Fashion Technology Fashion Industry Analysis Opportunities inthe Investment Future Trends in Venture Trends University-led Entrepreneurship Entrepreneurship University-led Virtual Roundtable Blockchain – for Better – for Worse? or Blockchain Deep Venture Policy and Policy Venture Gig the Economy in Creation New Venture December 2019 Coller School of Management School of Coller University Aviv Tel

Coller Venture Review

Coller Venture Review | December 2019 Letter from the Editor

oller Venture Review, the flagship Bridging the dialog between theory and journal of the Coller Institute of practice is particularly significant at a Venture at University, time when action-oriented entrepreneurs C relaunches with this issue in a must rapidly adapt from the field. This new format. To start, we retain our core presents a rare opportunity to develop focus on bringing together theory and generalizable new insights and feedback practice. We believe that fostering the loops. The imperative is even greater dialog between academics and practitioners when one considers that the substantive is critical to successful and sustainable outcome we seek to address – successful new venture creation. It broadens our and sustainable new venture creation – can perspective and the range of views we can affect life-altering fields including health, integrate into a new synthesis. In its most education, food, agriculture and many others. applied perspective, it helps us engage This is the place to thank Leslie Broudo in new ways of thinking related to the Mitts, our Managing Editor, for her endless conceptualization, financing, and execution efforts and dedication, Josh Lerner, our of innovation and new venture creation. Associate Editor from Harvard Business While our core focus has remained consistent, School, for his insightful comments our approach to tackling the content has and suggestions and Tal Sossover, our evolved. In each issue, starting with the editorial assistant. Special thanks to all our current one, we address four sections: Venture contributors, colleagues, and collaborators Policy and Management; Deep Innovation; worldwide for their dedication and vision. Trends in Venture; and, to support future While the results of our work will not be generations of researchers, Industry Analysis. measurable in weeks or months, we hope Each section includes the perspective this first step can help guide our future. We of both academics and practitioners. welcome any comments and suggestions from In addition, we also report insights from our readers that will help us improve the value the perspective of a Virtual Roundtable, to of Coller Venture Review to its readership. bring together global leaders in a specific Sincerely, field of interest – in this case, university- led entrepreneurship. We expect that future issues of the Journal will include case studies to help isolate best practices, and a reader’s digest of outstanding articles in the fields of entrepreneurship, Moshe Zviran innovation and new venture creation. Editor-in-Chief

01 Coller 4 56 92 Venture Policy and Management Virtual Roundtable Industry Analysis Venture New Venture Creation in the Gig Economy University-led Entrepreneurship Fashion Technology

Review 7 3 Steps to Build a Labor Market Freddy Boey 94 The  Impact of Technology on for the Gig Economy Deputy President, National University of the Global Fashion Supply Chain Diane Mulcahy Anjani Jain Jacqueline M. Jenkins Author, The Gig Economy Deputy Dean, Yale School of Management Executive Director of Strategic Planning and Innovation, Fashion Institute of Technology Jonathan Levin 14 The Future of Cities in the Dean, Graduate School of Business, Stanford University Gig Economy Stephen Spinelli Carmen Ferrigno President, Babson College Vice President Communications, Saint-Gobain Corporation Kar Yan Tam Dean, The University of Science and Technology 23 The Challenge Regulating Moshe Zviran Big Tech Platforms Dean, Coller School of Management, Eric K. Clemons Professor of Operations and Information Management, The Wharton School, University of Pennsylvania 77 Bringing Entrepreneurial Theory to Practice in the Classroom Michellana Jester Lecturer and Course Faculty Lead, MIT Sloan School of Management 32 82 Deep Innovation Trends in Venture Blockchain — for Better or Worse? Opportunities in the Investment Future

35 Blockchain Revolution Without the Blockchain? 85 Democratizing the World of Hanna Halaburda Associate Professor of Technology, Operations and Statistics, Jonathan Medved Stern School of Business, New York University Founder and CEO, OurCrowd

