for Responsible Investment and the Santiago Principles, and joining up to engage with different companies around their business practices and disclosures. And the third C is co-investment, and that’s where you can really actually go out and check out opportunities for new investments that are going to improve the value for sovereign wealth funds more broadly.

Those three C’s are what we’ve been focusing on over the past couple years, and we think that sovereign wealth funds have a lot of ability to lead the way in terms of global investment because they have more degrees of freedom than funds that are managing liabilities and working on shorter time frames.


SWFI’s Chat with the Chief interview series aims to present the investment perspectives and experiences of some of the foremost C-level practitioners in the sovereign wealth fund and public pension community. This interview was conducted on February 12, 2018 via phone. It has been edited only slightly, for clarity.

Khazanah Nasional Could Close UK and Turkish Offices

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Malaysia’s Khazanah Nasional Berhad is contemplating shuttering its London office, not so much over issues with Brexit, but in a bid to save money on costs, as the wealth fund shifts its strategic focus. Khazanah is also scaling back its presence in Turkey, as the wealth fund does not need a significant presence there.

However, the wealth fund is keen on keeping offices in China and the United States, due to access to technology investments.

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New Zealand Investment Funds Demand Facebook, Google, and Twitter to Patrol and Censor Violent Content

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The NZ Super Fund (New Zealand Superannuation Fund), Accident Compensation Corporation, Government Superannuation Fund Authority, National Provident Fund, and Kiwi Wealth issued a statement calling for social media giants such as Twitter and Facebook, and even search engine Google to take action on responsibility of what is published on their platforms. However, Twitter, Facebook, and Google are aggregators and platforms, not news publishers. News publishers have leeway and discretion on what to write and publish, but are exposed to greater liabilities than news aggregators. Proponents of regulation demand these platforms monitor their content, which in the Western world prides itself on free speech. Increasingly, governments want more censorship control over these various platforms. Popular financial media site Zerohedge recently became censored in New Zealand, as well as online video site LiveLeak and Reddit-like website 4chan.

The massacres in New Zealand Mosques was amplified by social media. This is the case with many notable events, whether negative or positive. A Facebook vice president revealed that less than 200 people saw the Christchurch massacre while it was being streamed live on the website. However, the video was viewed more than 4,000 times before Facebook pulled it from their platform. The saying goes, “at that point, what gets posted on the internet, can stay forever by people making copies.”

These pools of New Zealand public capital are also in the process of contacting peer asset owners. Furthermore, the New Zealand government is looking at breaches of actions on these social media companies and online platforms.

Matt Whineray, NZ Super Fund CEO, in a press release statement said, “We have been profoundly shocked and outraged by the Christchurch terror attacks and their transmission on social media. These companies’ social licence to operate has been severely damaged. We will be calling on Facebook, Google and Twitter to take more responsibility for what is published on their platforms. They must take action to prevent this sort of material being uploaded and shared on social media. An urgent remedy to this problem is required.”

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Deep Dive with Robert Cohen from Benson Oak Ventures on Venture Capital

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This interview is partner content from Sovereign Wealth Ltd.

Many institutional investors are playing more of an active role in the venture capital space, which suits their long-term investment nature, focus on growth, and desire for strategic investments in technology. While many VC funds focus on a “spray and pray” approach, investing in multiple companies hoping that some will be wildly successful, there is one investment manager who believes in the high-conviction, true value-add model when it comes to venture capital.

Robert Cohen heads the activities of Benson Oak Ventures, leveraging deep understanding of the technology market for consumers and small businesses, including operational experience in building global brands and developing and scaling business models through 20 years of early stage investing.

As both an investor and a manager, Robert was the driving force behind one of the most successful venture capital investments in consumer security – AVG (NYSE) – helping it become the global leader in Internet Security, and delivering over 100x return to investors.

In this interview with Rachel Pether, CEO & Co-Founder of Sovereign Wealth Ltd, Robert provides insight into their investment thesis, why doubling and tripling down is a derisking strategy in and of itself, and how the Israeli mindset makes them perfectly suited to entrepreneurship.


RACHEL PETHER: Why don’t we start off by telling me a little bit about yourself and why you started Benson Oak Ventures?

