London and Tel Aviv based VC firm 83North has closed out its fifth fund at $300 million, as we reported earlier. It last raised a $250 million fund in 2017 and expects to continue the same investment mix, while tracking developments in emerging areas like healthcare AI and autonomous vehicles.
In a conversation with general partner Laurel Bowden, the veteran investor shared a few further thoughts with Extra Crunch — talking about the tech scene in Europe vs Israel, what the firm looks for in a team and tips on scaling globally.
The interview has been lightly edited for clarity.
TechCrunch: Is Europe starting to catch up to Israel when it comes to deep tech startups?
Laurel Bowden: We clearly think we have in our portfolio some deep tech. And in other VC portfolios too — there’s clearly some deep tech [coming out of Europe]. And then on the reverse side you’ve seen more consumer-related stuff coming out of Israel. But still if you take a blanket look, we see more data infrastructure, security, storage coming out of Israel than we see in Europe — that’s for sure.
83North has closed its fifth fund, completing an oversubscribed $300 million raise and bringing its total capital under management to $1.1BN+.
The VC firm, which spun out from Silicon Valley giant Greylock Partners in 2015 — and invests in startups in Europe and Israel, out of offices in London and Tel Aviv — last closed a $250M fourth fund back in 2017.
It invests in early and growth stage startups in consumer and enterprise sectors across a broad range of tech areas including fintech, data centre & cloud, enterprise software and marketplaces.
General partner Laurel Bowden, who leads the fund, says the latest close represents investment business as usual, with also no notable changes to the mix of LPs investing for this fifth close.
“As a fund we’re really focused on keeping our fund size down. We think that for just the investment opportunity in Europe and Israel… these are good sized funds to raise and then return and make good multiples on,” she tells TechCrunch. “If you go back in the history of our fundraising we’re always somewhere between $200M-$300M. And that’s the size we like to keep.”
“Of course we do think there’s great opportunities in Europe and Israel but not significantly different than we’ve thought over the last 15 years or so,” she adds.
83North has made around 70 investments to date — which means its five partners are usually making just one investment apiece per year.
The fund typically invests around $1M at the seed level; between $4M-$8M at the Series A level and up to $20M for Series B, with Bowden saying around a quarter of its investments go into seed (primarily into startups out of Israel); ~40% into Series A; and ~30% Series B.
“It’s somewhat evenly mixed between seed, Series A, Series B — but Series A is probably bigger than everything,” she adds.
It invests roughly half and half in its two regions of focus.
The firm has had 15 exits of portfolio companies (three of which it claims as unicorns). Recent multi-billion dollar exits for Bowden are: Just Eat, Hybris (acquired by SAP), iZettle (acquired by PayPal) and Qlik.
While the fund has a pretty broad investment canvas it’s not locked to it — moving into IoT (with recent investments in Wiliot and VDOO), and also taking what it couches as a “growing interest” in healthtech and vertical SaaS.
“Some of my colleagues… are looking at areas like lidar, in-vehicle automation, looking at some of the drone technologies, looking at some even healthtech AI,” says Bowden. “We’ve looked at a couple of those in Europe as well. I’ve looked, actually, at some healthtech AI. I haven’t done anything but looked.
“And also all things related to data. Of course the market evolves and the technology evolves but we’ve done things related to BI to process automation through to just management of data ops, management of data. We always look at that area. And think we’ll carry on for a number of years. ”
“In venture you have to expand,” she adds. “You can’t just stay investing in exactly the same things but it’s more small additional add-ons as the market evolves, as opposed to fundamental shifts of investment thesis.”
Discussing startup valuations, Bowden says European startups are not insulated from wider investment dynamics that have been pushing startup valuations higher — and even, arguably, warping the market — as a consequence of more capital being raised generally (not only at the end of the pipe).
“Definitely valuations are getting pushed up,” she says. “Definitely things are getting more competitive but that comes back to exactly why we’re focused on raising smaller funds. Because we just think then we have less pressure to invest if we feel that valuations have got too high or there’s just a level… where startups just feel the inclination to raise way more money than they probably need — and that’s a big reason why we like to keep our fund size relatively small.”