44 The Darker Side of Blockchain Nouriel Roubini Professor of Economics and International Business, Stern School of Business, New York University

50 Blockchain as a Solution to Cyber Threats in the Smart Grid of the Future Jacob Mendel Head of the Cyber-Security Track, Coller School of Management Coller School of Management, Tel Aviv University Tel Aviv University

03 Overview

iv ur Trends in Venture section addresses change 85 in a new venture creation over the last twenty- Democratizing the five years. This issue considers a visionary’s practical perspective on leading change and World of Venture Capital O sharing wealth. Jonathan Medved Jonathan Medved, Founder and CEO of OurCrowd, Founder and CEO, OurCrowd considers not global risk but ways to reduce risk for individual investors. Medved’s democratization of the venture capital investment process helps us to consider how private and traditionally hard-to-access financial Trends in Venture markets can be made accessible equitably, and how even small investors can participate in a future of Opportunities in the transformative and profitable new venture creation. Investment Future

82 COLLER VENTURE REVIEW 83 Democratizing the World of Venture Capital

Jonathan Medved Founder and CEO, OurCrowd

ince its inception in 2013, OurCrowd has been committed to democratize access to venture If growth opportunities S capital while maintaining best venture practices for a new class of investors. have shifted — not all the The opportunity and time for OurCrowd’s way, but to a substantial are driven by a number of extent — into private factors. These include consistent high returns in the asset class, which nevertheless have markets and ordinary benefitted only a small subset of investors; investors don’t have increasing difficulty in accessing the best deals, as top deals stay private longer and access to them, that’s not then IPO at extraordinary valuations. On top good… It’s hard to give of the above, all but the most sophisticated investors have not been granted standard individuals access to private economic preferences, which are critical markets. Can we have a to offset risk and preserve upside. fund structure to ensure Opportunity and Differentiation that ordinary investors are Compared to other seemingly similar getting the same deal? “” platforms, the OurCrowd platform is distinguished in a number of ways. Testimony to its vision and success in education, it currently has 40,000 accredited investors Jay Clayton from over 180 countries who access highly Chairman US Securities curated individual venture deals and venture and Exchange Commission capital fund. The emphasis is on investing September 19, 2019 relatively large amounts from aggregated individuals and institutions via an LP/ GP structure. Median check size is $3.5M per portfolio deal, with many companies raising amounts beyond $10M. •