ROBERT COHEN: I’m American, originally from Philadelphia, but I’ve lived outside the US for the last 25 years. I moved to Prague – somewhat accidentally – when I was 26. I was supposed to go for six weeks and ended up staying for 18 years. I moved there in partnership with Benson Oak, before joining Benson Oak a year later. We started investing in the early 2000s and saw there was a gap in the market for start-ups or mid-market funding. My business partner Gabriel Eichler, the founding partner of Benson Oak, had deep management experience, and we focused our investments on consumer brands, companies that already had some revenue but needed additional help. In the early 2000s this help came in the form of finance, marketing and management – bearing in mind this was just a brief time after the fall of communism.

We came upon AVG, which was started in 1989 as an anti-virus company focused on consumers. It was a deal we initially advised on, and then we decided to buy the company in 2004. We saw the global potential repeated the mantra of “there’s no reason a small company from Brno, Czech Republic can’t become a global leader.” Eventually we exited AVG via an IPO on the New York Stock Exchange, returning 100x money to our investors.

There’s no reason a small company from Brno, Czech Republic can’t become a global leader.

I joined management ahead of our IPO and led five acquisitions for AVG of which two were in Israel, so that’s what brought me to Israel seven years ago, with the intention of staying for a much shorter time period than that! In Israel, we invested personal money and that of other family offices, through a syndicate structure. We had a similar focus on the consumer sector, B2C and brands, going after quality not quantity, following on with the winners, and getting involved with the operations of the company. We did three deals in Israel and last year decided to formalize it in a fund structure, taking the approach and the lessons accumulated from 20 years of investing.

PETHER: I want to talk a bit more about why you’re not in the typical “fund management” business, but can you tell me more about the context in 2000 when you started investing? It seems like your style was venture capital focused, but maybe before VC existed as the concept that it does now. Can you tell me a bit more about your approach back then?

COHEN: A lot of the approach I realize now came from those roots, which were steeped in the advisory business. Even when we were advising large corporates, there was a lot of education and training. Remember this was only 5 years into capitalism, so many of our companies had no idea how to access the bond markets, or raise money. We had to educate our clients on what to do, how to do it, but also on basic business concepts. So when we started investing, it was a natural evolution to be an advisor on marketing, finance, management, helping to supplement their skills. At that time Czech and Slovak Republic had high quality technical people, but they just didn’t have the experience of a more developed market. It was part of forming a partnership with the management of our companies, and that’s an approach we maintain to this day.

PETHER: Let’s talk a bit more about this approach. You are vocal about your non-belief in diversification, instead favoring concentration and high conviction. What is your approach to investing?

COHEN: Diversification is definitely appropriate across investment classes and from a portfolio perspective, but in the context of venture capital, I look at the concept of diversification as the wrong way to approach it. People talk about “spray and pray”, but this is really “hope and pray” rather than any real strategy.

People talk about “spray and pray”, but this is really “hope and pray” rather than any real strategy.

Most start-ups won’t make it, but the winners can be 100x. And then of course there’s a lot in between. So the key to VC investing is not just how to assess the winners before you invest, because in the beginning you have little to none real information, but to identify those winners as you invest, along the way, as you see those companies grow. You can then accumulate larger stakes in the winners, which is a form of diversification.

If you’re doubling and tripling down you’re usually investing at higher valuations along the way, but you’re taking less risk because you’ve seen the companies grow, you’ve seen the team develop, you’ve seen the culture. So that’s the real way to win in venture capital – identify the winners through data, through information with your own eyes, and then double and triple down to get the best returns. It’s only by working closely with these companies that you get an unfair advantage – you know the companies better than anyone else.

If you assume there are going to be limited winners, it’s only math to say “I want to own as much as I can of the winners.”

PETHER: So that’s essentially your derisking strategy?

COHEN: Exactly. It is a derisking strategy. Throwing a lot of money around at multiple companies isn’t derisking – it may feel like derisking, but you’re really just hoping and praying. The real derisking is using information and knowledge to make smart investment decisions.

