War should be no barrier to investments, privacy guru says
Focusing on Silicon Valley and Israel, Michael Fertik looks for tight-knit teams that have extraordinary technology and share Chinese food
JONATHAN H. FERZIGER
TEL AVIV, Israel – Before internet privacy pioneer Michael Fertik decides to invest in a startup, he hangs out with the founders and pays attention to their table manners.
“If you’re ordering Chinese food and they’re eating from each other’s bowls or plates, that means they’re very close,” said Fertik, a serial entrepreneur and venture capital investor whose firm, Heroic Ventures, funds early-stage companies in northern California and Israel.
Given a unique product with a promising market, few things are more important than a young company’s ability to work as a tight-knit team, Fertik told The Circuit. That’s how he decided to invest in NextSilicon and Sunbit, both so-called unicorns valued at more than $1 billion. It’s why he’s now betting on ProntoNLP, Proov.ai and Exists.ai, three Israeli companies that he’s helped launch at a time that venture capital is scarce.
A native New Yorker who made a fortune in Silicon Valley, Fertik said his willingness to provide “first money” capital for young companies when other investors are pulling back has paid off. As founder of Palo Alto, Calif.-based Heroic Ventures, he has bucked recessionary fears in Israel, criticized capital flight stemming from the government’s judicial reform efforts and dismissed the five-day-old Gaza war as a poor excuse for abandoning tech startups.
“I’m here. I’ll take your deal flow. I’m open for business,” Fertik said, sitting on a sofa at Tel Aviv’s stylish Norman Hotel in mid-September when anti-government protests filled the streets with 100,000 protesters every Saturday night. With dark shoulder-length hair, glasses and a rumpled linen shirt, the 45-year-old investor looks like he just spent a weekend at Burning Man.
Now that Israel’s streets are emptier amid Hamas missile attacks and some investors are fleeing amid expectations of prolonged fighting in the Gaza Strip, Fertik is steadfast.
“Yes, I will continue investing in Israeli startups,” he wrote in a LinkedIn post this week. “Yes, all or nearly all the Israeli startups in which I’ve invested have already felt the impacts of Hamas’s psychotic medieval terror…. Yes, Israel’s future is bright and brighter.”
Fertik grew up in a Jewish family on New York’s Upper West Side in a building above Murray’s Sturgeon Shop, a hallowed temple for bagels and lox. His connection to Israel dates back to age 5 when his father, Oscar-winning movie director William Fertik, was hired in 1983 to make a television commercial promoting Israeli tourism. “Come to Israel. Come stay with friends,” the tagline went.
Fertik went to prep school at New York’s Horace Mann and college at Harvard, continuing on to Harvard Law School, where he now lectures on the legal aspects of digital privacy and entrepreneurship. He is the author of several books, including “Wild West 2.0: How to Protect and Restore Your Reputation on the Untamed Social Frontier,” and “Hip Set,” a noir novel about an African immigrant in Tel Aviv.
As the internet became central to people’s lives at the turn of the century, Fertik said he was disturbed at how damaging personal information could be when accessible online. In 2006, he founded reputationdefender.com, which enabled people to have bad news scrubbed from social media. He sold the company to Norton in 2018, retaining part of the firm that catered to business, which he named simply, Reputation.
“There came a time when, you know, a very rich person who was getting divorced was like, ‘I’ve done all this stuff in my life. How about the real estate deals that I do and the hedge funds that I’ve built and the companies I built? Why is it the only thing that people care about is the New York Post article from Florida about my divorce?’” Fertik said. “That was something I was sympathetic to. It was something we could change and work on very actively.”
Now executive chairman of Reputation, which has grown to 600 employees, Fertik has gotten more involved in helping new tech companies get off the ground. Heroic Ventures generally provides about $1 million to startups that meet Fertik’s investment criteria. Those include his insistence that the founders and top executives live and breathe close teamwork.
“One of the things that Israel does very well is team formation,” Fertik said, describing his Chinese food test. “The founders tend to know one another while they served in the army together. They’ve collaborated closely under difficult conditions. They’ve been through adversity together.”
“That is much better than a marriage of convenience at Harvard Business School, where [people say], ‘You’re a good-looking person. I’m a good-looking person. Let’s form a company,’” he said.
The other critical factor he looks for is “total addressable market” or TAM, a measure for determining the entire revenue potential that exists within a market for a product or service. Most of the tech firms Fertik looks at are at a stage where they have little revenue yet so the projections are important. “I look for extraordinary teams and TAM,” he said.
Among the budding companies in his portfolio that get Fertik excited is exists.ai, which enables people to use artificial intelligence and create realistic moving landscapes for computer games they develop themselves. On the website, you’re taken on a super-fast ride with cowboys through an animated rainforest. Then the scene is instantly transformed into a deathmatch on a rocky island with zombies.
“I’m a little bit enthralled,” Fertik said. “You can allow every single kid or adult playing computer games to generate his or her own territory automatically from a typed prompt. Imagine the amount of entertainment, the amount of creativity that will be unleashed by allowing people to create their own games.” His 10-year-old son, who went to summer surfing camp in Israel, was immersed in the site, he said.
Less colorful but more profitable for now is ProntoNLP, which uses natural language processing and AI to sort through enormous amounts of financial data and give investors tightly crafted analysis they need to make buy and sell decisions.
“They’re selling this to some of the best hedge funds in the world,” Fertik said. “And it works and it’s extraordinary and they’re paying gobs of money for it, and it’s like, two and a half guys in Israel using cutting-edge AI.”
Founder Ronen Feldman, a data science professor at Hebrew University in Jerusalem, said Fertik knows both how to help and when to step aside.
“I’ve worked with a lot of VCs before and most of them are really nasty,” he said. “They bring zero value and interfere with running the company. Michael gets it. He is sharp. No nonsense.”