84 COLLER VENTURE REVIEW 85 OurCrowd has already invested in over 200 Democratizing Access to Venture JUMP Bikes – aquired portfolio companies and 19 funds, and has had Investing – and Offsetting Risk by Uber in April 2018 36 portfolio exits to date, including leading Increased companies such as Beyond Meat (BYND), Venture capital as an asset class has performed JUMP Bikes (sold to Uber), Wave (sold to well for its investors over the decades, in commitments to H&R Block), and Argus (sold to Continental). fact generally outperforming all other asset classes. And yet, it has been the most esoteric, venture capital OurCrowd often leads its deals; invests most inaccessible asset class even for many and the formation alongside leading venture funds; gets large institutional investors. The number of Board seat representation in a majority institutions that have significant commitments of mega funds – of its deals; purchases preferred stock; to venture is actually rather limited; accredited like the $100B and receives anti-dilution protection, and ordinary investors can only dream. Yet, pre-emptive rights and liquidation particularly as fast-growing companies stay Softbank Vision preferences – just like traditional private longer and seem to take forever to Fund – have venture investors. go public, it is clear that the need to open up The model has proven successful thus access to this closed club of venture investing driven dramatic far. OurCrowd has been recognized by is becoming imperative. The question is growth in venture Pitchbook since 2014 as the most active how to execute on this “democratization” venture investor in the highly competitive in a way that will both benefit the venture capital investments Israeli venture market, achieving this ecosystem and the companies it serves, globally status only one year after its launch. as well as provide compelling returns and protections for a broad range of new investors. OurCrowd – and the idea behind it – might Yale University Endowment, a leading These increased commitments to Venture have reached the market at the right time. Jay Clayton’s galvanizing call to democratize institutional investor led by the legendary Capital and the formation of mega funds – access to venture is understandable David Swensen, over the years has “captured like the $100B Softbank Vision Fund – have given the history. As the table below great value from the illiquidity premium driven dramatic growth in Venture Capital shows, the 25-year IRR for Venture top- of alternative assets” and made outsize investments globally, rising from $175B in quartile performance averages 31%, commitments to Venture Capital as part of 2017 to over $255B in 2018. In , one of far exceeding Private Equity’s 13%. a fundamental core of its asset-allocation the world’s Venture Capital hotbeds, the strategy. In fact, Yale has announced that it growth rate in venture investments has is upping its commitment to Venture Capital been even more impressive, rising from to a whopping 21.5% as target for 2020. $2.4B in 2013 to $6.4B in 2018, with more than $8B projected to be invested in 2019. This funding bonanza has led companies to stay private longer and put off their eventual Yale’s endowment allocation to public offerings until they have long crossed venture capital continues to grow over into “Unicorn” status (start-ups with a valuation of at least $1B). This extended 2018 2020 Unicorn runway reduces the eventual Comparative Returns by Asset Class Actual Target returns offered to investors who buy the Absolute return 26.1% 23.0% Asset 5-Year 10-Year 15-Year 20-Year 25-Year IPOs when they ultimately go public. Venture capital 19.0% 21.5% Venture Capital 13% 13% 11% 21% 31% As an example, the number of Unicorns Leveraged buyouts (Incl. PE) 14.1% 16.5% significantly increased in just 14 months, Private Equity 12% 14% 13% 12% 13% from 279 in February 2018 to 452 in May 2019, Foreign equity 15.3% 13.8% Real Estate 11% 8% 7% 7% 8% and had a combined valuation of $1.6T. This Real estate 10.3% 10.0% was demonstrated in a striking manner by Large-cap Equity 10% 13% 8% 7% 10% renowned venture investor Mark Andreesen Bonds and cash 10.3% 7.0% Bonds 3% 3% 4% 5% 5% when he compared the returns offered to Natural resources 7.0% 5.5% public investors in the “good old days” when — Venture capital (VC) involves investment in start-ups, often with new business they invested in the IPOs of Microsoft, Apple, models and products, which have potential for significant growth Domestic equity 3.5% 2.8% — Average returns (IRR) for venture capital have historically exceeded those for other asset classes Amazon, and Oracle vs. today when IPOs such Total 100% 100% as Uber already had an $82B offering value Source: Pitchbook. Notes: 1. Cambridge Associates Global Venture Capital, Global Private Equity, and Global Real Estate Benchmarks (since down over 30%) and investors refuse Yale’s Endowment Allocation, considered one of the Return Report. Private equity asset class excludes venture capital, 5-,10-, 15-, 20-, and 25-year returns representative of average pooled IRR to support the prices of over-inflated IPOS, for vintages dating back from 2014. Top quartile returns for all asset classes shown. Large-cap equity proxy is Lipper aggregated US large- premier endowment models, continues to maintain cap equity fund performance. High yield bond proxy is Lipper aggregated high yield bond fund performance. Aggregate core bond proxy is a well-diversified, equity-oriented portfolio with famously tanking the planned public debut of Lipper aggregated core bond fund performance. Returns as of Dec. 31, 2015. Sample size for each asset listed is as follows: venture capital: a growing share allocated to Venture Capital. WeWork at $47B. Frustrated investors, both 91–440; private equity: 174–630; real estate; 71–207; large-cap equity; 62–674; high yield bonds: 30–421; and aggregate core bond: 22–385. Surpassed $30B mark as of June 30th 2019 individual and institutional, are asking why •

86 COLLER VENTURE REVIEW 87 Crowdfunding Platforms Given the influx of capital into private companies, companies are now delaying their IPO until much later in their lifecycle – significantly limiting returns once they are public. Platform Curation Stock type Board seats Follow on Fees

AngelList By Angel Generally Generally not Generally not 20% carried common interest If you invested at IPO