PETHER: Let’s dive into a bit more detail about what that hands-on role looks like, how you get closer to these investments? You’re not in the fund management business, but the “building big businesses” business, which means you place a lot of emphasis on having a hands-on role with your investments. Tell me about your strategy and approach within that.

COHEN: I’ve just listened to a Tim Ferriss podcast interviewing Jim Collins … he talks about the flywheel concept, where one thing leads to another in a virtuous cycle. So I was thinking “what’s our flywheel?”

It starts with being founder friendly – we’re here to help companies, to help them succeed. We take pride in that every company we meet, even if we reject them, we give them feedback. Our approach is to be founder friendly, it’s not shareholders vs founders, we’re all one team.

And that leads to focusing on what you’re investing in. We have a very disciplined focus on where we invest – business to mass market companies. And that covers B2C (classic consumer investing), SMB tech, and then platforms, which combine a business offering with a community. These are companies that have products that can solve real problems, and most importantly, can create brands that scale and acquire new companies. That’s where we’ve always invested.

By focusing on business to mass market companies, this allows us to add value. Whether it’s pattern recognition, to strategic value, to actually getting involved. In a fund structure, I can’t do full-time operations, but the idea behind the fund is that if need be we have people that get much more deeply involved, to work with the entrepreneurs. This helps the companies grow, but it also leads to the next element…

The strategy of doubling and tripling down. In order to make those smarter bets, you need to be involved with the companies. It’s not just showing up to quarterly board meetings. You need to be involved with the team, see the numbers, see the culture from the inside.

The last element is firepower. Brands win by being known… The faster the companies can deploy money, the faster they can scale and the more success they get. It’s common in the VC industry that you raise money and then you have to stop and lose momentum to raise money again. The whole model of our fund is to triple down – we want to use consortiums that have the ability to follow on quickly.

Success breeds success. It also enables us to build up this reputation of really being founder-friendly, encouraging more founders to come to you, giving you the best deal flow. We even plan to do a program where we give carried interest in the fund to our founders, which increases the notion that we’re all working together.

PETHER: Let’s talk about the founder point a bit more. You’re doubled and tripled down in a number of your investments…. What do you think makes a great founder?

COHEN: You know, there’s really no one thing, but even more than this, it’s a combination of things that every great founder has to have:

Passion – it is not an easy thing to be founder. Many times you wonder what on earth are you doing, so you need passion to remind yourself why you started and to keep going and leading

Perseverance – there are going to be tough times, you’ll need to fire employees, have down turns, raise money. You just need to keep going.

Discipline – Start-ups often run in many different directions. You should impose your founder DNA on the company, but then put in place processes that enable execution. Discipline to execute is key.

Surround yourself with A players – people that are better and smarter than you in different areas. The founders that fail are the ones who want to control everything, are insecure about having other people there. This is actually something that Israelis are fantastic at, they don’t care where good ideas come from. Building an A team is not just an ability to find those A players, it’s also a desire to find those people, which many people subconsciously do not have.

PETHER: You mentioned the Israeli entrepreneurs are very well attuned to that. Tell me more about the Israeli market. You went for one year, and you’re still there seven years later. What is it about the Israeli market that attracted you in the first place, and then kept you there?

COHEN: There’s an expression that “start-up founders fall in two buckets, they either want to be king, or they want the cash”. 90% of Israeli startup founders want the cash. There are many founders in Israel who have voluntarily given up the CEO position if it’s in the best interests of the company. In many other countries, the CEO would go kicking and screaming. Egos are the biggest problem in business, and probably in life, and Israelis in general just don’t have the ego that would get in the way of building a business.

There are many founders in Israel who have voluntarily given up the CEO position if it’s in the best interests of the company…. Egos are the biggest problem in business, and probably in life, and Israelis in general just don’t have the ego that would get in the way of building a business.

This is representative of the macro picture. Israel is a small country trying to grow into another market. In their mind, they start on a Monday, and on Tuesday they’re already in the US.

