Director, Petrushka Investments
Liron Petrushka is the Director at Petrushka Investments, a company that manges public and private investments for family foundations.
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Rohit Mittal: Hi, I’m Rohit. I’m the co-founder and CEO of Stilt, and today we are with Liron who is an investor in Stilt and also a serial entrepreneur who, many years ago, started a few companies [inaudible 01:07] and after that, he has been investing for the past 15-20 years.
Liron Petrushka: Hi.
Rohit: Cool, so let’s just start from your background. Tell us a little bit about where you’re from, how you moved to the US and how your college experience was and so on.
Liron: So I’m originally from Israel, I moved to the US in 1987. I was 22 years old. I met my wife in Israel and I followed her here. I actually moved to Chicago in 87. And in Israel, after high school, you go to the military. So I did not go to college, I went straight to the military. My dream was to be a soccer player, but I ended up being here. And I went to school in downtown Chicago. During school, I met an individual that left IBM and started a computer company. And I joined him, it was just the two of us. It was when the PCs just picked up.
Rohit: What year was that?
Liron: That was the end of 87, beginning of 88. The Intel 386 chips. The chip came out and everybody was buying PCs. He started a company, I joined him. We were working with law firms in Chicago — selling them PCs, connecting them and setting up local area networks. So I learned through the job. I learned what to do and how computers work even though I studied a little bit of it in high school prior to that.
Rohit: And what was your major? Did you go to college? What was your major in college after military, I assume?
Liron: So I did not go to college. I did two semesters in Chicago, and then when we started working, the business picked up and I just left school and continued to work.
Rohit: So you’re like a quintessential college dropout.
Liron: Correct, way before it was okay to do.
Rohit: Fascinating, and you started working on this in 88.
Rohit: How long did you do this?
Liron: I did it until the end of 94 or the beginning of 95. The company grew into about 120 people and we were focusing on local area networks and wide area networks both in Chicago and the rest of the US. And I wanted to do something on my own, bigger — larger, and I wanted to move into the software side because we were doing mainly hardware, and we were bringing all the software companies in and our margin was small and their margin was 90%. I really wanted to do software, so I sold my part to my partner and then an outside investment company bought my part. I decided to start the next thing.
Rohit: This was before the internet boom, or right about…
Liron: Way before. In 94, we heard the word but we did not know what internet is.
Rohit: Interesting. And were there any initial softwares that you saw?
Liron: I saw a lot of accounting softwares and payroll and human resources stuff that started happening, and people were doing it without much of the internet, as I said. And then I heard about Mosaic, which was the original Netscape that Marc Andreessen wrote back in Illinois, where I was. I was reading that he is moving and starting a company here in the Bay Area, and I told my wife that my next thing is a software company and that we were going to do it in the Bay Area, and she thought I was crazy. She grew up in Chicago and we lived there for 8 years, and that was my next venture.
Rohit: Did you have kids back then?
Liron: No, my wife was pregnant with the first one.
Rohit: So you asked her to move to the Bay Area. Did you have any idea what kind of company you wanted to start?
Liron: I had an idea before, I was looking and doing my market research and I decided to do something that everyone needs in the enterprise and it was payroll and human resources. I actually bought a source code from a company out of Ohio and decided to do it here in the Bay Area. I moved with the source code and hired a few developers and we developed a software that was initially focused more on payroll and then human resources and started selling it.
Rohit: Interesting. And this is something like Zenefits and Gusto do today?
Liron: Very similar to what they do today except that we did it as an enterprise solution, selling it to the enterprise. There was no SAS or hosting at the time.
Rohit: So you got your own servers and everything.
Liron: We did that, but we usually deployed it on customers’ premises — especially payroll, it’s very sensitive.
Rohit: What were the pricing models around that time? Everything upfront? Do you pay a monthly...
Liron: It was upfront, licensed, based on the number of employees. I went after large companies. So my first customer was Genentech, the biotech company out of south San Fransisco, which at the time had something like 4000 customers. Basically through Genentech, they helped us build the product and it was fit for a lot of other larger companies. So Genentech was the first paying customer, but also helped us build the product and grow the company.
