entrepreneurship, South America

Attention World: Don't Give the Arnon Kohavis Your Money

Robert-preston-musicman-3It's a sign that I'm ready to get back to blogging that at 7 pm on Christmas night, cuddled with my new baby and surrounded by my family, I read a Tweet that made my blood boil. It boiled with that special kind of anger that can only be quenched with a long, blog rant. 

That's fortunate, because my "maternity leave" has about another week left on it. It's unfortunate, because I haven't started my increasingly less mysterious new job yet. That leaves me with one place to write: This blog which has a tiny readership.

So hopefully this story finds a way to circulate out to the wider audience of government officials and old money elites who have good intentions of wanting to make their city a beacon for entrepreneurship. Hopefully it reaches them before they get bamboozled into giving the wrong people money to make it happen. People like Arnon Kohavi. 

The Next Web has an article on why the venture capitalist who rushed into Chile and declared it the next coming of Silicon Valley has now pulled out a mere six months later. Here's what any Chilean entrepreneur reading this needs to know: That's all total and complete B.S. It's not you that's the problem, it's Kohavi. 

I have seen this kind of thing a lot in my travels. Throughout the emerging world and increasingly corners of America that have fallen on hard times, seemingly everyone has gotten the memo on how high-growth entrepreneurship-- not hand-outs and bail-outs-- is the answer to economic bliss. Everyone wants it. Countries are desperate for it.

The problem is few city governments and city boosters have the foresight and patience to make it happen. Everyone wants to be the next Silicon Valley; few people want to face the reality that Silicon Valley took decades and decades of supporting the most brilliant, crazy and cocky entrepreneurs to get to where it is today. The ability for anyone-- and, trust me, I mean anyone-- to come up with an idea and a week or two later have a full bank account, incorporation documents and the emotional support and good will to make that dream a reality is rooted back in the 1950s and the days of Robert Noyce and Fairchild Semiconductor. In fact, it goes back even further to the 1930s and the days of radio technology, spinning out of Stanford and being purchased by the national defense department. 

Because the prospect of building something like that is so daunting, people are looking for someone who can promise them a quick fix. Something like Harold Hill in the Music Man who came to River City and promised a band could be formed just by thinking about playing instruments. But the real lesson of Silicon Valley isn't one of cheap tricks and hacks. It's one of perseverance, hard work and doing something because you have an illogical belief it in-- not because you want to make any money. Money is the by product of true entrepreneurial creation, not the other way around. 

So when a modern day Harold Hill comes swaggering into town telling you he can make you a Silicon Valley in a matter of months: Don't listen. Even if he sells it in a glitzy musical number. Run him out on a rail. Don't let him finish his corny dog and pony show, don't introduce him to the local librarian, and don't give him one red cent, because he doesn't know what he's talking about. He doesn't even understand the thing he's promising you'll become.

In the musical, the fraudulent "thinking method" somehow worked--to the surprise of even Harold Hill himself. Real life is far less forgiving. No one has ever produced a shortcut to building an ecosystem of entrepreneurship, and no one ever will. Real ecosystems take real time and real work. They take people who care about entrepreneurs and want to help them develop, whether they personally make money or not. That's not Arnon Kohavi. This is a lesson Chileans almost learned the hard way when Kohavi came to town. 

Arnon Kohavi. Remember that name, don't give him money and don't let him invest in your startup. He's technically a venture capitalist but only because that's a club you get to elect yourself into if you have enough money. Good VCs invest because they love great entrepreneurs and want to be around them and help them realize their dreams. If this interview with him on the Next Web is accurate, Kohavi is nothing more than a short-term profit seeking Harold Hill wrapped in venture capitalist's clothing.

I hope Kohavi was grossly misquoted. I hope his words were twisted out of context beyond recognition. I hope when he read that post, he was aghast at how it made him look. 

But I doubt it. Sadly, there are plenty of Kohavis out there who travel country to country promising the moon and then asking for a big check. When they get it and those promises invariably don't happen, they come up with plenty of excuses why. When they don't get it, like Kohavi, they sulk away and blame others. On to the next town and the next batch of promises.

To wit: Just six months ago he moved to Chile and declared that "The next Skype, Facebook or MercadoLibre would come out of Chile," setting up a Santiago venture capital fund called Yarden VC. ("Seventy six trombones led the big parade..." Just imagine the oompas and the baton-wielding dance moves as you read that quote.) 