$100.0 2500.0x Regulation Little or none Common None since None Slotting/broker

2102.3x $81.8 Crowdfunding regulations fees from $75.5 prohibit companies 2000.0x $75.0 OurCrowd Standard Preferred In majority of In most cases 2% 1299.9x 1500.0x Venture cases where management, $50.0 Diligence available 20% carry

$Billion 1000.0x 744.4x 694.4x $28.3 $29.5 $23.0 $24.5 $25.0 500.0x $8.2 $1.2 $0.8 $0.3 $0.4 32.9x 6.2x 1.1x 0.7x 1.2x 1.2x $1.4 5.9x 1.0x The stock purchased is generally common and the LPs that is different in kind and $0.0 0.0x shares, without anti-dilution or pre-emptive intensity from the traditional Company-VC- AAPL MSFT ORCL AMZN GOGGL FB TWTR SNAP DB SPOT BYND UBER (1980) (1986) (1986) (1987) (2004) (2012) (2013) (2017) (2018) (2018) (2019) (2019) rights, no platform supervision, no board seat, LP relationship. This differentiated approach nor follow-on investments. These Reg CF becomes a force multiplier factor for portfolio IPO Value ($B) Return post IPO investors are the first investors to be hurt if companies because the global investor there is a “down round” (financing at a lower network can be leveraged to provide strategic valuation) and the first to be left out if there is introductions, hiring, local distribution and joint ventures, and assistance with follow- Source: OurCrowd, as at June 13, 2019 they were not able to invest together with the an “up round” (financing at a higher valuation). Increasing the Investment on funding. The OurCrowd global network lucky few in Uber’s $1.3M angel funding round. Given that companies must pay the Reg Public’s Access to Venture Capital is engaged in real partnership with the CF to be listed and upon success, and that Net net, the problem is that unless one is lucky There have been a number of initiatives Even the wealthiest companies and thus, paradoxically, OurCrowd and well connected enough to be “invited” to sponsors do not invest their own capital in the is perceived by many of its portfolio CEOs as launched over the past several years to individuals or family portfolio companies, the companies selected join such a round, getting into quality Venture address this limited access to venture the company’s most active venture investor. Capital deals and funds is very difficult. As are subject to a negative selection bias, with capital. AngelList is a popular site that allows offices... have a very One of the key challenges faced by platforms an individual, participation in angel funding Reg CF generally choosing companies that individual accredited angel investors to join that raise funds for individual venture deals is totally dependent on who one knows, and tough time getting can’t raise money from recognized Venture with other angels in syndicates formed to the way OurCrowd does, is the general is very localized. If you live in Silicon Valley Capital investors. Clearly, an alternative back deals listed online. AngelList splits an allocation. The inability to give a firm and hard commitment and are a VC or senior member of a Google for individual investors, which rewards a carried interest (typically 20%) with the on the amount of capital to be invested in the or Facebook team, you may get shown angel waiting list to invest rather than penalizes their participation, lead angel (syndicate leader) and, generally, company. This, of course, is subject to the deals. But if you are a wealthy dentist in Peoria, is necessary. OurCrowd seeks to provide no ongoing management fees are charged. in Benchmark, First success of the funding effort and campaign. Illinois, your chances are pretty much non- such an alternative. (See table opposite) While