Rohit: Interesting. So you did that company, how many years did you do that for?
Liron: So I did this one for three and a half, almost four years then I started to battle some of the big guys and we started to get some offers for acquisition and sold the company. The company just went public at the time — Ultimate Software Group, the symbol is ULTI and Ultimate Software Group today is worth about $10 Billion. They are going through their own acquisition, but it was a great success for me in such a short period of time. I stayed with them for only a few months — about 6 months, and then started my next venture.
Rohit: Okay, so you did a few companies — right? Was the next company also in this space?
Liron: No, it was something different. It was in the e-commerce strategic sourcing. A company called commercebid.com. It was a crazy time there, then in 98-99 the all the .com’s were booming. The internet was happening back then. Within a year, we had grown up to 65-70 people and had a couple of large customers — General Motors, Hewlett-Packard, and the bids started coming in. And in just about a year, 13-14 months, sold that company to Commerce One. Again, the timing was good and back then the numbers were crazy high.
Rohit: And did you raise venture capital around that time?
Liron: First it was my own money and then a couple hedges and a small seed fund. No one is familiar with them, they are not around anymore. It was about $4 million in total raised.
Rohit: Got it. And then you did that for 15 months and then you started your third company.
Liron: That was the third. Then I stayed with Commerce One for about a year and then I decided to move to what we call the dark side. To start to invest on my own in early stage startups.
Rohit: Got it. Really curious — around those times you decided to move from Chicago to the Bay Area. What about the network? It’s a lot about the kind of network you build when you’re moving to a new city and starting a new company. How did you go about finding the right people to work with and building those connections?
Liron: Very good question. It was very tough because I had maybe one or two contacts here — very limited. I had to start from scratch. Starting a company, hiring people, building the technology — not by myself but building a company and networking. So I was just basically around the clock between my work in the company and almost every evening, I went to a different event just to meet people. Networking. Some events were worthless, some were interesting. But I got to meet some interesting people, this is how I got to my first customer, which was Genentech — through a networking event, and on and on. So starting basically from ground level all the way up to building a company.
Rohit: Interesting. So you decided to come to the dark side of venture capital, which is good for us! But how was that initial experience of deciding to invest. What was the first company you invested in and how did that turn out?
Liron: It’s interesting because as an entrepreneur, you suddenly think you know how to invest in other entrepreneurs, but that’s not the case. Also, you get very confused because you have a bucket of money and you want to spread it all over, what we call “spray and pray”, and think that that will work out. No. So my first investment was in a company that if was done 5-6 years later, it would have been Facebook. But it was premature and no one even thought about social networks. The name was localmusic.com. They were thinking about doing social network aspects starting in local bars. The company did not make it. That was my first. The next one happened to be a good one. It was pets.com. They got merged with public, again. Again, who would have thought that people would buy pet stuff or pet supplies and pet food online? This was one of the companies that actually survived the .com. I did not have a lot of involvement in that company, and after this investment, when things started to happen on the positive side, I realized that maybe this is not how I want to do it. I don’t want to just spray on stuff that I am not getting involved in, no I wanted to invest a more significant amount of money to lead the seed run in a company and be involved — and make an impact on companies, spaces and areas that I can help.
Rohit: Got it. Cool, so that was pets.com in 2001. What were those times like?
Liron: They were crazy times, people remember the history. Mid-2000 things started to go in the wrong direction. In the end of 2000 and beginning of 2001 it was still okay, and then the bottom just fell off. And things were completely dark until 2004/2005 until Google went public. It was a real tough time and it was a good learning, especially with my own capital — where to invest and where not to. To choose the right entrepreneurs, because I think it’s probably the period of time where the largest number of companies shut down. It was in those 2-3 years, since I don’t know how many years ago. So it was a good time to learn how to deal with rough times and build companies that last longer.
Rohit: Got it. Did you stop investing as you went through that period? Did you get more selective? Or were there no companies to invest in?
