Daniel Cohen - Sticker VC

Welcome to another VC Wisdom podcast. We have Daniel Cohen with us today. He's an early-stage venture investor focusing on B2C Israeli startups at Sticker Ventures. You can find them at sticker.vc. Dan, I'm glad to have you on. Tell us a bit more about yourself and what you've been up to as of late.

Yeah, first of all, great to be here. I appreciate the opportunity. So, uh, yeah, we started Sticker basically about a year ago, raised a small fund, uh, focusing on consumer, as you said. Our fund is about $35 million, and I've been in venture for about 25 years. I was a partner in one of the largest Israeli VCs called Viola, and before that I was a partner in one of the early VCs in Israel called Gemini. Lived many years in Israel but also many years in the Bay Area, and yeah, excited to be here.

Tell me about your background and how you got started in VC. You were telling me about the story of you being in Montreal in '86, before I was born. I see you were a software developer in '92. How did you start your professional career?

Yeah, so I did computer science undergrad. I worked as developer, really didn't like it, went to business school in France and at INSEAD. And went to Silicon Valley to work as a product manager during the bubble in 2000. And as the bubble kind of burst and I was thinking about what next, I got a call if I want to join a VC firm. I knew nothing about venture capital, so I said I'll try it out and see what— if it's good for me. And look at this, 25 years later, 25 years later, here I am.

So Yeah, tell us, uh, I see Viola Venture, right? You're a general partner there. Um, so you started that one with a couple of partners. What led you to actually start your ventures?

Yeah, so, um, look, I think, uh, as I said, through the years Israel's always been really great with innovation. There's just a lot of startups, and, um, 10, 15 years ago there were a lot of areas that Israel was, was good at, right? You had companies that were both good at software but also internet and advertising. And what I saw in recent years is that the Israeli ecosystem really tilted hard into a few core areas, mostly cybersecurity and DevOps and infrastructure. And all the VCs just all invested in those areas. And there were opportunities emerging in consumer where the VCs just were not interested in those. And at the same time, there were just great Israeli consumer stories coming out with real businesses. And I thought that if I start a consumer fund, one, I've done consumer in the past, and if I do that, I'll be able to be the number one player in the market. And, uh, that was kind of the thesis. And, uh, here I am, you know, the fund, although we're small, we're already, I think, a pretty, uh, kind of the go-to fund in Israel for everything that is consumer related.

And yeah, it's— I was sort of smiling when you said that because, uh, there's been a bunch of other funds in Israel, right? Startup Nation and folks that have done it like a lot of times, so you're definitely not the only one investing there. There's also like even external funds investing in Israel, so yeah, like what's like, how do you distinguish your fund, right? Because I believe there's even like overfunding right now in Israel and the startups and the founders that are coming out from there.

So first of all, you're absolutely right, it's hard to differentiate, and I think overall in the world of VC, it's hard to differentiate right now, because the global funds, the big ones, they're all over, you know, Andreessen and Sequoia and Lightspeed. They're amazing funds, and they invest all over where there's, you know, real startups, and Israel's definitely up there. I think the only way to differentiate in this market is to have a vertical-focused fund and to have a relatively small fund, because then, one, you're not big enough to matter for the bigger funds, and entrepreneurs want to work with you because you have that vertical expertise. And that's exactly what our strategy is at Sticker. And again, I think so far it's been working, uh, but, uh, but again, working meaning we get access to good deals. Now we need to see that, uh, um, that we can make great returns as well.

What have been your best deals in the last, uh, 20 years? Like, what's your, your track record before you started Sticker?

Yeah, sure. So, uh, when I was at Gemini, uh, I did a lot of ad tech stuff. So I was an investor in a company called Adapt TV that sold to AOL for about half a billion. I was the first investor in a company called Outbrain that went public in '21. Then when I moved to Viola, I did a lot of consumer stuff. So I was the first investor in Lightrix, which is, uh, the company behind Facetune, which is a, you know, multi-hundreds of millions of dollars revenue business. I was an investor in Topingo, which was a food delivery business that had a good exit, and a few others. Uh, so, um, I did a few e-com stuff. I'm on the board of a company called Rooty, which is a fashion brand that is going to make, I think, north of $100 million this year. So, um, a lot of good stuff on that front, right?

And why did you move to Israel?