Apple has fixed a security flaw for a second time after it accidentally reintroduced an old bug in a recent software update.
iOS 12.4.1, released Monday, contains a security fix that was first patched months earlier in iOS 12.3. Apple rolled out a fix in May, but accidentally undid the security patch in its latest update, iOS 12.4, in July.
In a brief security advisory published after the software’s release, Apple said it fixed a kernel vulnerability that could have allowed an attacker to execute code on an iPhone or iPad with the highest level of privileges.
Apple’s latest security advisory for iOS 12.4.1.
Those privileges, also known as system or root privileges, can open up a device to running apps that are not normally allowed by Apple’s strict rules. Known as jailbreaking, apps can access parts of a device that are normally off-limits. On one hand that allows users to extensively customize their devices, but it can also expose the device to malicious software, like malware or spyware apps .
Spyware apps often rely on undisclosed jailbreaks exploits to get access to a user’s messages, track their location, and listen to their calls without their knowledge. Nation states are known to hire mobile spyware makers to remotely install malware on the devices of activists, dissidents, and journalists. Washington Post journalist Jamal Khashoggi, who was murdered by agents of the Saudi regime, is believed to have been targeted by mobile spyware, according to reports. The company accused of supplying the spyware, Israel-based NSO Group, has denied any involvement.
Apple confirmed it pushed out a fix in its security notes, which included a short acknowledgement to Pwn20wnd, the team which confirmed last week that its jailbreak was working again.
The same kernel vulnerability was fixed in a supplemental update for macOS 10.14.6.
Getting even the most well-organized team to agree on anything can be hard. Tel Aviv’s Ment.io, formerly known as Epistema, wants to make this process easier by applying smart design and a dose of machine learning to streamline the decision-making process.
Like with so many Israeli startups, Ment.io’s co-founders Joab Rosenberg and Tzvika Katzenelson got their start in Israel’s intelligence service. Indeed, Rosenberg spent 25 years in the intelligence service, where his final role was that of the deputy head analyst. “Our story starts from there, because we had the responsibility of gathering the knowledge of a thousand analysts, surrounded by tens of thousands of collection unit soldiers,” Katzenelson, who is Ment.io’s CRO, told me. He noted that the army had turned decision making into a form of art. But when the founders started looking at the tech industry, they found a very different approach to decision making — and one that they thought needed to change.
If there’s one thing the software industry has, it’s data and analytics. These days, the obvious thing to do with all of that information is to build machine learning models, but Katzenelson (rightly) argues that these models are essentially black boxes. “Data does not speak for itself. Correlations that you may find in the data are certainly not causations,” he said. “Every time you send analysts into the data, they will come up with some patterns that may mislead you.”
So Ment.io is trying to take a very different approach. It uses data and machine learning, but it starts with questions and people. The service actually measures the level of expertise and credibility every team member has around a given topic. “One of the crazy things we’re doing is that for every person, we’re creating their cognitive matrix. We’re able to tell you within the context of your organization how believable you are, how balanced you are, how clearly you are being perceived by your counterparts, because we are gathering all of your clarification requests and every time a person challenges you with something.”
At its core, Ment.io is basically an internal Q&A service. Anybody can pose questions and anybody can answer them with any data source or supporting argument they may have.
“We’re doing structuring,” Katzenelson explained. “And that’s basically our philosophy: knowledge is just arguments and counterarguments. And the more structure you can put in place, the more logic you can apply.”
In a sense, the company is doing this because natural language processing (NLP) technology isn’t yet able to understand the nuances of a discussion.If you’re anything like me, though, the last thing you want is to have to use yet another SaaS product at work. The Ment.io team is quite aware of that and has built a deep integration with Slack already and is about to launch support for Microsoft Teams in the next few days, which doesn’t come as a surprise, given that the team has participated in the Microsoft ScaleUp accelerator program.
The overall idea here, Katzenelson explained, is to provide a kind of intelligence layer on top of tools like Slack and Teams that can capture a lot of the institutional knowledge that is now often shared in relatively ephemeral chats.
Ment.io is the first Israeli company to raise funding from Peter Thiel’s late-stage fund, as well as from the Slack Fund, which surely creates some interesting friction, given the company’s involvement with both Slack and Microsoft, but Katzenelson argues that this is not actually a problem.
Microsoft is also a current Ment.io customer, together with the likes of Intel, Citibank and Fiverr.