Liron: So I slowed down a little bit like everyone else and got a little more selective. I had a couple of bad investments at the time. Bad investments because I didn’t make money, I lost money. The company might have been good, but the times were bad. And probably a couple of opportunities that were not the right opportunities. But I think I learned a lot from 2001 until 2006 — what I want to do, how to identify companies, how to work with entrepreneurs, which entrepreneurs I want to work with and as you suggested, I did a lot less at that time and then started to pick up again in 2006, 2007 and 2008.
Rohit: After that you also invested in a company called Check….
Rohit: …which you continuously invested in, that was super interesting to me that you had such belief that you invested in multiple rounds.
Liron: Right, so I met Guy, the entrepreneur, in 2006. He was at Hewlett-Packard at the time, and only a year later when he started a company, I invested in him in mid 2007. I was the only investor initially, the lead investor and also the chairman of the company. The company survived the downturn at the end of 2008/2009, which again — many companies had to go, they shut down and couldn’t raise money — but they built a good company, good foundation and they survived that. So yeah, I invested in the seed, in the A, in the B and in the C rounds. The C was little, but yeah I invested in all those rounds because I really had a belief in the company and conviction. The company went through tough times and they came out of them. They took advantage of the smartphones that came out, the Apple phone in 2008. They were one of the first applications, and the entire solution of the company moved from the web to the smartphone. The company started to have some options in 2013 and in 2014 we had a very nice outcome. The company got acquired by Intuit and everyone did well. We stayed good friends — I stayed very good friends with the founder. As a matter of fact, the founder and CEO started another company a year or two later, in which I am an investor as well.
Rohit: Got it. So from investing into pets.com, you moved into investing more in FinTech. How did you learn about the industry and what made you decide to be sort of an expert?
Liron: So I’ve always had some sort of curiosity about the banking and financial technology. I noticed, especially after spending some time with Check — initially, the name was PageOnce, the banking industry and everything around it was still living with technology from 30 years ago. Basically what people call “the middle ages”. I started to spend more time in FinTech, and with Check and then 6 months later after the investment in Check, I ran into Renaud that started LendingClub. I met him before he started the company, got involved with that. LendingClub did something that no one believed can be done. To give money to people with no collateral! So through LendingClub I got more and more involved in FinTech and as things progressed, both companies did well. I got to learn and know more and more about Financial Technology.
Rohit: Just to explicitly clarify, you were one of the early investors in LendingClub. What rounds did you do? How was that process? I think LendingClub was initially like a Facebook app that over time became a marketplace.
Liron: Right. So the idea that Renaud, the CEO and founder came up with was to do peer-to-peer lending through social networks — through Facebook and maybe other social networks that were there at the time. There was no intention to do it with people that don’t know each other or that are not on the same network.
Rohit: Oh, interesting!
Liron: And that changed real quick, probably within the first 12 months, they realized that it’s not big enough to do it this way, and the marketing is very limited. And they decided to open it up to the entire population in the US.
Rohit: So they moved off of Facebook?
Liron: They moved off of Facebook, all the marketing went away from Facebook. They did some later on as general marketing, but it’s not real networks — it’s not necessarily people you know that you lend money and borrow it from.
Rohit: Got it. And when you were evaluating that seed investment in LendingClub, you put money in on the promise that people will give each other money on Facebook or other social networks.
Liron: So obviously you look at the entrepreneur and most of the decision should be made on that, and I really trusted and believed in what Renaud was doing, and he had a conviction that he’s going to build something big and and disrupt the lending space. Peer-to-peer is not something that people are familiar with, definitely not over the internet. So it was innovative and revolutionary. I invested in the seed, I invested in the A and also put money on the platform as a peer-to-peer lender. So I was one of the…
Rohit: One of the people who were initially the investors in the loans other people were getting. So you were given the loan notes. When it started initially, was it loans divided into multiple small things? I think LendingClub also had to get SCC approval?
Rohit: So they were not doing loans for a period of 9-12 months.
Liron: There was a period of 9 months that it had to go through the SCC certification and get approval by the SCC, and the competitors did not do it and paid for that later on. So it was about 8-9 months that we called the quiet period, that you could not do peer-to-peer from individuals. You had to get accredited investors, high net-worth individuals that are affiliated with the company. So people like myself and other seed investors or other venture investors that were involved had to put money on the platform, and then that was given out to the different borrowers.