No, so I was born and raised here. My parents were— You spent some time in the US and then you decided to go back? Yeah, yeah, look, I— after— so I was in the US when I was a kid, so I always kind of felt that the US is a second home. I went to junior high in Palo Alto, so I had memories from— I have memories from the '80s not only from Montreal but also from Palo Alto. I wanted to spend time there both as an operator and as a VC. But again, home is Israel, and this is where I want to go, you know, raise my kids, and it's been great for us here.

Right, even with the latest tensions, like a bunch of people moved out, a bunch of my Israeli clients are sort of stressed out. Yeah, you get used to it live, but what have you seen in Israel since the war started, and how did that affect the startup scene?

First of all, it's complicated. And as I said, it's not easy, but again, this is home. I think on the startup scene, what we're seeing here is unbelievable because I think for a lot of Israelis, they come back from the war and they come back with these kind of resolutions. And 50% of the people, their resolution is, I got to start my own business. I got to start a startup. I got to do it now. So there's so many people that come back and have ideas of what they want to do next. So from a deal flow perspective, from innovation, from people really going for startups, it is, you know, nothing has changed since the war. Really nothing.

Well, if anything, more urgency, right? Like more urgency to achieve. And I think that plays out well. I think more defense startups for sure. That's another thing I've seen. I was talking to one just yesterday that's going to be on my Spark Tank show today, very promising company, by the way, that I need to refer you to, just that they're not B2C, right? Like, do you also go outside of your thesis sometimes, or do you really stick to B2C? And give me an idea of a couple of, uh, protocols you invested in, uh, that's in the B2C space.

Sure. So, uh, one, absolutely a lot of defense companies in Israel. Um, it's not something we do. Um, I'm not, you know, I— it's not— I don't have the passion for it. Um, I really have the passion for the consumer stuff. And no, we don't step away from that thesis because that's the whole thing, right? The whole thing is to be really good at one thing and not focus on other areas. A couple of companies that are worth mentioning, we're investing in an emerging category called the short drama space, which is these multi-episodes where every video's on YouTube or on Instagram where every episode is a minute. And we invested in one of the Israeli companies and they're just growing like crazy and tens of millions of dollars. Uh, we invested in a company called Turnout, which is, uh, helping consumers in America deal with government bureaucracy, and they're growing again like crazy. So, um, there's just a couple of examples. We did a couple of games companies. We did a great company in New York, uh, that is trying to promote reading, uh, for kids, which again is, uh, is something that I think is, is very cool and has a lot of potential. So Yeah, there's enough and a lot to do in the consumer space at this point.

And you said New York, Israeli-founded, so these are— there's one of the two founders that is in Israel or do back and forth. Tell me a bit more.

No, no. So we invest in the Israeli ecosystem at large, meaning Israelis all over the world. So we have, out of our 13 investments to date, we have 2 in Miami, 1 in New York, 1 in San Diego, and 9 out of Israel. But I should mention that all our companies, 100% of them, they focus on the US market as a target audience. So when we say Consumer Israel, it's not the consumer in Israel, it's entrepreneurs in Israel targeting consumers in America.

Got it. Um, tell me a bit more about your, your thesis in the B2C space. So what's the size of check When do you expect exits? Is it power law, 1 out of 10? Tell me a bit more.

Yeah, so first of all, I'm a huge believer in power law. I think there's no other way. I've learned this all through my career. So no matter how big the fund is, how small it is, at the end there are going to be 2 or 3 companies that will make all the return. So I'm a huge believer in that. Look, our thesis is based on, on, on 2 And one kind of core thing is that AI is changing the world and changing consumer behavior. Everything that we do as people is now changing, online and offline, and that creates an unbelievable opportunity both for distribution but also for, um, for new products and services. So because AI is changing everything now, there's, uh, that creates a disruption, and we're looking for companies that ride that wave and basically see that AI is an opportunity for for disruption in the market.

Interesting. And yeah, tell me, tell me a bit more, uh, like if the power law is true, why not raise the biggest fund possible, uh, Masayoshi Son style, like is my question.

