“I don’t believe in accelerators as a business model” – Eden Shochat, founder of Face.com, on pay-it-forward thinking

eden
eden

Our resident Stipster Adam Fletcher ventured to Israel during the DLD conference to get a whirlwind introduction to its startup scene from Eden Shochat, Face.com co-founder and partner at Genesis, an Israeli early-stage startup fund explains his latest venture, The Junction…

It’s my first time in Israel. I arrived, not for the first time in my life, armed with a keen interest but very little actual knowledge. This time, the knowledge lacking was that of the Israeli startup scene. Luckily one of the first people I met was Eden Shochat, who had already completed the difficult step of knowing everything. I just sat back and let him talk… and talk he did, making my job rather easy.

width="286"

We met on the 4th floor of a non-descript, difficult to find, concrete building. Most of the architecture of Tel Aviv leans heavily on concrete. Making it look rather samey. It’s as if there was a meeting of all the city’s architects and they came to the very rational conclusion that in a place of such great beaches and such beautiful people it would all start to get a bit sickly if they added too much nice architecture.

Although in neighbourhoods like Neve Tzedek, it does have its moments, even earning itself World Heritage status from UNESCO for its Bauhaus architecture. The very building where we met has an interesting history. It’s the same one that Metacafe was founded in. For the younger amongst you in this virtual audience, Metacafe was YouTube before there was a YouTube and a few years too early to really benefit from the perfect blend of happenstance that made YouTube such a phenomenal success. Now it houses The Junction, a startup accelerator with a difference.

The non-profit, no-equity startup accelerator

Eden is a serial entrepreneur, founder of Delavenne Enterprises, Aternity and most recently Face.com, a facial-recognition system recently sold to Facebook. Face.com indexed more than 50bn images at its time of sale. Eden is now a partner at Genesis, the VC that funds The Junction.

The Junction was born a year and a half ago because Eden noticed a problem: “The early stages, so that first $100,000, you generally don’t want to raise that amount of capital. Because it forces you into your idea. You get less playing-around time.

“Often, once you’ve raised money for a particular idea, you can’t kill it as easily. The goal here at The Junction is to reduce the need for raising  that capital.

You’ll have seen these startup/seed accelerators springing up seemingly everywhere over the past year, varying in quality and success rate. At The Junction, applicants are accepted into something called a Wave. A wave gets them three months of workspace, with access to its alumni of some of the best and most experienced entrepreneurs in Tel Aviv. So far, they’ve completed six waves with the seventh about to start. The startups keep 100% of their equity.

“It’s a pay-it-forward model”

“For the people sitting at the Junction, we commit to only three things – a place to sit, as much internet as they can use and as much coffee as they can drink. Whoever wants to join, we only ask them: are you working full time on the idea or not? This basically shows how serious they are about it.

“Have you been able to convince people to work with you? It’s generally harder to convince a team members wife than it is to convince an investor. It’s a good indicator of the odds of them being able to raise capital in future. Lastly, 90 per cent of the time you’ll be working on your startup, 10 per cent helping on someone else’s. It’s a pay-it-forward model. Are you OK with that?”

“As a business model, I just don’t believe in accelerators…”

For Eden, places such as The Junction should be not for profit, ideally offered by governments, because early-stage entrepreneurship needs investment and support. Also, he has his doubts about the traditional for-profit accelerator: “I don’t think it’s a good business. Think about their model, generally five per cent of stock, before the first round. A the first round it will get diluted to around 2-3 per cent; after that first seed round, you’ve probably two further rounds ahead of you, so at the end, you’ve 1-1.5 per cent.

But because of the low success rate of startups, without a huge company, a Dropbox or an Airbnb it’s a very hard model. As a business, I just don’t believe in it. The pay-it-forward model, where you owe not me, but the place, creates a bigger value. Paid-for accelerators don’t create as strong an alumni network because people feel that they’ve already given back something – five per cent of their company.”

“The people you want to employ in Israel are all off building companies”

Eden thinks the Junction has already made a difference in its one and a half years: “People are no longer looking for that first 50k. They’re saying: ‘You know, let’s just start and see how it goes. If it goes well, we can raise. If it doesn’t, we’ll go on to the next idea’.

“Entrepreneurship in Israel is really believed in. People here coming out of the army [service is still compulsory, three years for men, two for women], where they’re taught that they can do anything, they can achieve anything. So they leave the army and they’re 21 or 22 and the first thing they are going to do is open up a company.

“In Israel everyone wants to be an entrepreneur. It’s actually hard to find that first employee… I’m not kidding. Everyone wants to build a company, so people who are really, really, good, the people you’d want to employ are all off building companies!”

junctionOf course it’s easy to be cynical of just how much of The Junction is pure altruism – it obviously offers Genesis credibility, access to early-stage entrepreneurs and an in-depth, 90-day long look at new startups. But the stats speak for themselves: of the 50 startups that have been through The Junction’s Wave program, 11 have received later funding, with Genesis investing in just one of those.

In the end, I don’t think it really matters. The Junction offers office space and access to a network of highly engaged alumni. There is no downside. Something noticed by the Governments of several countries in Asia, Europe and South America, who’ve been in touch to learn more and get advice before opening up their own versions of it.

“I would love it if Tel Aviv would open three, four, five places like this, with this model. Or other governments, like in Berlin.

For related articles, check out:

Launch first, think later – Face.com CEO Gil Hirsch speaks on Facebook, founding and business bravery
“Israel has innovation in its DNA.” Izhar Shay explains why Canaan Partners has shunned Europe… for now