some of the angels and their deals Round Capital and However, given overall performance and existent. Even the wealthiest individuals OurCrowd’s financial model employs the are of good quality, there is no overall transparency in the process, this obstacle or family offices who are willing to pay the standard 2/20 Venture manager profit share supervision or curation of deals, and the others is akin to an has been largely overcome (though not yet usual minimum $5M LP entry ticket and get (2% management, 20% carried interest), thus quality of some listed deals is often spotty. infinite loop completely). OurCrowd is hard at work on into quality Venture funds have a very tough aligning interests between investors and the Moreover, the angels are not necessarily several new methods to bridge these gaps. time getting allocation. The waiting list to platform. However, minimum investment sizes taking board seats, nor always buying One positive surprise with the OurCrowd invest in Benchmark, First Round Capital are modest: $10,000 for individual companies preferred stock, nor focused on providing funding approach has been the general and others is akin to an infinite loop. and $50,000 for venture funds. Aggregated LP added value to the company, or even allowing success of providing follow-on funding to checks for funds already exceed on average Institutions also have to build teams of for follow-on investment opportunities. those companies making steady progress, and $10M per fund. investors to hunt these funds and fight for even in some cases where down rounds occur Several sites that were promulgated in allocation often only to settle for a $5M–10M and trouble needs to be worked out. While response to the JOBS Act of 2012 (Regulation LP piece in an untested fund, which needs OurCrowd and Funded this was not at all assured in early plans and Crowdfunding sites, or Reg CF, according to be multiplied by 20 other different Companies: Challenges and discussions, it turns out that in many cases fund commitments in order to invest a to the SEC regulations), allow for even non- Further Opportunities OurCrowd has built its position in subsequent $100M–$200M amount representing only accredited investors to join in online venture investment rounds, growing from an initial 1%–2% of a $10B corpus. The need to rinse deals. However, the amount of capital that OurCrowd deviates from regular venture investment of only $1M–$2M in some cases and repeat this allocation hunt every three- Reg CF sites can invest is limited to $1M per practice in several key areas. First, the to over $10M as a result of participation in four years according to each fund’s launch company and the sponsors of the sites make companies must help with the fundraising by several follow-on rounds. Moreover, since and funding schedule proves daunting to their money as a kind of junior broker dealer, appearing at face-to-face investor events and investments are not limited to a single, hard all but the most committed asset allocators, being paid by the companies a percentage of roadshows, online webinars and participation limited fund with issues of reserves and fund thus leaving many wannabe institutional capital raised. Stock is directly owned by the in personal calls and meetings with significant lifetime, the potential for follow-on is actually venture investors left out in the cold. individual investor so, potentially, hundreds investors, family offices and institutions. This quite significant, especially if the global LP of investors are added to a company’s cap table. creates a linkage between the companies network is engaged with the company. •