That's a big claim. What'd he base it on? Apparently meeting some government people who wanted a local entrepreneurial ecosystem. Ok, that's every single place in the world. Find me the city that would rather not have jobs and wealth created there, Mr. Kohavi. The next Skype and Facebook can't from everywhere. Based on government enthusiasm, Kohavi says he came to Chile for six months as a test to see if he could create a "real" venture capital fund. Only that's what he says now. That's not what he said at the time. At the time, he said-- definitively-- that the next Skype, Facebook or MercadoLibre would come out of Chile. 

Guess what? In six months that didn't happen. Of course it didn't. It took far longer for the actual Skype and Facebook to succeed, bolstered by far stronger ecosystems. But don't pay attention to facts like those-- look at the kids in those spiffy new band uniforms! Somehow the great Kohavi was going to divine whether they were in Chile in six months, and he determined they weren't. The ecosystem wasn't ready for his investing brilliance so he picked up stakes and pulled out. He's going to try Asia next-- not surprisingly Singapore, a city-state known to give large cash handouts to investors moving into its ecosystem.

Let's take a closer look at his razzle-dazzle excuses and justifications.

Point one: Kohavi blamed Chile's not being "ready" on the older generation of elites in Chile who "just don't get it." Entrepreneurship is about disruption not getting an engraved invitation from elites who already have power and money. Those people will never support a toppling of the established order, and more to the point, who cares if they do? If you are enabling great entrepreneurs with great ideas, some stuffy old-world elites won't be able to stop them. Real innovators and investors hear those people "not getting it" and see it as a challenge. They can't wait to make them eat their words. 

Point two: No one can "test" your startup ecosystem in six months, and come up with a binary result like "YES! The next Facebook is coming from here!" or "No, sorry you aren't ready." Anyone who has studied entrepreneurship knows that the best companies are started in the bleakest times and the worst companies are started when it seems like a slam dunk. No one can predict if a great entrepreneur will come out of a certain place and time, and many investors better than Kohavi have lost money and been humbled trying. It wasn't very long ago that most of the Sand Hill Road establishment deemed the consumer Internet dead. In fact, it was during the time when the *actual* Skype and Facebook were forming. And they were laughed out of many investors' offices. 

Point three: Kohavi says Chile is ten years off from being "ready." So his solution is to leave. If he really believed in Chile's potential, he would stay and help build that ecosystem. I guarantee you there are brilliant entrepreneurs there now who could use cash and mentorship. More to the point, venture funds are ten-year investment cycles. That would make now the perfect time for him to roll up his sleeves and make himself an integral part of building that ecosystem. Ten years isn't very long for a real venture capitalist to wait, and he'd be perfectly positioned to reap the rewards. But, of course, that would depend on him believing any of the stuff he's saying.

Point four: Kohavi has the nerve to criticize Endeavor-- a non-profit organization that came into Latin America to help entrepreneurs before it was fashionable and before governments gave charlatans money to do so. He says "Chilean family offices may still give money to Endeavor, but for them it's not about entrepreneurship-- it's just a way to brush their ego and they only do it because it is all conducted in Spanish."

First off, who cares why they do it if it helps local entrepreneurs? I've seen first hand the impact Endeavor has had on countries in Latin America and South America. No one has been a better friend to entrepreneurs there. The fact that Endeavor can wrangle money out of these "elites" Kohavi says don't care about entrepreneurship is a credit to the organization's ability to do what's necessary to create an ecosystem for entrepreneurship, even when strong forces are aligned against it. 

But the second half of that statement is the weirder part, which brings me to… 

Point five: If I am reading it right, Kohavi is criticizing elites for wanting to invest in projects and entrepreneurs who speak the language of the country. Um….. really? So, let me get this straight: Part of this elite's crazy inflexibility against entrepreneurship was a preference for doing business in their native language. Does anyone really think that's an outrageous request? Even top venture capitalists from Silicon Valley hire locals when they go into other countries. No one credible is trying to invest in China speaking English. This is foreign investing 101.

Kohavi adds later: "It's crucial for the local startup community to get used to speaking English." Why? The Spanish speaking Web is a massive market opportunity. I'd be willing to bet that the next huge Web company that comes out of Chile will be for the Spanish speaking world, just as the huge Web companies that have come out of China are for the Chinese speaking world. That's the big market opportunity. That's what the Valley won't do well. That's the reason to be funding companies in Chile. 

