A Chat with Team8, a VC from the Israeli Intelligence Unit

I was fortunate to tune into a conversation with Liran Grinberg the Managing Partner of Team8 Capital, a global cybersecurity VC. He founded Team 8 in 2014 with the former Head of Israeli intelligence unit, 8200, Nadav Zafrir.

Team8’s company-building Foundry model de-risk process to venture investing, which is a process of “co-founding and serial-investing.” This led to serial investing into enterprises such as the creation of Sygnia ($250M exit with x60 return in 3 years) and Claroty, the world’s leader in Industrial Cybersecurity, backed by Rockwell AutomationSiemensSchneider ElectricGeneral MotorsBMW Group and more.

Here are three main advantages to having 8200 as the backbone of Team8.

So what is Unit 8200, and how does it contribute to the success of Team8 Capital?

  1. Level of talent is high. In Israel there is a mandatory service, and Unit 8200 is an elite military Israeli unit. The Team 8 leadership had access to the 1% of the 1%, those who had can new companies or can help build new companies. They were security entrepreneurs, cyber operating partners, and top talent from the largest unit within the military.
  2. Training is high. They start practicing leadership at a young age in the military and in technology. Under Team 8, under the Cyber and Data division, they build products and services to protect from cyber threats for data at scale.
  3. Culture is failure-tolerant and bottom-up. As 18, 19 year olds, they military entrants have their first year, second and third year to experiment with their new ideas each year. The graduates of the 8200 naturally fuel the tech ecosystem and the “startup nation.” 

Another really interesting aspect to the model of Team8 was the venture-building model and the formation of the “Team8 Village,” a critical mass of mass of talent through which a platform- they built out a process for entrepreneurs, engineers, and the investors.

Instead of focusing on commercial innovation, Team8 geared attention to the VC world and the intersection of academia, inventions, and startups and how to enable the backbone of startups to be more influential. As incumbents, enterprises have a lot of resources and access to the markets like understanding of the customers, they are bureaucratic and it is hard for them to innovate. Startups solve very concrete problems. They don’t have much resources or any research capability, and the success rate is very low. So Team8 chose to ask –  how can VCs act as a platform to solve difficult questions?

Team8 helps enterprises digitally transform. The companies or LPs become strategic investors.They don’t often have the muscle power to build something from scratch. So therefore, they passively help build the model to impact the type of problem to invest in the company.

For a gate of four hours, Team8 brings a challenge and companies together with engineers and the leadership. They bring together companies without lack the technical domain expertise from different geographies with a similar problem. For instance, they brought together data scientists and enterprises that 2 entrepreneurs usually would do in the garage. Team8 then conducts technical due diligence to help them grow.

If the problem is big enough, they build the company from scratch. They have 12 companies so far. This whole model – the platform team, village, the process – the investors, and everyone – has de-risked the investing process. 

Liran began working closely with founding teams on the ideation of Team8’s first companies, including Sygnia which was acquired by Temasek for $250M, and Claroty which is backed with $100M in funding, alongside Illusive Networks, Hysolate, Curv and more. Liran then transitioned to build and lead Team8’s Go-to-Market Group across its marketing, business development and market research functions, alongside the formation of a tightknit community of hundreds of C-level executives from the world’s leading enterprises. Combined, the two initiatives have become a powerful and differentiated advantage of Team8 in accelerating the success of its portfolio companies. 

His venture-building model with Israeli’s top talent is not only tackling the world’s greatest cyber security challenges, but also the backbone of the startup nation Israel is today.

Accelerating Tech for a Secure and Sustainable Future

When you think of working in the defense industry, you are right think about the arms – the military equipment, missiles, submarines, helicopters, etc. You’re quite right. So what it mean to be working in sustainable solutions in the world of defense tech?

The idea of working with the private sector for public applications is not new. In the past, most predominant forms of spending were through governmental entities such as DARPA  as R&D directorate and for weapons and military development – the Central Intelligence Agency’s publicly funded venture capital firm – In-Q-Tel or the Defense Innovation Unit.

Their sponsored research today became the technologies in our daily lives – the GPS, the Internet, the microwave, artificial intelligence, were all products from the State investments in technology.

Emerging technologies today have far outpaced the contracting model, where it now needs to move towards venture financing. The types of threats we are facing today including cyber – are outside the security contractor supply chain. The existing model’s ability to keep pace in future warfare is questionable.

