Investing In Israeli Founders With Aaron Zucker Of Sapir Venture Partners

Israeli founders have a particular fondness for frontier tech product-market fit and go-to-market strategy. However, they often fail to address the gap between the market and the customers. Scott Kelly sits down with Aaron Zucker of Sapir Venture Partners, who discusses his journey from being a bridge between the US and Israel in the innovation world to becoming a venture capitalist himself. He talks about his work on helping Israeli founders commercialize deep tech to create positive global impact and build viable businesses. Aaron also emphasizes the importance of creating a strong team and the willingness to accept feedback in the world of venture capital.

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Investing In Israeli Founders With Aaron Zucker Of Sapir Venture Partners

In this episode, we interview Aaron Zucker, Founder and CEO of Sapir Venture Partners. He discusses his journey from being a bridge between the US and Israel in the innovation world to becoming a venture capitalist himself. He highlights the common pitfalls of founders, particularly in Israel, focusing too much on technology over product market fit and a go-to-market strategy.

Sapir Venture Partners focuses on early-stage deep tech companies with their Israeli founders, aiming to provide guidance, corporate structure, and customer engagement to help them build viable businesses. Zucker emphasized the importance of a strong team and a willingness to accept feedback, acting as a co-founder fund that helps companies get to the next funding round. He also discusses in this interview his firm’s focus on non-consensus Israel sectors like energy, material science, and biotech, and their strategy for LB returns through early secondary market activities. Tune in to my interview, and I’ll be back with some takeaways.

I’m excited to introduce everybody here to Aaron Zucker from Sapir Venture Partners. Aaron, welcome to the show.

Thank you for having me.

Aaron Zucker’s Career Journey And Background

My pleasure. Before we get into what you’re doing with the fund, tell me a little bit about your personal and professional background before starting Sapir.

I’ve been a bridge between two worlds, and that is the US, where I was born, and Israel, where I grew up. I have always tried to take the best of both worlds. We’re seeing it in geopolitics, but there’s a lot in common in both of these countries. The idea of innovation and entrepreneurship is very powerful. I’ve played in different roles. I started out in Israel, like everybody else. There seem to be a lot of lawyers in Israel. I went to law school. I did practice for a couple of years, but it was mostly around this world of innovation, startups, licensing IP out of universities, and all of that world. It was frustrating to be of counsel.

I had been entrepreneurial already in high school. I had small businesses and things going on. I took the opportunity to go back to the US, get my MBA, and transition back into the startup world. What was important was to learn the difference in how technology companies are built between Israel and the US. I don’t know if you know, but before you go to business school, there’s a lot of this where you go and check out the schools and try them out, like what you do before college, where you’re going to see different campuses. I was doing that, and I found myself at different top schools in the US, mostly on the East Coast.

I had heard speakers, professors, and others who were unprompted telling stories around, “Here’s an example of how not to build tech startups. Look at Israel.” I’m like, “What? We’re the startup nation. What do you mean that’s not the way to build startup companies?” They were making a very clear point, and that was that Israeli founders had this tendency, or still do, to build cool technology and then come to market, and they don’t understand why nobody wants to buy it. The gap between the market, the customer, and the end user is so big. They fall in love with the tech.

I came to the US for my MBA, thinking, “Tech is the most important thing in a startup, and then maybe the market, and then maybe the team. We’ll hire who we need.” When I got to business school, that flipped for me. It went the opposite. Meaning, the team is number one. If we have great people solving meaningful problems, then they’re going to find a way to do it. They need to have a real problem. That’s the market. That has to be a real market. We then could figure out the tech.

When we do very early stage, and we’ll talk about that later, often, the initial idea or even technology and intellectual property will be different by the time we get to market and are engaging the customers. That’s fine. That’s exactly how it should be. I realized I was doing things wrong, so I spent a decade as a founder building companies, mostly deep tech and biotech. That taught me a lot along the way.

I’ve always been trying to help and give back. Since I was bouncing around between the US and Israel, we moved the family back here, and I was going back and forth. If I had time on the nights and weekends in the US, or in the mornings here if I’m working US hours, so Israel is ahead, I’d do coffee checks with people. I’d be like, “How can I make introductions? How can I help? How can I give you advice? How can we talk strategy? Let’s look at your deck,” and things like that.

