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The following post was written by Noya Lizor, during her tenure as Director of Content at Viola (2014-2019).
Ruthi (Simha) Furman is a veteran of venture lending in Israel, having co-founded Israel’s first venture lending fund in 2000. Under her leadership, Viola Credit has raised four different funds and seen over 20 exits to date, yet despite being one of just a handful of women with the kind of seniority and experience that comes from having pioneered a whole new area of investment (in this case in Israel’s high-tech scene), surprisingly little has been written about Ruthi, most likely due to her profound sense of modesty.
But anyone who meets her can see how passionate Ruthi is about the world of venture lending, and her insights are riveting not just by virtue of the fact that Viola Credit has successfully funded Israeli high tech companies with over $600 million worth of loans to date, but also because she has accomplished this impressive achievement as a woman in an industry that’s (still) led almost entirely by men. I sat down with Ruthi for a chat about her background, about why she loves venture lending, and about her experience as one of the most senior women in Israel’s tech Investment industry.
What is your background and how did you come to found Viola Credit, the first Israeli venture lending fund?
When I finished my army service, I wanted to be a psychologist, but I was also drawn to the world of finance and I wanted to be a business woman, so I ended up studying Economics, Finance and Marketing, earning my MBA at Tel-Aviv University. I began my career as an Analyst at Bank Hapoalim and soon found myself managing their high-tech finance division. It was back in 1996 when high-tech was still a relatively new industry in Israel, but there was already some VC activity here and I identified a need for additional financing options.
In those days, venture lending didn’t exist in Israel yet and I remember being asked by my credit committee at Hapoalim when I proposed that we start our own venture lending department, what assets we could possibly pledge against a loan to entrepreneurs whose whole premise for their future success was still mostly “in their heads”.
But since venture lending is a complementary option to technology companies that are already VC funded, I could see that the market was ripening for this type of service, and as a financial entrepreneur myself, I was determined to plead the case for venture lending to the skeptics at the bank. I also believed that strategically, if I could help finance young companies at a pivotal stage in their development, I could establish their loyalty and they would continue to bank with me later on as well.
Israeli high-tech companies were already succeeding and many more were showing great promise so I understood that the potential was huge. I decided to go to Silicon Valley to do some research and talk to a bunch of people (bankers, VCs etc.) to learn from them about how venture lending was done. When I returned, I presented my proposal to the bank and got the go ahead to establish a venture lending department (I was basically the first person to implement this method in Israel), making Hapoalim the first Israeli bank to get involved in this particular area of investment.
In 2000, when the late Aharon Dovrat founded Viola Group together with his son Shlomo (who had been clients of mine at the bank!) together with Moti Weiss, Avi Zeevi and Harel Bein-On, they offered me an opportunity to join and start the credit arm of the group, Plenus (now Viola Credit).
What is Venture Lending and why do you like this area of investment?
Venture lending is a method of providing credit solutions to technology companies in high growth markets. Viola Credit’s model is based on secured loans in consideration of interest and an equity component. As Israel’s premier private debt provider, we provide custom credit solutions to mid, late and growth-stage technology-focused companies.
One of venture lending’s main benefits, and one of the reasons that I like it, is that our loans enhance growth but also limit equity dilution for both founders and investors alike. Equity dilution is an important consideration for companies when considering outside investment, so venture lending is often a really smart move.
Just to explain the concept of limited equity dilution – If a company raises $1 million at a post money valuation of $10 million, for example, the VCs would get 10% of the company. As venture lenders, however, we would only get a quarter or even a fifth of that. So while it’s true that a company that we provide a loan to has to return the loan, it also wouldn’t be diluted as much as with VC funding because we would take a lot less shares.
When is it right for a company to look at venture debt as a financing option?
Venture lending is especially “right” for a company that’s still young but already generating revenue, with a valuation of let’s say $20 million (for example) which is aiming for a certain milestone that if reached, would boost this valuation to $100 million. So instead of raising VC funds, which would be expensive at this point for the company because it would involve further dilution of their shares, they would instead take a loan that would provide the funds needed to reach that next level, but with far less dilution. Then, when the company reaches its milestone and is worth a lot more, it would also be easier for it to raise higher rounds of VC funding if it wanted to.
Sometimes, it makes sense for a company to use a combination of both venture capital and venture debt at the same time. Cellwize is a great recent example of this: Viola Ventures led an equity funding round and Viola Credit granted a credit facility as well.