88 COLLER VENTURE REVIEW 89 Looking into a More OurCrowd’s Returns based on 51 concluded Democratized Future investments (i.e.: Exits & Write-offs) – IRR The key factor that will ultimately make or break democratization of Venture Capital Net IRR Gross IRR is performance. Can the new platforms 285.0% bringing new investors to the asset class 365.0% 280.0% deliver the results needed to justify the inherent risk and illiquidity of venture 275.0% 355.0%

270.0% investments? While it is still early and much work and analysis need to be done, 20.0% OurCrowd’s initial results are promising. 10.0% Net IRR 5.0% GrossIRR 10.0% Overall performance in certain key ( 0.0% performance criteria such as DPI distributions 2015–2016 2017 onwards Grand total 0.0% 2015–2016 2017 onwards Grand total as a function of paid-in capital) are already -5.0% Vintage Vintage -10.0% exceeding top-quartile benchmarks from -10.0% Cambridge Associates. For the sake of -15.0% analysis, we looked at all investments in company SPVs in aggregate as three-

Returns have been calculated internally by OurCrowd, based on IPO prices as at 6.30.19, and have not been independently audited. year funds (2013 and 2016 funds) and both exceed the DPI measurement needed to enter the coveted top-quartile cohort. OurCrowd is also different in its approach Year Net IRR Gross IRR The deal includes an investment in OurCrowd The OurCrowd Global About the Author to Corporate Venture partners that are Vintage: 12.9% 22.2% Moreover, performance is improving over time and a decision to distribute OurCrowd 2015–2016 Investor Summit 2019 registered on the platform in order to engage as the model continues to prove it can deliver products to its over 1 million clients through Vintage: 282.8% 355.2% Jonathan Medved is a serial entrepreneur, 2017–2018 for companies and investors. Earlier company with portfolio companies; perform Proof-of- the firm’s 2,200 financial advisors. This is the one of Israel’s leading high tech venture Grand total 32.6% 42.5% cohorts in the 2013/2014 time frame were not Concept testing (POCs); and even contract for first time a major U.S. financial institution capitalists, and was named one of the world’s the best performers, but the quality of deal paid scouting and other innovation services, has announced an intent to broadly distribute “50 most influential Jews” by Post. including Corporate VC as a service. Over flow has improved markedly as value is added Venture Capital products and will have major Medved is the founder and CEO of 1,000 multinationals are registered on the consistently to the portfolio and performance ramifications on both OurCrowd’s business and OurCrowd. He was the co-founder and platform, thus providing additional value is delivered for investors. Analysis of the reach, as well as the broader financial markets. former CEO of Vringo; the founder and to the portfolio companies and funds. performance of “completed investments,” general partner of Israel Seed Partners; including all exits and write-offs, shows It seems that the democratization of access to OurCrowd is both a direct investor in a founder and executive VP of dramatic improvements since inception. Venture Capital is already taking shape. Let companies and in funds and, therefore, us hope that these are the first of many moves marketing and sales at MERET Optical Communications, Inc.; executive VP of also has a different scale than most Venture OurCrowd has launched a fund called OC that will allow broader and successful access marketing and sales at Accent Software. organizations. These funds are either built 50, which is a kind of Venture Index fund to Venture Capital among both institutions by teams hired by OurCrowd, or as theme- or consisting of a portfolio of 50 different and the individual investor. The advantages Medved has served on the Boards of Ma’aleh strategy-driven portfolios selected from among companies. For each $50,000 fund to these investors, as well as to the companies Film School, Michael Levin Lone Soldier its direct investments, or as partnerships built increment, an equal amount of $1,000 per they invest in, will be a game changer. Center, Artists and Musicians for Israel, with other venture funds that allow OurCrowd company was invested in a multi-vector Bnai David Eli, and served on the Board of to invest as an LP in their funds. Leading diversification strategy. The 2017 vintage Governors of the Jewish Agency and the funds such as USVP, Maniv, Proof, OXX, and portfolio was invested across sectors, stages Jerusalem College of Technology. others have received significant LP funding (from early to late), and geographies. The Medved is a frequent guest and commentator from OurCrowd. The ability to choose from a performance to date has been striking on television and was featured in several menu of leading Venture Capital funds, which with five exits( two from Israel, two from documentary movies. His writing has at any given time includes five or more that the U.S., and one from Canada) and top appeared in the Wall Street Journal, are currently funding, is a unique offering to performance across several key metrics. Looking forward, I think USA Today, The Jerusalem Post, and both individual and institutional investors who Townhall.com. This kind of performance is bringing attention are writing checks and making commitments you’re going to see a whole from institutions that now wish to broadly ranging from $50,000 to many millions of distribute these products to their clients who bunch of initiatives to bring dollars. The fact that there is no “fund of funds otherwise have no access to the Venture overage” (a standard additional 1% management more and more people into Capital asset class. On Oct 16, 2019, Stifel, a fee and 10% carried interest fees tacked onto leading U.S. diversified financial group that is the asset class. the 2/20 model in most fund of funds) is unique the 7th largest U.S. broker dealer and has the and allows OurCrowd investors to build their country’s largest equity research platform, own diversified venture fund portfolios. announced a strategic deal with OurCrowd.

90 COLLER VENTURE REVIEW 91 In theory, theory and practice are the same. In practice, they are not.

Albert Einstein

The Editorial Board

Editor-in-Chief Prof. Moshe Zviran Dean, Coller School of Management Tel Aviv University

Managing Editor Dr. Leslie Broudo-Mitts Head, Coller Institute of Venture Coller School of Management Tel Aviv University

Editorial Advisor Prof. Josh Lerner Jacob H. Schiff Professor of Investment Banking Harvard Business School Harvard University

Editorial Offices Coller Institute of Venture Coller School of Management Tel Aviv University Tel Aviv 6997801, Israel

Email: [email protected]

ISSN 1241-5542