The world of defense tech is an interesting one, where it extends beyond the traditional arms to encompass artificial intelligence (AI), quantum computers, cyber, robot, 5G (5th generation), urban air mobility (drones) mobile communication, and aerospace technologies.

At the current Center, we build a hub of: a) challenging technical problems; b) globally shared security challenges c) the intersection of commercial and public sectors, and d) with significant economic upside. We seek to work with venture capitalists accelerating dual-use early-stage technologies by facilitating technology transfer, and forming strategic alliances. 

We work with a network of highly vetted global advisors and partners, enabling us to map technologies to globally shared security challenges. We base our selection on performance, application of technologies to our partner’s mission capacities, and on complete alignment of interest. 

So how can defense tech serve as means for sustainability?

Aerospace and automobiles both rely on high technologies but are both major manufacturing industries relying on advanced materials, electronics, embedded systems, mechanical components, engines, and structures.

The basic idea is the same – you invest into new technologies that are more efficient, faster, smarter but to invest into clean technologies doesn’t also release toxic chemicals or with greater mitigation mechanisms to control GHG emissions.

The battery-powered electric airplanes are, believe it or not, already here. By investing into dual-use (commercial and public) technologies, clean technologies in the commercial sector could be bolstered with public sector investments. Through partnerships and their collaboration with domestic and foreign defense conglomerates, we can accelerate the progress of companies making a material difference in carbon emissions through increased incentives.

The vision is to invest into technologies to help advance the capabilities of the defense sector to have advanced technologies and to develop technologies that will enable the industry to shift from nonrenewable to renewable resources for energy and materials in a significant way – and thus will help to achieve a secure and sustainable future.

The How-to Guide on Harnessing Private Capital for Good


VC Reads

Updated: 7/12/2020.




And…more blogs here.

Thoughts on the Korean VC Ecosystem

I’m learning quite a lot since moving to South Korea and working within its startup ecosystem. I’m learning from the feedback and conversations about the ecosystem by thinking through how Koreans are positioning their market pivoting into Asia and beyond.

I had not realized when I was in the States or perhaps in DC that I was getting spoiled. I was spoiled with the sheer market size, scale, and the global scope of the work we could accomplish. Being in America meant you are able to scale to global operations with a very friendly operational and regulatory environment and being at the State Department meant you are going to work with the top talent and industry leaders at the forefront of global issues.

I’m learning though about opportunities here in Korea, and there is a lot to be catalyzed and leveraged here —

Korea as a bedrock for innovation

South Korea’s total GDP is listed 14th globally by the World Bank, and comes in 5th in Asia. In the last fifty years, the manufacturing, electronics, semi-conductor and cars, etc. have spurred the growth of its economy.

Korea is renowned for its rapid economic and social development. Korea’s growth
initially depended on a low wage, educated and disciplined labor force to produce
goods for exports from its predominantly agricultural state possessing few natural
resources. When the state prioritized economic development with a combination of
state planning and entrepreneurship, South Korea had set forth on a trajectory into a
prosperous, industrial society it is today.

A combined effort of state and entrepreneurs later became family-owned conglomerates, capital-intensive in manufacturing, construction, and steel. The conglomerates today including Samsung, POSCO, LG, and others became the foundation for the innovation and IT entrants.

$$$ Let’s talk about cash.

Korean government well understands the importance of investing into R&D for global competitiveness. It led to the incubation and concentration of money and talent in Korea.

South Korea is one of the most business-friendly environments to foster entrepreneurship. There exists government support with incubation, procurement, funding, policies, and incubation expertise with government grants on public-private partnership investments.

Korea Venture Capital Associations projected that venture investment would hit 5 trillion won ($4.28 billion) over the next two years. And in January, the Ministry of Science and ICT set a record-high budget of KRW 24.2 trillion for R&D, upping the 18% from last year’s amount, for “domestic production of core materials and components necessary for R&D projects,” said Choi Do-young, director of the ministry’s R&D Investment Coordination Bureau. He also mentions the R&D projects will increase to about KRW 31 trillion by 2023.”

High amount of government funding is not always rainbows and butterflies. One of the biggest problems is that Korea has not fully embraced the venture capital culture of high risks and high returns.