It’s important to explain that venture lending isn’t meant to replace venture capital. We are actually only relevant to companies that are already backed by VCs, private equity or even professional Angels, so we’re probably not a suitable option for companies that are just starting out and can benefit a lot more from venture capital, not only in terms of funding but also in terms of invaluable guidance that can help take them to the next level.
It’s usually when a company approaches a Round-C stage (when it is already generating revenue) that it becomes logical for them to take out a loan as an added option of financing. A company must already have some sort of layer of equity and be able to “carry debt” before venture lenders will consider it viable for a loan.
In addition to all of the financial considerations, there is also an aspect of ‘venture’ in venture lending, so we also look at the same criteria that VCs look at when we consider whether to invest in a company or not, like the management team, the market it’s operating in, the potential to achieve an exit, etc. (plus we also look at the down side).
The model works like this: We provide a company that’s already VC-backed with a secured loan (and by the way it’s usually the type of company that a bank wouldn’t consider lending to because they aren’t necessarily profitable or have insufficient assets). In return, we secure a Blanket Lien (or Floating Charge) and a return that includes interest on the loan and a component of equity in the company.
What do you enjoy most about your work?
We have a highly experienced investment team at Viola Credit that analyses each investment opportunity and tailors financing deals according to each company’s financial needs with a focus on real extension of runway and flexibility.
This process is actually one of the most enjoyable aspects of what I do. I love meeting with Israel’s leading Tech companies and their brilliant entrepreneurs, and every day I learn something new. I also like the creative thinking involved in building financial structures and putting the deals together.
One of our advantages at Viola Credit, is that since we are a part of the Viola Group – whose other arms include Viola Ventures, one of Israel’s top VC firms, and Viola Growth, a technology growth capital and buyout fund that focuses on investing in global companies at expansion phase – our team enjoys a broad and unique access to deal-flow opportunities.
I’m very proud that Viola Credit has come to be known as the “lender of choice” to many of Israel’s most promising companies. Our strong track record has drawn companies and executives to return for second and third time deals, which is a huge affirmation of our commitment to the partnerships we form with our clients (and very rewarding for me on a personal level as well).
Ruthi “in action” (click to enlarge)
What were your challenges as a founder and how have these challenges changed over time?
When we launched Viola Credit back in 2000, it was the first venture lending fund in Israel, so it was up to us to create the “Israeli model”, to educate the market and to convince investors to invest in our fund. In parallel the Viola Group was also just starting out and it was both challenging and exciting at the same time to be a part of the first team.
Back then, it wasn’t difficult to have an intimate knowledge of the whole industry because there were fewer funds, less companies and Israeli technology was focused mainly on Telecommunication and enterprise software (there was also some activity around printing and medical devices). These days, we have more than a thousand companies being established every year in multiple areas of technology, and the technological changes are exponential.
But although there are way more companies now and the startup landscape is less intimate than it used to be, there is also far more potential for investment, partly because many of the startups are more mature and more global (most Israeli startups are either already international or are aiming to be, because the local market is too small), which is an advantage for us as venture lenders.
Today the market is very dynamic and always evolving which means that we are always researching and learning about it in order to stay up to date and keep our finger on the pulse of what’s going on. Being a part of the Viola Group places us at a huge advantage because we can leverage our association with the other funds in the group to do cross-fund research and get access to companies that might otherwise have been a lot harder to access. This advantage wasn’t as “developed” as it is now back when we first started.
Do you get the feeling that people in the tech industry aren’t sufficiently aware of venture lending as a financing option? How do you find new clients: Do you approach them or do they seek you out?
It works both ways. Viola Credit has been around for 15 years now so we are known at least to some degree. We get a substantial number of deal-flow leads from the other VCs, and in some cases we’re also approached by second or third-time CEOs with whom we have already worked in the past, to finance their new companies. Also, I have been in the industry for about 20 years, and Israel is a small country, so my network of connection extends pretty far, going back even to my days as a banker.
So in short, many times people from the industry approach us, and other times, if we identify through our research new trends or ‘hot’ areas of tech development (like cyber security at the moment, for example), we will approach them and offer our services.
I think that these days the market is more aware of the option of venture lending, and we also have a few international competitors who help educate the market in general about this option.
How did the fact that you are a woman affect your experience of founding a venture lending firm and running it?