Rohit: Got it. And then you did seed, then you did A for it and that then completely changed the lending industry as we know it today.
Liron: Absolutely. Then there were a couple of other companies that were trying to do it and they grew to a certain size — again, it’s still a small part of the entire lending space but it definitely disrupted the space and created a whole new industry of lending.
Rohit: Got it. And then during those times — Did you make other investments?
Liron: I made other investments as well, not necessarily in FinTech. Some of them did well, some of them are still around, and some of them are not.
Rohit: And what were some of the early mistakes that you figured out as you started investing?
Liron: Not to invest in hardware. Some people do well in hardware. Hardware makes things more complicated, adding more moving parts in the equation — stay away from that. Make sure that you, me — myself align the goals with the founders. So the investor should be aligned. Make sure that the following investors are the right people for the company, and help the company where you can help, but don’t disturb or bother the company where you can’t. And as far as general investment — do it in an area that you can add value, have some connection and know some people and investors in the area.
Rohit: Got it. As with every investor, there must be other companies that you passed on. Kind of what people call ‘anti-portfolio’ today — companies that you looked at, but you decided not to invest but went on to become really big. Just gives us a couple of examples of companies that you decided not to invest in but are bigger now.
Liron: So my co-investors that invest with me in some of the deals had a meeting with a company. I missed that meeting and they ended up not investing. I don’t know if I would have invested in them or not, but it appears that they are going to go public this year. It’s called Uber. So I didn’t pass on it, but my co-investors passed on it and I was not in that meeting, so I don’t know if it was a good experience or not. I’ll tell you a good investment I had invested in — Zero, earlier. I wasn’t one of the original seeds, I came in a little bit later with them, but at the time there were other opportunities that we looked at. We missed one of them, I don’t remember. Usually as investors, we don’t tell any one else about our bad investments, and definitely not the ones we miss. But unlike some other people, I don’t mind missing an opportunity, then the company doing well. Obviously it’s good for the entrepreneur and it helps this entire ecosystem, so I’m happy for companies, even if I pass on them and they do great.
Rohit: Interesting. That’s a different point of view. I’ve heard people always try and get into as many big companies as they can and they make their funds bigger, they hire more partners — you haven’t done any of that.
Liron: No, I’ve had many opportunities to either join other venture capital funds or to join other people to start a fund. No, I decided a few years ago that I want to do it this way — I want to invest my own money, take my own risk, put my own sweat, equity and money into the deals. This way I don’t have to deal with limited partners too, so I’m my own boss.
Rohit: So you meet with the entrepreneurs and if you like the idea, if you like the founders, the founding team — you make an investment decision.
Liron: Yeah. I do it on my own, sometimes I get some help from other people maybe to validate it if it’s very technical on the technology side, I get some help. But I make my own decisions — good or bad, right or wrong.
Rohit: Interesting. Very good. So you’ve been in the US for about 30 years now?
Liron: 32 years.
Rohit: And you’ve been married for…
Rohit: 30, okay. And your wife has always been a part of your journey.
Rohit: I remember talking to her and initially you guys both made decisions together about the company and investments. Then over time, you took a more independent role, I guess in making decisions.
Liron: I’ve been with my wife for so many years, even before I moved here. I met her overseas, and as a matter of fact, on the last company, CommerceBid, she deserves a lot of the credit. It was actually her idea, I just took over and she was with me in the company and she helped with everything — she was the finance person. She came up with the idea and I ran the company and it was a very successful exit. And she has done other investments. We have other investments, other than high tech — mostly, I do the high tech investments. In some of them I get her opinion, get her involved, and she helps me look at some of the companies. She has a finance background, which is very helpful.
Rohit: Got it. So in the past 30 years now, moving to the US from Israel as an immigrant and then going directly into tech — what are the advantages or disadvantages you felt moving from a different country to the US? Like you have no network…
Liron: Right, so the no-network is a challenge. Immigration wasn’t a big challenge for me because I got married after a year, but credit was always an issue in the beginning in spite of getting married. Not being here long enough, as you guys know — you’re solving that problem. We had an issue with co-signing for the apartment or getting credit. I had no credit history whatsoever, and I know it’s a problem even today. Networking was a challenge, I got lucky enough and I started working after 6 months of being here, with someone that had already been here and the company just took off — also lucked out with the technology that was growing and advancing so fast when the PCs just picked up. It wasn’t hard to pick it up and understand how things work. Didn’t need four years of college for that. So that was very helpful. The amount of money that went into technology back then, and even today was very helpful for my career.