The onset of investing from government funding has led to investments are thus defined by the social and local needs identified by the government. Venture capital funding also initially developed by the government as policy tools to promote small and medium companies. Therefore, when members of the public hear about failed investment attempts, they can be quick to criticize.

Korea as a testbed for new technologies

Here’s what I know to be true of the American market. America is a melting pot. It has a mix of demographics and consumer tastes and preferences. Tailoring a marketing strategy often entails to zero-nailing down on a specific race/age/and other varying degree of tastes.

Korea’s high population density further propels adoption of new products and services. The growth of ICT infrastructure over the past ten years also significantly expanded South Korea’s capacity for the digital underpinnings of the economy. The foundations laid the backbone for the advent of new technologies, such as mobile, internet, and platform-centered services. Korea enjoys the world’s fastest broadband internet speed and highest smartphone penetration rate. It naturally birthed its massive consumer base highly versatile with new technologies, media content, and digital technologies.

South Korea is also a relatively homogenous society. It is an incredibly communal and collective. People tend to be relatively on top of trends, so it is a wonderful market to test out new products and services for a specific segment of a population.

Korea as a content powerhouse

South Korea’s content market is incredibly strong as the fourth largest mobile gaming market in the world and a country fueled with a K pop craze from an international audience. 

The content industry is nonetheless backed with strong government support, as in September of 2019 announced a “content venture investment fund” for the country’s entertainment and content industry via an investment-loan guarantee project worth more than 1 trillion won, an equivalent of $841 million USD. It is aimed to provide loans for developers and producers of content in “K-pop, K-dramas, animation, online games and other digital media contents.”

Korea was the first country to introduce eSports on TV, and the top game players are Korean. With over 35 million smartphone users, the size of the Korean gaming industry exceeds 12 trillion won in total. Korea’s largest game companies, Nexon, Netmarble, and NC Soft generate more than 1 trillion won in sales; and ten leading Korean game companies generate more than 400 billion won in sales each year. The e-Sports market size is also rapidly growing, currently accounting for 13.1 percent of the global industry’s size.

Korean entertainment is a global sensation today, producing massive amounts of content, and the industry is quick to adapt technology to its playground. The K Pop sensation, BTS, continues to expand its global influence after toppling down the 1st spot on the Billboard charts in 2018. SM Entertainment, an entertainment talent agency embraced blockchain technology and released its own coin. The token economy backed with cryptocurrencies would allow artists to network into the ecosystem, allowing fans to invest in the artwork, and engage with the ecosystem.

The competition is hot here.

South Korea is also a very competitive market. Even in the F&B business where I’m starting to develop some market knowledge is that general baseline of product prices like how much a tomato or whatnot costs is well-known. The consumer competitiveness for Korea for F&B restaurants is 1:7 compared to Japan and 1:15 compared to the States.

The upside is that with the competitiveness, you learn how to do things right and well here. You often develop in-house expertise to build things and compete and do well here. To succeed in the Korean market, you learn how to brand yourself, stand out from the heavy competition and to be on top of your stuff. Because the market is small, your reputation will matter.

Should we pivot to Asia?

Due to Korea’s positive regulatory policy, or an environment where new businesses and services must comply with regulations listed in the system, venture builders or investors are increasingly establishing branches in San Francisco or in Singapore, where the investment rules are a lot more flexible. A market under a negative system minimizes pre-regulations but can penalize startups longer down the road. Startups and investors often experience many preconditions for financial companies in launching products and services that is new and unique. Take for example, think about the credit card/financing options in Silicon Valley for napkin-stage startups.

There is an increasing momentum to create a a regulatory “sandbox,” but it is going to take a complete and whole regulatory overhaul. The importance lies in the small wins and victories for types of investment/innovation rules.

It’s hard to say. The Korean market is small and saturated. Perhaps it is prudent for companies with unicorn potential to leverage each country’s competitive advantages – for instance, Korean startups can leverage hardware talent in China to build a model with global competitiveness. They can also register in Singapore and/or Hong Kong, maybe obtain a license or an approval as a launchpad to get into the China market. But this is a big step and also depends on each startup’s journey.

Korean startups will have to prove themselves in the market here domestically. A lot of good startups in Korea have parallel or similar startups in Taiwan, etc. At the same time, it is difficult for a startup to grow beyond the single market or a niche market to become a unicorn, so it makes sense that so many startups say they’d like to enter Asia/global markets.

