South America Archive

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

It'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.