Rohit: Got it. I want to sort of discuss some very nuanced things that a lot of people probably don’t think about. For example, if I have moved here from India — my habits, my hobbies, my interests are very different than a lot of people who are US citizens. You basically work with a very different culture. You end up meeting a lot of people because of shared interests. So in addition to doing the things that you are interested in as an individual, you would also do things that may help you meet some people to build your network. Did you have any of those things? You mentioned earlier that you went to a lot of events. I am not sure if that was what you were interested in or you just did it because you have to make the company work.
Liron: So networking was challenging the first eight years in Chicago, but once I moved here to the Bay Area to Silicon Valley — it seems like it’s the land of immigrants. People are much more open, and I think we all had a common interest, which is technology. So networking events were about technology, which helped sort of break down the barriers of different ethnic groups, different backgrounds, and it helped people and kind of put them together. Networking was a big part and it was much easier doing it here. And even today, it seems like it’s a lot more open and accommodating in the Silicon Valley.
Rohit: Compared to 30 years ago.
Liron: Yes, absolutely. One thing as far as immigrants — it’s a land of immigrants here. Go, get out, network with people even if it makes you uncomfortable. The more you do it, you’ll get more uncomfortable. Networking helps people and helps businesses — it helps build big businesses, I think it’s very important. Today with technology, people are using the networking effect and all the marketplaces to help it, but the human interactions is still very important.
Rohit: Got it. So as you have sort of spent 32 years in the technology industry, in both starting companies and investing, can you give some pieces of advice from both — a founder’s point of view, because have been one, you have started multiple companies — and also an investor’s point of view. So A. If you are a founder, some tips for that, and B. If someone is pitching to investors, some key pieces of advice.
Liron: For me, the two are the same because even as an investor now, I live vicariously through the entrepreneurs and the founders as a founder. Also, because I have been on both sides, I kind of feel like I understand it pretty well. From a founder’s perspective, if you find something that you really believe in and it has good potential, go for it. Make sure you have the right co-founder or partners with you. Go build an app — don’t listen to people that put you down and say it’s not the right thing, including investors that won’t invest in you and say “This is not going to happen.” If you really believe in it and you’re realistic about it, don’t give up and do it. Make sure you have the right co-founders to work with you because this is important. This is an 8-10 years journey. It’s really like a long-term relationship, a married couple. So make sure you have the right partners. Keep building it, don’t give up, keep growing it. Be realistic.
Rohit: That’s cool. You never had a co-founder, right? It was always you and your wife?
Liron: Well, for the last company, I got a technology co-founder that worked with us. He came a little bit later, but I made him a co-founder — equity, the whole thing. That worked out very well because I don’t have a strong technical background.
Rohit: Cool. Any last tips for founders pitching to you who are starting FinTech or non-FinTech companies?
Liron: The most important things when I look at an entrepreneur is that I want to make sure that they are honest and it’s someone I can work with. These to me are the most important things. Then I’m looking at the idea, the market and stuff like that — but the entrepreneur is the most important thing. A lot of time, the entrepreneur has a so-so idea but it’s someone very strong, someone you believe in and they’re going after a large market, they can make changes. I’m not talking about people, but make some adjustment. Make the right moves to take the company somewhere. Good entrepreneurs can do it. So a good entrepreneur with a so-so idea is better than a bad entrepreneur with a great idea.
Rohit: Got it. And that’s what it was with LendingCloud, Renaud was initially doing Facebook and then moved it a market…
Liron: Correct. It wasn’t clear initially that this was going to happen but you knew that you have an entrepreneur that really has conviction in what he is doing.
Rohit: Cool. Great, thanks for your time. Thanks for listening, we’ll be back with some more guests in the next videos.
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