Looking to Israel for talented start-up companies is hot right now in the business world. But Brian Rosenzweig and his partners at JANVEST Technologies, an angel investment fund based in Philadelphia and Tel Aviv, don't believe that the 64-year-old nation has been fully mined for its potential.
Rosenzweig, managing partner and vice president of investor development for JANVEST, and his business partner, Daniel Frankenstein, decided back in 2007 to create a strong, safe investment vehicle that would allow the American public to invest in pre-IPO Israeli tech companies. Such young companies, which Rosenzweig characterizes as in the "seed-stage or late seed-stage," are generally still in research and development or just beginning to show a profit.
Rosenzweig said that JANVEST is looking to enable average Americans — individuals who may have never invested in an emerging market — to pool their funds and invest in 10 to 12 promising companies before they become big enough to gain the attention of venture capitalists.
The hope is that these new, smaller-scale, accredited investors would gain a larger payoff, proportionally, than venture capitalists, who typically invest much greater sums but own less of the company when it is eventually acquired by another company.
To be successful, as well as unique, in the investment market, the company's leaders knew they needed to be based in both the United States and Israel, and legally registered in the United States. They also had to make sure that their investors were free from taxes in Israel. To do this, they got an exemption from taxation from the Israeli government, based on the stipulation that no Israeli money be invested.
They also knew that they needed a strong system of transparency, given the risks involved and the wariness of the American investor, especially given the recent frailty of the U.S. economy and the fear of Ponzi-scheme-type scams.
With employees on the ground in Israel and the United States, JANVEST sees between 20 and 40 companies per month, trying to identify the best start-ups.
So far, the firm has invested in four companies, according to Rosenzweig, including one that created a novel type of digital security and one that deals with mobile advertising. The goal is to increase the portfolio to 10 to 12 companies.
An example of the type of start-ups that JANVEST is looking for, said Rosenzweig, is Lab Pixies, an Israeli tech company that designed widgets for Android, the iPhone and iGoogle, and was bought out by Google back in 2010 for $25 million, a micro-exit that might disappoint a venture capitalist, but would overjoy an angel investor, as the company had been given only $1 million in angel fund investment.
"For a VC, that's a bad day; that doesn't pay for the electricity bill. For an angel investor who put in half a million dollars and owns 20 percent of the company, somebody's going out for dinner that night," Rosenzweig said.
In 2007, a few years after graduating from Indiana University, Rosenzweig, now 30, made aliyah, where he reconnected with Frankenstein, whom he had met at a conference of the pro-Israel lobby, the American Israel Public Affairs Committee, while they were both in college.
Though Rosenzweig returned to the United States to help create the company's Philadelphia base, he still maintains dual citizenship.
Rosenzweig, who is from Savannah, Ga., said he thinks Philadelphia is the perfect place to base JANVEST not only because of its proximity to other major East Coast cities, but also because he believes that Philadelphia, especially with its sizable Jewish community, has a great affinity for Israel.
Over the past six months, JANVEST has gathered nearly a dozen investors in Philadelphia and they are looking for more.
The firm also has investors across the United States — from San Francisco to Boston, Detroit to Atlanta.
Said Rosenzweig:"I would love for this city to really embrace what we're doing."