That led me to write some Angel checks. Some people who had made money with us were like, “The first time we made money in startups was with you. If you’re writing checks, maybe you know what you’re doing,” which I didn’t. They were like, “We’ll give you some more money to do that with.” We’re talking small checks. This is Angel size $10,000 to $50,000 checks. It turned into an Angel fund, and it was going well.

In 2017, right when we started to see the rise of the micro VC, we were out there and were like, “What’s next?” I had sold one company and left another company, trying to think about whether I want to go full-time on investing. It took six months. I built a pitch deck for myself on why we need another early-stage venture fund. That morphed into the thesis that became Sapir, ultimately. It was based on that experience as an Angel, as a founder, and how we can bridge.

I’m so glad that you started off with that because the problem that you demonstrated in Israeli startups is the same for US startups. There are so many entrepreneurs who get addicted to tech and don’t know how to sell. They don’t understand the thesis that you have to have product-market fit and a go-to-market strategy.

All About Sapir Venture Partners

I’m excited that you came up with this thesis because I talk to investors all the time, like you do. Even investors fall in love with the tech. At the end of the day, you have to fall in love with the business, and you have to fall in love with the business that knows how to make money. Thanks for reiterating what I’ve been telling entrepreneurs for decades. Thanks for that background. Talk a little bit about Sapir, your thesis, and where you’re investing. From what I saw on your website, you have a strong focus on Israeli founders. Talk a little more about the fund itself, the stage where you invest, and anything else you want to share.

We’re a US fund. We invest in Israeli founders. Those founders can be found in Israel, but also can be found in the US. We focus on that earliest stage. Think venture creation up to Pre-Seed. Pre-Seed is late for us. We do it in deep tech. Think of an Israeli or a couple of Israelis who went to MIT, Harvard, and Stanford who are trying to spin something out and say, “We want to build a company.”

Ultimately, the market will never be Israel. Israel is a tiny market. Historically, a lot of Israeli founders want to get to the US, but we’ve had other markets that are relevant, like Europe or going East. Europe is less relevant for Israeli founders. The climate there is clearly not supportive, but the US is even more so. We want to be that bridge.

We’re working with scientific and engineering backgrounds with these founders. They could be coming out of their Master’s, PhDs, post-docs, or MBAs, even, but they’re coming with a technical background. They need to bridge to that customer. When we work with them, we want to get in early so that they’re building to solve a real solution that somebody will ultimately pay for. It’s all about solving a meaningful problem, but getting somebody to pay because you’re solving that meaningful problem.

We focus on two things when we’re there at the very early stage. It’s similar to what you guys do at Black Dog, which is why we have a lot in common. The idea is to come in and bring on the one hand that governance or that corporate structure that is often lost. These could be brilliant scientists and engineers, but they’re focused on the science. They fall in love with the science, but they also do not think about the board and board minutes. They’re not thinking about, “How do we build out a stock option plan?”

Companies come to us at Pre-Seed or even Seed, and they’ll be like, “We have a bunch of options that are offered.” We’ll be like, “Show us the option plan,” and they’ll be like, “We don’t have one. We haven’t done it. We have a bunch of contracts out there with us making commitments.” These are all things that can later become major red flags when they want to raise the next round.

We’re building that structure that comes and feels like a real startup, so that when they go and raise the next round, and we can take them to investors in our network, they look and feel like a company they can get behind. This is a team that knows what they’re doing and has got their ducks in order. We can be a part of it and take them to the next level. That’s one thing we focus on.

The other thing we focus on is leveraging our network to engage with customers. We keep telling our founders, “We don’t care about revenue at that stage. It’s not about the revenue. It’s about you understanding how you can add value to your potential customer or maybe figuring out who your customer should be.” It’ll be that assumption, “I’m relevant for this market,” but it turns out you’re not so relevant. There is a better market.

There’s a lot of discovery happening through those conversations. That allows us to build out a strategy, a go-to-market plan, a product development plan, and a budget that fits with all that. They’re going to go out and raise the next round with those things in hand. That’s what we do with Sapir. Our founders are all Israeli, but they’re mostly US and Israel-based. That’s what we’ve been doing.