Kohavi tries to compare this to Israel, but Israel is a totally different country that rose to entrepreneurial prominence at a very different time in the global startup ecosystem. I've written at length about this so I won't rehash it here, but Israel had to build stuff for the Western world not only because it was a small country but because it was surrounded by hostile neighbors and there aren't hundreds of millions of people who speak Hebrew. The opportunity for Chile is completely different. Furthermore, Israeli entrepreneurs succeeded because they built an ecosystem tailored to their exact strengths, whether they were speaking English or not. (And, by the way, Israel has struggled to produce stellar returns since the technology bull market of the late 1990s.) Chile will succeed building an ecosystem tailored to its strengths, which with all due respect to the Next Web, Kohavi didn't become the expert in during his short six month stay. 

Point six: Kohavi says, "At the moment, Latin America still feels back in time. Many of the local websites I have tried to use were not updated, and the service was bad." OK, that's just a bizarre thing to say to argue a place isn't ripe for entrepreneurship. Most investors would see that as a sign of market opportunity, not a reason why entrepreneurship would fail.

He continues, "This is a serious issue because entrepreneurship isn't formed in a vacuum; for startups to thrive, the whole country has to be tech-driven, and use the latest gadgets and online services." That's absurd. Who creates those gadgets and services to begin with if not entrepreneurs? Silicon Valley arose out of fruit orchards! How high tech is that? Kohavi's arguments just collapse on themselves with the slightest application of common sense. 

Let me strip away the phony promises and glitzy dance numbers and decode what Kohavi is really saying here: People didn't give him money so he's off to Singapore-- a city state known for giving people like Kohavi who can talk a good entrepreneurial game scads of cash. If Singapore does produce the next Skype or Facebook, I guarantee you Kohavi's presence there will have had nothing to do with it. The real Skype and Facebook weren't overnight successes anymore than Silicon Valley was as an ecosystem. No one can give you something he himself can't even understand. Kohavi wouldn't know the next Niklas Zennstrom or Mark Zuckerberg if he walked in and pitched him any more than Harold Hill could spot the next Yo-Yo Ma.

Comments

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Completely agree. The story just reeked of all of the bad VC behavior one could imagine, blended with a really bad understanding of how things work in the developing world.

When > half of someone's objections or reasoning don't make any sense, you know you're being spun...

AWWWWWE_some sister!

We need to get this published in a higher profile publication and I am going to start sharing it among my networks and media contacts and 'old heads' in Chile now.

And yes, you should go back to blogging !

...impressive post Sarah, it's great to read your thoughts about this topic...

Arnon's departure generated a lot of controversy here in Chile, however, I'm totally agree with you (100%)

..all I can say now, is that there are a lot of potential here, I'm working hard to unlock and give more exposure to Latinamerican startups.. that's why we started AndesBeat.com 3 weeks ago (with Shonika Proctor). We did a soft launch as a way to share with everyone what's happening on this side of the world...

Feel free to ping me anytime!

Funny thing is this dude got pitched by ALL startups on Startup Chile (100 NON-CHILEAN companies) and decided none was worth his fortune. And there's not even a pint of "chilean elites" or anything like that there.

It's also worth noticing that "Yarden VC" never invested on anything - in fact, the only thing we all know that Mr Kohavi invested was buying some bikes and ipods, then spamming the Startup Chile mailing list selling his stuff on his rushed exit to greener pastures.

It's also worth pointing that Chile's VC is heavily backed by the government (all the Private Equity funds have government money), so it's VERY LIKELY that he couldn't convince CORFO to give him money quickly, then decided to leave.

Very, very nice :-)

Actually, I got the opposite impression (admittedly not knowing more than what was written in the Nextweb article).

I've looked into markets that "say" they want to build a startup ecosystem, but the local culture and understanding of what that means make as much a practical impossibility, unless you have the personal interest and gravitas to make it happen by yourself (i.e., Boulder/Brad Feld).

Is it possible that Kohavi is the one that knew this would be a decades long endeavor and the unrealistic expectations of the local government/business community were what caused him to pull out?

Perhaps Kohavi realized that he would be fighting an uphill battle to create such an ecosystem, even over decades, and made a wise decision?

Just saying, all of your above points apply from two different perspectives....

Looking forward to pandodaily.

This a great article, thanks Sarah.

As Carlos said, Arnon departure made big fuzz over here in Chile, and many people are thinking the problem is our country itself.

I met with Arnon several times at local entrepreneurialship events, and it was nice to speak with him about innovation.