Imagine a growing Israeli startup whose product is deepfake videos that are based on artificial intelligence and appear to be utterly authentic. The company’s marketing efforts, according to its website, are conducted by two departments — “consulting for corporations” and “consulting for governments and politicians.” In addition, “the company helps its customers uncover their opponents’ weak spots and make them go viral.”
Finally, imagine that the company describes its employees as “highly experienced men and women, graduates of elite units of the IDF intelligence branch and Israeli government intelligence agencies,” and that its technology is based on developments by these same security agencies. On top of all of this, of course its board of directors includes former heads of Mossad and the Israeli General Security Service (Shin Bet), as well as retired senior army officers.
When you are done imagining this, it’s time to think about the private intelligence firm Black Cube. Various investigative reports published recently in the media in Israel and abroad paint a troubling picture — not because the company is violating the law, but because of its lack of ethics and internal moral code.
According to these reports, Black Cube does not work only for giant corporations that want to dig up incriminating information about their competitors, it also has contracts with foreign governments that seek to repress political opponents. It not only helps governments find those who are evading their financial obligations, but also to harass women who complain about crimes of sexual violence. Not only does it identify those who defame rival businesses, but it also frightens off regulators and watchdogs, human rights activists and journalists.
Black Cube, of course, is not alone in this. Have you ever heard of NSO, whose flagship product, Pegasus, can turn any cellphone into a mobile spying device? Or Glassbox and its product line? The list of such companies is long, and most of them are all but unknown. All of them are based on exploiting the skills, technology and professional culture created in the Israeli security establishment.
There is nothing new about former members of the Israeli defense and security agencies selling weapons and military know-how. But what has been added in recent years is the technology twist. Former high-ranking security officials and intelligence operatives, including from the renowned 8200 unit, strike out on their own. Some of them find employment in firms that break new ground, improve the world and better society; but others, in their greed, are willing to sell spyware and offensive cyber-weapons to dictators in Africa who need them to stamp out criticism and revolts.
This is also not a situation unique to Israel. Veterans of western security agencies worldwide face similar dilemmas once they retire from their careers in public service and seek their next professional challenges. The startup nation however, is based, to a large extent, on veterans of Israel’s high-tech units in the defense establishment. While this association certainly does bring honor, prestige, revenue and jobs to the Israeli economy, two issues resulting from this relationship need to be considered.
Technology can make the world a better place — or much worse.
The first relates to ethics. If anything is clear today in the world of technology, it is the need to include ethical concerns when developing, distributing, implementing and using technology. This is all the more important because in many domains there is no regulation or legislation to provide a clear definition of what may and may not be done. There is nothing intrinsic to technology that requires that it pursue only good ends. The mission of our generation is to ensure that technology works for our benefit and that it can help realize social ideals. The goal of these new technologies should not be to replicate power structures or other evils of the past.
Startup nation should focus on fighting crime and improving autonomous vehicles and healthcare advancements. It shouldn’t be running extremist groups on Facebook, setting up “bot farms” and fakes, selling attackware and spyware, infringing on privacy and producing deepfake videos.
The second issue is the lack of transparency. The combination of individuals and companies that have worked for, and sometimes still work with, the security establishment frequently takes place behind a thick screen of concealment. These entities often evade answering challenging questions that result from the Israeli Freedom of Information law and even recourse to the military censor — a unique Israeli institution — to avoid such inquires.
How can we know when the government permits to be sold, and to whom, technologies that were developed by the private sector but that have security implications? How can we know who intervenes when a foreign country in Europe arrests spies sent by a commercial firm, or when a Gulf state is targeted by an Israeli high-tech company? How can we know when the companies are serving the national interest, and their own bottom line — and who gets to decide this, anyway? And what is the impact on the defense establishment itself with the migration of its stars directly from national service to high tech? What effect does this have on the state’s decision-making process about which technologies to invest in, whom it trains and what it purchases?
Israel, and its tech business community, must carefully consider the negative ramifications of excelling in technology while disregarding moral and ethical questions. The “startup nation” must conduct extensive discussions on the crossroads between ethics and technology so as to endow the next generation with the strong moral compass necessary to navigate in this new world. The unanswered question at hand is how Israel, and similar western democracies, can grapple with the growing phenomenon of technological entities whose sole purpose is profit without any qualms about the moral implications of their products and services.