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Battery’s Scott Tobin on immigrant entrepreneurs, VC in Israel

Alex Furman was 11 when he and his family escaped the crumbling Soviet Union in 1991.  He went on to become a software engineer and in 2009 co-founded VC-backed Invitae, a genetic information company, which went public in 2015 and has a current market cap of $1.8 billion.

Furman has company: PayPal, Google and WhatsApp were started by Soviet refugees seeking a better life in the U.S. But immigrants from other countries, such as South Africa-born Elon Musk, are also heavily represented among tech founders.

In fact, a National Foundation for American Policy study found that more than half the unicorn startups have at least one co-founder hailing from another country.

Scott Tobin, a Battery Ventures GP who has invested in many startups founded by immigrants, says this is not a coincidence. “A lot of immigrants deal with adversity,” Tobin said. “Moving to a new country is a shock; a person has to sink or swim.”

Tobin says the difficulties immigrants face create a resilience that benefits entrepreneurs. Their “mindset is unique,” he told VCJ. ”It’s a tremendous dream that is not particularly easy to achieve.”

Furman agrees. “I think I have high tolerance for risk in part because I am just not afraid of major changes,” he said.

Alex Furman, co-founder of Invitae.

Invitae was trying to raise funding in 2009, amid the Great Recession. Furman and three other founders needed a year to land their first financing.

“We had 100 VC meetings and blown past a couple internal deadlines when we told ourselves we would call it quits,” Furman said. “But in the process of pitching to VC after VC, we fell in love with our idea even more. Today, Invitae is doing exactly what we set out to do.”

Invitae raised $195 million over five rounds from Wellington Management, Thomas, McNerney & Partners, Three Leaf Ventures and Sofinnova Ventures.

Tobin also credits strong emphasis on math, science and the arts in the educational systems of home countries of these entrepreneurs.

Techies from the former Soviet Union are innovative in part because computer hardware and other tech was in short supply during the regime. These engineers were forced to find creative solutions using limited resources, wrote Tobin in a 2015 article in Forbes.

For Furman, engineering was a part of a family tradition. “I grew up with punch cards and wrote my first line of code when I was seven or eight. We discussed these things around the dinner table with my dad,” he said.

In the 1980s, Mikhail Gorbachev allowed more than a million Soviet Jews to leave for Israel and the U.S. That decision “may have been the greatest contribution to capitalism in our lifetimes — and should serve as a lesson in the broader economic benefits of liberty for U.S. policymakers considering changes to skilled-worker immigration laws,” Tobin wrote in Forbes.

Israel VC

In 2008 Battery relocated Tobin to Israel from Boston, an unusual move since many firms tend to staff satellite offices with local investors.

“Israel has evolved [to] the second most dynamic tech center after the Silicon Valley,” said Tobin. “The country has created billion-dollar companies.” He cites Intel purchasing computer-vision company MobileEye for $15.3 billion in 2017.

In Israel, the competition among VCs to invest in startups with good ideas is just as sharp as it is in the U.S., he said. But the markets are also different.

“Funding sizes in Israel are probably not as high as in the U.S. now,” he said. “But Israeli companies also have an ability to stretch the dollar further.”

Exit values, Tobin said, are a little lower for Israeli companies, but the return on invested capital is about the same as it is for similar U.S.-based deals.

Tobin’s investments include Akamai Technologies and Tennis Channel.

Much of his current portfolio is Israel-based companies, such as Zerto, a cloud backup solution, and GuardiCore, a cybersecurity startup.

Tobin led Battery’s investments in such non-Israeli companies as Cortera, developer of payment and purchase analytics software, and Affirm, a fintech lender, started by Max Levchin, an immigrant from the Soviet Union, who also co-founded PayPal and invested early in Yelp.

“The success of Soviet Jews in the U.S. and Israeli high-tech industry does ‘make for an exceptionally crisp example of what high-skilled émigrés will do for a country willing to open its doors and its immigration policy,’ Levchin recently told me,” Tobin wrote in Forbes.