Where we are and where are heading next.

True, South Korea is well behind United States and China in the number of unicorn companies in other words, unlisted startups valued at over US$1 billion. The United States and China have 201 and 101 unicorns, respectively, while Korea has only nine.

Foreign unicorn companies are showing tremendous growth in such areas as sharing economies, cloud computing, and artificial intelligence, while Korean unicorn companies invest mainly in independent business models such as cosmetics and games that are not subject to regulations and face less conflict with interest groups.

The emergence of various investment mechanisms such as venture capital, accelerator, and micro VCs is noteworthy. The influx of capital and the supply of money to the extent is slowly fixing the problem of information asymmetry and lack of deal sharing in the market.

It is also notable to look over the demographic shift that will happen over the next generation. There will be another billion people moving into the middle class According to Bernard Moon, about three times of 350 billion, the population of the U.S. will be moving toward Asia.

If we’re looking at Asia as a market, it is also important to look at geopolitical/external risks – like to corona virus presently or even Korean-Japan relations. There are many complications to be looking out for, and Asia is a complicated market to be working in.

Softbank Korea rebranded themselves and became Softbank Asia. Though now stationed in Singapore, they are equipped with a dedicated team for China as well.

Korea sits at the center of the Asian market. There are pockets of leadership around the world, but the level of competitiveness, talent, funding, and the trends in Korea are leading Asia. South Korea is an ideal testbed for technologies, as a rare global market with high digital penetration and an equally concentrated tech-friendly consumer base. Korea’s tech-friendly consumer market on mainstream platforms and acquired massive user base offers an opportunity for domestic companies to realize their synergistic potential.

Venture Capital vs. Private Equity

I had my own doubts. Venture capital and private equity are very different disciplines. While both purchase stocks in privately held businesses, I wasn’t sure how to quite feel about PE being so risk averse. It was incredibly rare to find a VC portfolio driven by disruption opportunities. I looked closely into the increasing private equity buyouts of startups, and I’m learning there are key areas VCs could learn from PE’s economics.

I had a feeling that most VCs don’t provide as much value as they claim. Even in my own case, I wasn’t sure exactly what value I could add when I’m not in the deep-end with them in the business, team, market, and the opportunity. Private equity owns the business to steer through a rapid performance transition and selling them. With a clear line of responsibilities and a full team, it makes the investment with the goal of liquidation without the fund being dysfunctional. PE also has the advantage of drawing deep insight in different stages of growth whereas a VC may lose interest. I think once more public companies and investors embrace buy-to-sell strategy, they would benefit in refueling under-managed businesses and create a more efficient market.

Investments with Political Vehicles

(Originally written: 10.12.2018)

American leadership promotes of governance, democracy, human rights, and global stability. How does this translate into social investments overseas?

Businesses consult political risk, such as power structure and roots of political legitimacy, to make decisions on overseas investments. Democracy, which involves social systems, tax laws, and a regulatory environment, enables a positive, sustainable, and local growth for social enterprises.

Economic growth often provides legitimacy to dictatorship, but democracy provides a stable political environment, with less corruption or government seizures of business. Therefore, it protects financial return with the discipline of the market by supporting our key allies under diplomatic turmoil.

For instance, India is an economically independent country with aims to enhance its strategic space and capacity for independent agency. If the objective of bilateral economic engagement is to accelerate the integration of the two economies, only a resolute defense of the free market with an open focus on increasing FDI – would allow it to overcome its vast development deficits to liberalize the economy while strengthening state capacity.

India can increase the use of digital payments and support digital finance technology projects to not only scale its technologies, but strengthen its resilience.

The most important task in strategic logic of each bilateral relations is the success of the affiliation, and how its benefits are to be conceived. Especially in a country where geopolitical rivalry coexists with economic interdependence.

Investment readiness remains a key issue for ventures. It requires understanding of risk and how to price it. Transaction and reporting requirements can be quite high. By opening up the private capital to solve difficult foreign policy challenges fundamentally guide critical capacity building and equip allies to support strategic priorities. Therein, it responds to on-the-ground conditions targeting specific vulnerabilities for sustainable and scalable growth of enterprises. I hope we can provide a role in development – the social impact investment ecosystem – to create liquidity in the market incentivizing a genuine strategic partnership with deep-rooted shared interests.