Secondly, the amazing creativity. The whole ecosystem is built on creativity. Digital marketing has become a success in Israel, and that’s been a big step change in the Israeli start-up ecosystem in the last five years – through most of its history, Israel was known as a place that was very good at producing products for enterprises – it was very strong in cyber security, industry, selling to enterprises. Now you’re seeing a new generation that are thinking much bigger, building global brands and global companies, such as Fiverr and Wix – many companies that nobody even knows are Israeli because they’re just another brand.

So you’re seeing a lot of entrepreneurs who have the aspirations to build brands globally from Israel. This dovetails with my passion and skillset of building brands that scale globally.

PETHER: Give me some examples of recent transactions that you’ve closed, the strategy behind them and how you took them to market.

COHEN: Our biggest deal and the one that’s most applicable to the conviction model is Promo. We invested $500K in 2012. It was originally part of slidely, helping consumers create better photos and slideshows and collages. It had 200MM people globally on the platform, but little revenue, so we pivoted to business and ended up creating an industry – enabling small businesses to create marketing videos in 30 seconds or less.

Promo went from zero to $1.5MM monthly revenue in about 18 months. We had funded slidely through 3 different rounds, and then when the time came to pivot into Promo, I was involved with the company almost day-to-day…. Without that hands-on operations I might not have had that inside information. We decided we would support the launch of Promo and did a $6MM financing round. Using that money, the company was able to grow quickly, and for the next two years I was there supporting the CEO & founder in every way I could – including executing on partnerships and even one acquisition. We’ve put in almost $20MM over time and Promo is now the number 1 player in video marketing solutions for small businesses.

This is a great example of our conviction model. Owning a meaningful percentage of a very successful company, adding value, backing a great team, working in tandem in order to help the business grow into a global leader.

We also focus on Business-to-Mass-Market companies, which we have coined as B2M2, the platforms and brands of the Web 3.0 future that are being built as we speak. These platforms will combine communities with business offerings to create new markets and economies at mass market scale. Blockchain and tokenization are innovations used to further attract, incentivize and reward the community. One such example of this is loungebuddy, which was recently acquired by American Express. We invested in the Series A round back in 2015.

In terms of the new fund, one of the three deals was an investment into a Cryptocurrency wallet. I always boil our investments down into 4 basic questions, and this one was a good example of it:

    1. Are you attacking a mass market?
    2. How will you win?
    3. Can we add value?
    4. Do you have a sustainable business model?

In the case of this crypto wallet, they have four amazing founders, three of them are technical guys, and the fourth (also the CEO) is a fantastic marketing person. He’s the one who will infuse the product with his marketing DNA and really be responsible for building the brand. In the seed round – when you don’t have any evidence of traction – having a great marketing person is important.

The last deal to talk about is Spitball. It’s a company we’ve invested in before so again, it’s part of the conviction model. I’ve known the founder for eight years and it’s a company that’s pivoted the business model while keeping the core product, showing the perseverance that a founder needs. Spitball has created a peer-to-peer marketplace for students around academic content, particularly tutoring. The idea is to utilize blockchain as a technology and a database to allow students to transact directly with each other. They can sell notes, they can sell services, they can sell knowledge, they can tutor each other. Any student can become a teacher, and any student can get access to a global knowledge base at a much lower cost and with the actual provider of the service getting the benefit rather than a middle man. The company already has over 200K users on its blockchain based marketplace, and it’s going to be launching its tutoring app next month. This is a huge potential market, disrupting an existing field in an area where we can add a tremendous amount of value.

PETHER: Now let’s take a step back, you’ve been active in this space for quite a while. There’s been a growing role from institutional investors in the venture capital community, in terms of sovereign wealth funds and public pensions. Why are they starting to take more of an interest? What role do you think they can play?

COHEN: They are looking for diversification, which is good. If you think of the top companies in the world, most of them have been started by venture capital. In a lot of those cases, the companies have business models that they didn’t even think of in the beginning. So as an investor in VC, you need patience and a long-term outlook. You have to know that this is going to take 5-10 years, but the reward is going to be great.

Sovereign wealth funds and pension are really built for venture capital investing, because they’re thinking 10, 20, 50 years out in terms of investment horizon. It’s not just about money, it’s about patient money. It’s hugely beneficial for the VC community to have this investor base that has large sums of money and equal amounts of patience.

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