Sapir Venture Partners’ Three-Pronged Investing Approach

Let’s talk about the founders a little bit more. You’re dealing with companies that have an idea only, don’t have a product, don’t have traction, and don’t have customers. When you are deciding to invest in these companies, it’s got to be almost entirely based on the founders, I would assume. What are the key attributes that make you say yes versus no on such early-stage companies?

You clearly get it. You work with the same types of founders. You understand these companies. What I told my partners when I was recruiting them and LPs was to look for three things. It’s the team, the market, and the technology. We look at it as a three-legged stool. Three legs are the minimum you need for a stool to stand.

As investors, we’re willing to take a risk on one leg. One of those could be wobbly, and we’ll be that leg. Look at us as a co-founder fund that’s coming in to prop up that stool. However, we won’t take risks if it’s the team leg. The team has to be solid. For market or tech, we can help you figure that out, but we’re not going to try to do both. That’s too much. We’re not going to take a risk on the team.

If you translate that one level further to what that means practically, it means that we have to be able to add value. Go to every VC website. We all add value. Everybody says that. We overuse that term. When we say add value, it goes back to that idea of a founder. We force our founders to do this. Noam Wasserman is a friend. He wrote The Founder’s Dilemmas. He has a whole structure of the questions you need to be asking and building a founder’s network in advance. We very much believe in that, but we see ourselves as part of that process and part of that position.

We know we’re not the CEO. We know we’re not the technical founder. We’re the founder who’s going to help them pull it all together. We’re that third party that can sometimes figure out where to go and how to bridge between those two. When we say, “Can we add value?” Can they hear us? Can they take our feedback? Can they work with us at that level?

The one thing I don’t want to do, and this is a privilege we have in our industry, is I’m not going to work with people where I feel like every day I’m banging my head against the wall. If I wanted to do that, I’d go to Corporate America. I could get a job, and I’d spend all day doing it. It’s the ability to work with innovative people who are very entrepreneurial, but who are also open to our feedback, guidance, and support in order to grow. We’re in their corner.

We used to call it mentorship-driven investing. We took that out a little bit because we got feedback on that. Everybody also says mentorship, so what does mentorship mean? That’s how we think about it. How can we connect value to you like a mentor along the way? We want to be in the trenches with you for the first 12 to 24 months and get you to that next round. Then, ultimately, we’ll start to scale back. That’s how we scale. We’ll start to take a step back as the Series Seed and Series A investors come in and take you to the next level.

Success Stories At Sapir Venture Partners

It’s interesting. I feel almost like I’m interviewing myself. I have used that three-legged stool analogy countless times. It’s so fascinating. You’ve been doing this for a while. You’ve already had some good success. Maybe share some success stories with some of your previous portfolio companies, and what’s happening with some of the current portfolio companies.

We’ve had great founders. I don’t think we’ve made any bad investments as far as the people, which is the most important thing. Whether it’s the tech, the market, or other circumstances, we all know it’s impossible to tell in advance. We still have great companies in the portfolio. From our early portfolio, from the Angel days, one that stood out for us is Tomorrow.io. I don’t know if you know them. They’re up in Boston. They were the ones who, as an Angel, helped me crystallize the thesis for Sapir.

These were three Israeli founders who are top-notch. Two of them are Israeli Air Force pilots. The other one is an Israeli commando officer. They were at Harvard and MIT. They were the top of the top, the best you could think of as far as on paper. They were good people. I met one of them sitting on a panel. We were talking. We sat down afterwards, and we got to know each other. He was like, “You’ve got to meet the rest of the team,” and I did.

I’d start spending those nights and weekends as I described earlier, hanging out with them. We’d be working in a study room on campus and starting to figure out their go-to-market and their product development plan that needs to fit with the needs in the market. It was all around, “How do we better predict the weather?”

It’s interesting because if you think about their backgrounds as pilots and as a commando, they had to do a lot around the weather. They shaped our lives. It’s dual use, right? They were thinking, “How do we solve our problem from the Military perspective and bring it to the civilian commercial opportunity?” That’s what they were doing.

It was fascinating. It was a great experience. I loved working with them. I also saw how they needed our help. They needed our guidance early on. Now, they’re doing great. They’re off to the races. They’re out there. They’re doing great, but in those early days, they had basic questions on how to draft a response email to a potential customer or potential competitor. The basics of bridging the culture.