When I started Viola Credit, I was one of only two women at the executive level at Viola Group and I was still very young, but young entrepreneurs respected that a lot. I never felt that this was a problem with my partners at Viola Group either, they always treated me equally. It wasn’t the case when I worked at the bank though! Back in my days of running the high-tech finance division at Hapoalim, when people would come to meet me they would sometimes ask “Where is your boss? Can you call him?” They just couldn’t believe that I was the one who was in charge of the department. “We thought you would be older”, they would admit.
On a positive note, in the tech industry I find that I am treated equally, for the most part, but this has both pros and cons, because sometimes there are situations where it’s actually advantageous to leverage your power as a woman. But in other situations, they expect you to ‘talk the talk’ of a masculine business world so as a woman I have had to master the art of adjusting my approach and adapting my behavior as needed.
As a result, I learned early on in my career to speak more directly and demonstrate a level of sharpness and firmness that’s usually associated with a masculine way of talking, and I remember that sometimes I achieved the ‘crossover’ so successfully that my male colleagues felt perfectly comfortable telling me typical ‘male’ jokes (the kind that some women would find rather crude!).
I have also found that as the years go by, rather than becoming tougher and more ‘aggressive’ – a transformation that you might expect from a woman in a male-dominated industry – my position, seniority and confidence have actually allowed me to ‘soften’ and become more feminine and sensitive than I might have allowed myself when I was just starting out and still had a lot to prove in a man’s business.
Do you feel that there has been progress for women in the high-tech and finance industries?
To an extent, yes, but not enough. I think that if other women can see that it’s possible to reach senior roles in the tech and finance industries and still manage a household, hopefully it gives them the confidence to realize that they don’t have to choose either one or the other. Some women do want to choose either one or the other, which is totally their prerogative, but for the women who want both a family life and an ambitious and demanding career, it means that they have to deal with pressures both on the home and the work front, which requires them to be highly efficient and strong, and I hope that I set an example of what’s possible.
I also believe that the more equality is achieved between the sexes on the home front, so will it increase in the workforce (a point that Facebook COO Sheryl Sandberg makes as well in her 2010 TED Talk, before she wrote Lean In). We’re already starting to see it in the current generation of young men who are more supportive of the women in their lives who want to pursue a career. They also see young CEOs like Mark Zuckerberg who allows Facebook’s US employees up to 4 months of paid maternity or paternity leave (which they can take throughout the year), and they are generally taking on a bigger share of the responsibilities on the home front.
The more this sort of attitude continues to progress, and the more women feel that the “job” of running a household and raising a family is a commitment that’s shared with their husbands, the more natural it will become for them to pursue challenging careers and take up more senior positions, slowly creating a more balanced gender representation in industries that are still largely run by men.
I think that the younger generation is more open to gender equality in the workforce, although Israel is probably lagging a bit behind the US in this regard. And in China, where the grandparents take an active role in looking after the children (in most cases a single child) while the mothers go off to work, women have been able to not only be more involved in the workforce but also reach very senior management levels, and this has had an encouraging ripple effect in the business world.
There was a time, probably around a decade ago, when I believed that success shouldn’t be judged based on gender but rather on individual abilities, and in some respects I think that still holds true, but at the same time it’s a fact that women are an undeniable minority in high-tech and the VC and investment industries. The vast majority of leaders in these industries are men, and in Israel especially there’s a very strong male camaraderie in the tech scene among entrepreneurs hailing from the same units in the army etc. which is somewhat alienating (even if it’s unintentional). Women still face a glass ceiling when it comes to pay equality as well. So while it’s not necessarily right to judge or treat women differently in our industry just because they are women, at the same time encouragement is still needed to close the gender gap.
Career women who reach senior management roles can sometimes feel a little ‘alone’ precisely because there are so few of them, so there is something both comforting and empowering about female bonding at that level. For me, some of these women in Israel include Rakefet Russak-Aminoach (President and CEO of the Leumi Group) and Lilach Asher-Topilsky (CEO of Israel Discount Bank), whom I am very fond of and also admire because they are both highly successful but also genuinely lovely (which disproves the misconception that if a woman is highly successful, she must be a bitch by necessity). It’s also important for younger women coming up the ranks to have other women who have already made it to the top that they can look up to as mentors, and that’s something I’m personally very passionate about.
Powerful: Why we have too few women leaders (TED Talk by Sheyl Sandberg, COO of Facebook)