However I feel that the biggest mistake we are making down here is try to build a VC culture instead of make highly profitable start ups that can bootstrap themselves. I concord with the fact that in Chile is almost impossible to get a proper investor which is not your friend or a family member.

Thanks for your thoughts. I agree with you 100%. As part of the program StartUp Chile I did not believe what this guy was saying:)

Glad to see you still posting here. You are one of the few people I follow on TypePad, so it has been funny to hear about another Sarah Lacy and finally realize that you were the same person.

Waiting for your new project. Hope you give it longer than six months.

Thanks Sarah for putting together such an incredible response. We will be following your lead and not accepting funding from the Arnon Kohavis of the world. We dove into the Startup Community through Start-Up Chile and our challenges aren't Chile's, they are those of startups everywhere.

Dear Sarah,
Even if much of what you say in this post is true, much of what Kohavi states is also true.
The 3 or 4 families that control chilean economy have little or no interest in technology development in Chile, evenmore, they would prefer to keep any possible competition to their dominance away (a clear example are alternative energy sources, where a lot of pressure has been put to stop alternative projects and push forward projects owned by them (here I can mention Hidroaysen))
There are a LOT of problems in Chile, and Kohavi adresses what is known to be one of the most relevant.

Maybe Kohavi is wrong about much of what he said. But it is true that Chile will not give a new "facebook" anytime soon, simply because there are four families (the president belonging to one of them) that do not want it.

Thanks for reading :P

(BTW: point 4 is wrong, he doesn't say anything against endeavor, he lashes against these four elite families)

I live in chile and had a meeting with Arnon to discuss about our startup, and all I can say is that Arnon is right.
Chile has little funds here and all I have seen here is corruption.
that's a shame.

sorry ,but I think he was right.
I would do the same

I think it's clear that Kohavi wants to make money and is looking for a more "series a investment ready" place. And to me, that's fine. Chile isn't the place for his investments.

I'm with you that Chile needs mentorship and people who are going to be in it for the long haul to really build an ecosystem, not someone who's going to come in, create hype and then leave when things aren't ready.

On the other hand, after living in Chile for much of the last year, I think much of what Kohavi has to say about Chilean culture and the current ecosystem is true. It's not a knock on Chilean entrepreneurs, in fact that they are successful with those extra obstacles is even more impressive.

Creating a successful startup is hard enough in Silicon Valley, but its even harder in Chile with the roadblocks that Kohavi describes. The top entrepreneurs will still succeed, but it will be harder. I go into much more detail on my blog:

http://www.nathanlustig.com/2011/12/26/arnon-kohavi-chilean-culture-and-the-chilean-startup-scene/

And Shonika is right, I hope you get back to writing soon!

Awesome post! 100% truth!

Great article Sarah,

We have some of Arnon Kohavis fever in Portugal too, saying we could be the next Sillicon Valley. I keep telling people to wake up, that's not going to happen. No one can possibly create an entire eco-system, unless it has access to a time machine and installs the Valley elsewhere.

Thanks for sharing your opinion with us, Sarah. As Carlos mentioned, this news has been the talk of the day among entrepreneurs over here in Chile, and it's nice to read the thoughts of someone from outside our country. :-)

Sarah....more please! Holy toledo! I miss your edgy-cut-thru-BS writing. The reasons why Kohavi left Chile are total "weak-sauce". He should take notes from stand up guys from Kaszek and Monashees that are actually looking to help build an ecosystem in LatAm. They obviously want to make money, but just ask any company in their portfolio and they will tell you that these guys actually care. LatAm is full of quality entrepreneurs. Point 6 really floored me when I read it. That ISis the reason why people pursue opportunities (websites not updated and bad service). That was the icing on the soggy fruitcake for me. Thanks for writing what a lot of entrepreneurs in the region are likely thinking!

I've lived in Chile for 15 years...and I frankly wouldn't put one penny in this country. Places like Brazil and Peru are more open to change

Brilliant piece, Sarah. When we did the Silicon Cape launch, we emphasized that it was a 20 year vision, to be led by entrepreneurs. That philosophy is still holding true in South Africa - no one there expects overnight success in creating strong entrepreneurial hubs.

Also, I second your endorsement of Endeavor. As a proud Endeavor Entrepreneur, I have only great things to say about the selfless work they have done in the countries that they have entered.

There are a lot of "scams" out there. Here's another:

http://money.cnn.com/galleries/2011/smallbusiness/1111/gallery.scam/8.html

Not everyone is a straight-shooter. There's the disingenuous to the crooks.