It’s a cultural gap. I know they feel like they’re at home in the US, and they act like they own the place, but they do that everywhere. Don’t worry. At the end of the day, there is a big culture gap. How do you draft? How do you interact? Even coming from these top schools and extreme backgrounds, there was a value for us to add at that early stage. That’s what I’m trying to recreate with every investment I’ve made since. It was a great experience. They’re lifelong friends. They’re doing great. That was the real thesis crystallization. It was when I realized we have a place to play in this ecosystem. This was in Boston.

Here in Israel, we’ve had some success in spinning companies out of the universities. Israel’s universities have always struggled with how to commercialize their IP. Part of that is because the Weizmann Institute had such great success with a single drug. Everybody tried to replicate that, but none of these look the same. I can tell you from personal experience, one of the startups we worked on. We were trying to spin out a technology from Weizmann. It took us a long time to negotiate a license because what we were taking was software. They kept trying to license a small molecule to us. It doesn’t work. There’s a gap.

I could say that we’ve been a part of it, but there’s been a big change over the years in how licensing is done in Israel. One company we have called is Enzymit, which was spun out of the Weizmann Institute. This is a guy who had completed his PhD and created a single enzyme that was supposed to allow us to enjoy sugar without any of the consequences.

I sat with him and said, “It’s great that you’ve got this enzyme or enzymatic process, but we’re not going to invest in a single enzyme. That’s a 0:1 outcome. There is too much risk and too high a cost in a single opportunity.” We spent time talking. I said to him, “How did you develop that enzymatic process?” He is like, “We did all these.” I said, “What if you could do that over and over again?”

This is a company called Enzymit, a very innovative name. They are developing enzymatic processes for lots of different things. They are things from hyaluronic acid that could be used for medical-grade, injections, and all that stuff, all the way up to how we do biofuels and all of these processes in between. The idea is they’re going to revolutionize biomanufacturing, which we have not realized the full promise of yet, and change how we interact with the world around us, and change our reliance on oil.

There’s a lot that they’re doing. It’s massive. We’re very happy because their last round, their Series A, was led by Khosla Ventures, which is a huge stamp of approval. That’s exactly the bridge we’re talking about. Talk about a scientist out of a lab in Israel who thinks he’s going to change the world, focusing very early on getting engaged with the market, and they did.

They were looking, “Should we go into food? Should we go into fuel? Should we go into medical?” There are so many different ways to apply this technology that the early engagement with customers that we helped facilitate and drove allowed them to figure out how to build this path as far as their strategy. It attracted that type of support that will hopefully follow them all the way to success.

Hottest Trends To Watch Out For Right Now

That’s fantastic. What are you looking at? What are some of the trends? Everything’s AI. With that sentence in context, what are you looking at? What are the new venues, new opportunities, and new industries you’re looking at?

For funds like ours, early-stage small funds, we’re not going to be playing with AI at the foundational level. That’s not relevant. For us, AI is a tool. The companies we engage with, how are they using AI? If you think back to machine learning and big data, we’ve been around enough that we’ve seen this cycle evolve.

With AI, we’re looking at it as a tool, but how people are using it, whether they’re using AI or not. I remember we passed a machine learning company. When we started to do the diligence, the CTO was like, “Our machine learning algorithms aren’t working, so we have four people based in Ukraine that are doing it for us.” I’m like, “There’s no tech there.” We didn’t make that investment.

That’s how we’re thinking about AI. It is about who’s using AI and thinking about where AI is going versus who’s claiming AI, which is more efficient automation. That’s not AI. We look at AI as a tool. As far as industries, it applies to a lot of different industries. Specifically talking about Israelis, there’s a lot happening around dual use and defense. We’ve had funds that were raised in the past couple of years that were dedicated to defense. We’ve looked at defense stuff. We like that stuff, but we look at it from the dual-use side. What’s interesting is also what you define as defense.

You were talking earlier about firms, the emerging managers versus the established managers, and where the funding is going. Israel has a similar problem, such that in 2023, over 70%, and in 2024, over 75% of VC funding or Venture Capital funding was going to cyber, SaaS, and FinTech. We do not believe that is the future of Israel’s economy. There’s still a lot to have there and to be done there, for sure, but we can’t only be doing that.

