This week, Israel’s Minister of Finance, Bezalel Smotrich, announced a new framework under which angels – early-stage tech investors – will enjoy tax breaks of up to ¼ of their total investment, thus putting less money in the government’s pocket. Beyond Smotrich’s attempt to revive an old plan to appease the startup industry during these chaotic times, one can’t help but wonder, what’s behind this recent move? Why strengthen the already well-off capitalists of the venture capital industry?
Parashat Beshalach offers some interesting insight on the matter.
What is an angel investor, anyway? Put simply, it is a person of means who invests in early-stage startups; mostly the kind of startups that financial institutions like banks, investment banks and VC funds will turn down because of the high risk levels involved in such an investment (considering the level of certainty of success is so low).
An angel is a miracle worker of sorts. It’s the guardian angel of young entrepreneurs struggling to secure an investment; hence their name – Angels. The angel, especially the inexperienced angel, tends to develop his own expectations of success and wealth. In his mind, it’s only a matter of time before the whole world will know the brilliant venture he invested in, a startup so innovative that it is destined to enact some great change, at least as great as the invention of the wheel or the crossing of the Red Sea. It’s the trap of singing the Song of the Sea too soon.
In any case, in the name of success, the angel will go to great lengths for his entrepreneurs. He works around the clock for them, introduces them to every relevant person he can think of in his network, and tries his best to perform a “miracle”. At the core of such an investment there is something irrational, almost philanthropic. The angel is well aware of the risks, and yet he can’t help but fall in love with the idea and the entrepreneurs, fully believing and hoping to grow with them. In reality, much like gambling, the majority of angel investments end in failure. Those that do make it only come to fruition after many years of hard work, and not before the angel investor’s stake is diluted to almost nothing by the entry of VC funds.
The relationship of the angel and the entrepreneur also takes on new forms throughout the journey, as the romantic ambience takes on a more professional note. The entrepreneurs must gradually become less dependent on the angel - financially as well as mentally. The angel, meanwhile, must let go of their compulsive or paternalistic attitude, giving the entrepreneurs the space they need to make mistakes and grow - which is in the best interest of both parties. In reality, most angel investors start off with hope and a spark in their eyes but end in financial and emotional collapse after many years of torment and hardship.
So how does the industry manage to thrive?
It’s simple. Angels don’t die, they simply reincarnate. Either they become more savvy over time, or they enjoy such a financial reality that provides them with benefits and incentives that keep the irrational element of their investment to a minimum. This can come in the form of generous grants from the Israel Innovation Authority, government-sponsored accelerators and startup hubs, or financial incentives like the one Smotrich recently announced.
In Parashat Beshalach we meet the first angel-funded venture in history: Turning the enslaved sons of Jacob into a nation of free men. The venture sets off with the great escape from Egypt, and ends when the Israelites arrive at Israel. The angel investor is God, of course – the first to recognize the potential of the Israelitees, seeing in it the core qualities that can make it into the Chosen People.
Reading the parasha reveals that both the entrepreneurs and the angel are inexperienced. The Israelites, still in their seed stage, are trapped in the consciousness of slavery. What they need is an incubator, where they can grow like plants.
God, on his part, goes above and beyond for them. He splits the Red Sea to allow the Israelites safe passage, sweetens their drinking water, and drops Manna from the sky for them to eat. Everything he does shows how much he believes that success is right around the corner, that any day now the Israelites will score the greatest IPO Jericho’s stock market has ever seen, that the story of the Great Escape from Egypt will soon echo through the land of milk and honey.
Much like modern day angels, God’s hopes shatter time and time again. The Midrash (ancient rabbinic interpretation of scripture) tells us that only 20% of the Israelites actually took part in the escape from Egypt; the journey to the Promised Land seems to go on forever; and if that’s not enough, the Israelites turn out to be an ungrateful and resentful bunch that constantly bitch and moan about how much they miss the pots of meat of good ol’ Egypt.
God demands total obedience. After the Isrealites disobey him by going out on the Sabbath to gather Manna, God’s response makes it clear that there’s no room for mistakes. Eventually, as the story continues, God realizes that turning slaves into free men is not a matter of a few weeks, but more like 40 years.
What can we learn from all this? That all this hi-tech business is nothing more than a storm in a teacup? That it’s best not to get involved in this sort of investments, or at least not as angels? God no. There’s nothing like investing in startups. To me, it’s the most fascinating business in the world. Having said that, it’s better to be the kind of angel that learns from experience and grows more professional over time. This is a field that demands diversification, where success is as rare as the crossing of the Red Sea, and where it will probably take many years of journeying through the desert before reaching success.
I believe that the State should encourage active angel investors even more. Do more to democratize and privatize investments. Remove regulatory barriers so that every person from all corners of our nation could join the investment game and be liberated. How? One thing that can happen right now is government-funded training programs in cooperation with the business and social sectors, teaching everyone the art of investing, from haredis to Arabs to seculars to those living in the periphery.
Entrepreneurship and angel investing are not just the most fascinating vocations on earth, they are also the ultimate expression of our purpose as a nation, as a people. It is our most valuable national resource. It is our duty to continue developing this wonderful, passion-driven space, and not allow it to be harmed under any circumstances. The entrepreneurial space is the panacea for our divided society. It offers the most rewarding and high quality temptation to stop our foolishness and instead busy ourselves with creating new worlds and becoming closer to God.