I made a "short term" loan to someone a year ago and still making promises to repay.

Be careful.

you are misunderstanding my point. it's not whether chile is or is not a great place for investment. it's to call total bs on someone who parachutes in and makes empty promises then gets frustrated that they can't come true in six months.

besides, people have said the same thing you have about china, india, russia, brazil and indonesia and great entrepreneurs have built multi-billion startups nonetheless. entrepreneurship is about taking risk.

that last comment was supposed to be a reply fillep btw. threading isn't working for some reason...

Hi Sarah,

My grain of sand:

It's true that entrepreneurship is about disruption and break the rules going against the status quo. However and IMHO I think the environment matters a lot. Here in Chile you can't talk to a rich guy neither get his advice for free, an underdeveloped mindset problem.

By the other hand, even when you should keep fighting to take off, in technology as an entrepreneur you don't have all that time cause technology goes faster and there's always someone in other part of the world doing the same thing you are trying but with access to money, advices and networks, all the things that lack by here and that people with money ( the elite ) are not interested in give or develop.

To develop any country you'll need a critical mass of smart and talented entrepreneurs, and to get that you'll need to invest first in education and basic science. It will take twenty year to get there, but first you need to start.

Chile is investing to become the innovation and entrepreneurial hub of Latin America, that's great and I applaud the initiative, however I feel Chile is missing something more important than that, to invest in educate his people first, not to kill the current elite but to produce a new one with a new mindset that allow Chile to evolve to a ecosystem like Silicon Valley.

Thank you Sarah, It's always good to see at both sides of the mirror.

Greetings from Chile, Herman.-

Excuse me. I'm Chilean, I'm an entrepreneur (starting my company in Chile without Startup Chile's help), I've lived abroad for long periods of time, and I can asure you, Mr. Kohavis is right in almost everything he said about Chile.

I agree with Sarah in some of her arguments. But I think she misread the fundamental point of Mr. Kohavis: he of course, knows that a Silicon Valley can't be created in 6 months, but to get there you need the right soil. You need a culture that is willing to support "crazyness", risk and new ideas. If you find yourself within a culture that's highly cynical, super conservative and has aversion to risk, it could take more than decades to create anything important. A that's exactly how Chile is.

Get me right, I'm not criticizing my country. It's just like that, it's our culture and it has its own good things. However, Americans have succeeded at technology cause they got that flare inside them that constitutes their "American Dream". It's within them. I reckon Israelis got that too (I was there some years ago). But not Chile. Chile needs now a cultural change, and that's why we are seeing so many protests for better education. That's the key to our country now, not entrepreneurship (ok, it goes second in the priority list).

Startup Chile is a really nice program, but it is a bubble within the Chilean, a bit isolated from reality.

Hi all,
I am Natali from #StartupLokal Indonesia. It seems that some of you think that you need higher education to start a startup. That's really not the case here.

#StartupLokal started 20 months ago with only a mere 30 passionate people who wanted to start something here in Jakarta. No local investor, no local startup mentors, no experience in startups at all.

Fast forward 20 months later, we started to receive local investments (my startup http://tiket.com got valued at US$ 1,5 mio by local investor), we learn and share A LOT between the 5000 startup owners and startup enthusiasts, and now foreign investors from US, Japan, Singapore started to come and invests.

And I don't think we need the government, elitist, or everyone to be interested and even get involved, all we need is a small fraction of people. We also had startup initiated by mid-school student, so I think we don't really need higher education. All we need entrepreneurial spirit and support from each other.

Would love to hear great news from Chile. We are all struggling and starting up. And yes, it took years.

HI Natali,

Good to hear you are succeeding,

My point is, you can have eventual entrepreneurs going well, but to create a Silicon Valley like environment or take off as a developed nation you need to create critical mass and to create critical mass you need a lot of people creating value through innovation and to have that lot of people you need first training through massive good education that finally derive in change a lot of mindsets.

Regards.

Sarah,

I think you made a point about this investor; but it is also a reality that Start Up Chile need real and good VC's to sustain an entrepreneurial ecosystem, which seems to be missing as discussed here http://bit.ly/sILkhJ

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Srah Lacy

Sarah Lacy is an award-winning reporter who has covered high-growth entrepreneurship for more than fifteen years. She is the founder, CEO and Editor-in-Chief of PandoDaily.com, the site-of-record for the startup ecosystem. She lives in San Francisco.

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