If you look at our universities, and even if you look at our defense organizations, like Israel’s version of DARPA, which is called Maf’at, there are patents that are being created. We’re talking about dozens, if not over 100, patents a year being filed. You know they’re not filing them on SaaS, cyber, or FinTech because there is no IP to file there.

What’s happening with all of that innovation? We’re focusing on those sectors. If we talk about non-consensus, these are the non-consensus Israeli sectors. These are things around energy. These are things around material science and a lot of biotech. We very much believe in biotech. That’s our personal background. That’s where we’re focusing. Biotech is very broad, so biotech could be applied to food, agriculture, energy, pharma, and medicine.

There’s a lot happening in those spaces here, and they don’t have enough funding or support. They naturally look outside of Israel because that’s also where their market is. Can we work on those and get them there? It’s a perfect fit for our thesis and where we see the innovation happening. In the Military, that means not cyber, so it’s everything else. The Military itself is doing stuff around material science, drones, and robotics. There’s a lot happening there.

Sapir Venture Partners’ Potential LPs

I appreciate that. Let’s change topics a little bit. Let’s talk to potential LPs, investors, family offices, and the like who are reading. First of all, maybe share about the background, not the specific names, of who your LP and GPs are. What’s the makeup of those?

It’s mostly high net worth or small family offices. For our stage and our size, that’s a good fit. We’ve learned a lot over the past couple of years, or a few years, since the craziness of ZIRP and then what’s happened post-COVID. What we realize is that we need to appeal, on the one hand, to investors like that who have no timelines.

For institutional investors, I’m sitting there with a stopwatch. When I’m doing very early-stage and deep tech, we know it’s going to take a long time. Even for investors like these types of LPs that are less time-sensitive, they still want to know that they’re making money and that they’re going to see some returns. It’s not just us talking about TVPI all day.

We believe the secondary market is going to stick around. It’s not a blip that’s in response to crazy valuations and everything that happened in ‘20 and ‘21. We think that as companies are staying private longer and as these massive funds are being raised and claiming to be venture capital, which I don’t think they are, and that’s a separate conversation, those massive funds aren’t venture capital. At that point, they’re already growth capital or whatever you want to define it. As they continue to come in, there are going to be opportunities for secondary all along the way. There has been. Investors will come in. They’d be like, “Let’s buy out some of the founders’ shares. We’ll let the founders take money off the table at Series A, or maybe early, but B and C, for sure.

If we position ourselves as a co-founder fund that is in early, our goal is to use that type of strategy as early as A, so two rounds after us, but definitely B and C to create a 1X return to get people their money back early. We can all be aligned on taking the long road to SEEING success with this company and getting the great returns we believe in. It means I’m giving up a little bit of money in the long run in order to make our LPs whole sooner. We’ve gotten some very good support for that.

Why Choose Sapir Venture Partners Today

That’s fantastic. I’d like to close with two final questions. The first one is, in the sea of venture capital funds that are out there, and we can again have another conversation on what represents venture, why your fund, and why now?

I’ll tell you a story. When I was getting into venture, it was fascinating because you get to work with all these different companies, these brilliant innovators, and these passionate entrepreneurs. I loved it. It’s the early stage. We were building stuff, and we were in the trenches. I had done it, and I wanted to help the next generation do it. I’m not an ideas guy, so how can I help you realize your idea?

I went and was like, “How do you do venture?” I asked the question. I asked a bunch of people, and I kept getting referenced to that 2×2 grid of success and venture as non-consensus and right. You have consensus and non-consensus, and right and wrong or wrong and right. Wrong and consensus, you’re losing all the money. If you’re right and consensus, you’ll make a little bit of money. The success is the quadrant down here, which is right and non-consensus. I’m like, “Great. How do you do that?” They’re like, “I don’t know.” Nobody can explain to you how to do that.

I was talking to a guy who’s got some amazing AI capabilities. He’s thinking about applying it to a venture. We’re brainstorming on how we would do that. I said to him, “You have answers for everything I talked to you about, as far as the data, the analysis, and understanding the market opportunity. At the end of the day, there is art here, and that is the people.”

He said, “My AI can evaluate people, too.” I said, “You’re right. It could probably evaluate and tell me, ‘Here are the red flags. Here are things you need to worry about. Here are things you need to work on. Here are things that need to be solved in order for it to succeed’, but you have to be in the room with the people doing that, especially at our stage.”

What I would say is, we’re non-consensus when you think about Israeli because we’re not cyber, SaaS, or FinTech. We’re already in the non-consensus. We’re also in that early stage. This is a conversation I had with Peter Walker at Carta because I’ve been trying to sift through the data and understand if, in deep tech, there’s an advantage to going even earlier.

The data is still out on that. We’re still doing that analysis. It looks good, but it isn’t a huge difference from getting in at Seed versus Pre-Seed. It’s not necessarily justifiable for the risk. However, if we can take a bigger piece of the company because we’re adding all this value, because we’re coming in so early, and because we’re helping them get founded and get set up, then it allows us to execute on that strategy that allows us to sell a portion of our holdings a little earlier and get those returns. In this market, that has to be part of every GP’s story to an LP.

Achieving Success By Helping Founders Succeed

What are some final things you want to share with the readers?

That’s a great question. I wasn’t prepared for that. What you’re doing is great. We need more people at this early stage who are founder-oriented. Somebody said to me, “You shouldn’t say you’re founder-friendly.” We’re not their friend. We’re there to help them. We’re there to mentor them. Sometimes, it’s tough conversations.

It’s hard to explain what that is, but at the end of the day, that trolley is what mentorship is all about. It is being able to have tough conversations, being able to be there for them to see you as a friend and a supporter, but also being able to hear you when you give them that feedback. That’s what this is all about. For those of us who have walked the path beforehand, on the one hand, the world is changing super quickly, but on the other hand, some of these things are truths that don’t change. If you’re working with people, how do you help them succeed? Their success is our success. The minute you understand that, everything starts to align and fall into place.

Get In Touch With Aaron And Sapir Venture Partners

Where can people learn more about Sapir and get in contact with you?

We have a website. That’s SapirVP.com. We’re very proud of being venture partners. You can get that from our story. We are Sapir Venture Partners, not Sapir Ventures or Sapir Partners. Our website is SapirVP.com. We also have a great newsletter called Crystalized, where we write a lot about these challenges at the early stage and the trends we’re seeing in the market. People are welcome to join us there. That’s on Substack. Also, they can reach us on LinkedIn. We’re always on LinkedIn.

Thanks so much for being on the show. For those tuning in, make sure you comment, read, and share this episode. Make sure you follow us all at EmergingManagersPodcast.com. Aaron, thanks again for being on the show.

Thank you very much for having me. This was a great conversation.

My pleasure. Thanks.

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Episode Takeaways And Closing Words

Welcome back. I wanted to give some key takeaways from our interview with Aaron from Sapir Venture Partners. Some of the key points for investors looking to invest with them are that they focus on the team. They prioritize strong, coachable teams. They’re involved in deep tech and non-consensus sectors. They invest in early-stage deep tech, particularly in underfunded Israeli sectors like energy. They have an easy and early liquidity strategy.

The foreign firm intends to generate a 1X return for LPs at Series A through C, allowing for earlier capital returns for LPs. They have a hands-on approach. As we mentioned in the beginning, they’re a co-founder fund providing significant guidance for these founders. For founders looking for a good investment partner, they’re going to prioritize market and team over tech.

He mentioned in the interview that founders love their technology, but they get them to focus on the go-to-market and how to build a team that takes these great, technical ideas and turns them into great companies and good success. They want to build on the corporate structure early. They want to make sure they have proper governance, board minutes, and stock option plans to avoid any red flags as the company continues to grow.

They want entrepreneurs who are open to feedback and guidance. They’re working with them, not only with capital, but with mentorship and support. Focusing on the strategy of Israeli-based founders in the US and these non-con census sectors, it’s providing a great opportunity for oversized returns, ease in liquidity, and great opportunities to get founder support. This has been a hallmark of a lot of the earlier-stage, lesser-known emerging managers that we’ve interviewed. I encourage you to continue to tune in, like, follow, share, and learn more about great investors like Aaron. Thanks for tuning in.

Important Links

• Sapir Venture Partners
• Sapir Venture Partners on LinkedIn
• Crystalized Newsletter
• The Founder’s Dilemmas