Yeah, one, I, um, maybe I, I never got the offer to raise a billion dollars, so maybe, but it's not, uh, But seriously speaking, look, I think it's very hard, uh, to return large funds, um, and I think, uh, the right size for a consumer fund in Israel is tens of millions of dollars, right? I think that gives us a good opportunity to select companies, and I think that, uh, again, we, we need to have a couple winners that will get to hundreds of millions of dollars in market cap and will make an unbelievable fund. I think the chances for—

yeah, my question is more like, where, where does the power law break, right? Like, if it is true, like in Masayoshi's case, I think at some point he started shooting from the hip a bit too much, not doing enough diligence, and he started, you know, it was like move fast and break things. His, his motto was like, go crazy, right? Just go crazy. More spends, more more everything, and that, that doesn't always scale. Um, yes, it's high momentum, high energy, moving fast, but you still need to have brains and not spend dollars mindlessly. I think that's where it breaks.

Yeah, look, I, I mean, I think there's two, two different— I think at the end, the power law works, meaning returns will make for great companies, right? SoftBank, at the end, they were in Alibaba, they made an unbelievable killing for it. I think throwing billions of dollars at something doesn't always guarantee you that return. And sometimes having too much money is as bad as having, you know, not enough money. But still, it's— I think no matter what house, how big your fund is, you need to have— it's always going to be that you have to have a mega winner to cover for the losses, right?

I also think Alibaba was a wild bet from the data that I have. You know, like, I personally wouldn't have invested in a next math teacher hiring like 20 Chinese friends in a small room. You know, like, it wasn't obvious. I mean, it was like in the e-commerce day, and obviously every time you invest in China, it's like, yeah, at one— what point will the CCP intervene? You know, so I think it was a bit of luck on that one, although like back in the days Alibaba got interest from many banks including, uh, JP Morgan that only invested I think $5 million in them when they could have invested $20 million and make the highest return in history, right? But my question for you is, how do you make it obvious for you, or do you wait until it's like super obvious? What's the right equilibrium between enough data and actually pulling the trigger on an investment?

So look, one, we, we are an early-stage fund, and as much as we want data, I think we're really betting on two things. One is the quality of the entrepreneur and really trying to focus hard on making sure that this is a person that we think is hungry and that we trust and that we think has a lot of potential. Second thing, going after markets where we think the opportunity can be big enough. And that's what really we're trying to go after. And I think if we make— if we stick to that, making sure that we invest in really good teams on big markets, I think we'll be— we'll do really well. Of course, we'll have misses, but that's really what we're focusing on, is trying to analyze the markets and understand where the opportunity is big enough.

And what's a good founder for you? What are the skills? What are you looking for when you're talking to one of the greats.

Yeah, I wish I knew the— you know, I don't know what the, um, the formula is, but I think if I would summarize it, I think we're looking for hunger. And hunger is not money hunger, it's hunger to prove something, um, or something in the background that shows that this person is really willing to give it all they got, all they, they have, all they got. It's a tricky one, right? But, uh, um, I think it's, uh, it's something that, uh, when you look back at the big, uh, the big wins, I think there was a core hunger there that really drove everything.

Yeah, hunger, but also intelligence and track record, because I mean, I've been hungry, uh, 10 years ago and I wouldn't have bet on myself, uh, maybe I don't know, from a very long-term perspective, sure. But I think like you need to have a track record because there's so many delusional founders. And yes, sometimes 1 out of 10 may be successful, but it's mostly out of luck, you know? Hence why the power law. But it's always nice to see like some exits, some track records. And also I would add like some go-to-market systems, right? Like I speak to so many founders that have great ideas and, you know, you can pretty much vibe code anything nowadays, when I ask them, okay, how are you gonna sell this? It's— I get like a blank face and blank returns. Okay, it's like, okay, well, your competitor found a way to sell that and scale, but you didn't. So why would I not fund them instead? I think most of the time the GTM playbook is absent. That's, that's what I'm looking for in founders nowadays.

Yeah, first of all, I agree 100%. I don't have anything to add to it. I will say, when entrepreneurs Track record is great, and we invest in a lot of second-time entrepreneurs that have great track record, and it's easier. You pay a price for it, the valuation is higher, but also sometimes when they're young, they don't know what they don't know, and sometimes that is a feature and sometimes it's a bug, but it's also a feature sometimes. And, uh, um, you know, I joke they stand in front of the pool and the pool is this, this deep, and they jump in with their head first because they don't know. and sometimes they win because of that. On the go-to-market, look, you're absolutely right. Look, in the market today where you can develop anything in a day, it's all about distribution. That's all it is.

Right. Yeah. In your BTC cases, it's still about adding dollars into Facebook ads and Insta ads and calculating the returns or not. When you cut them checks, where do they, where do these checks go, generally speaking?

Yeah, first of all, a lot of it still goes to, to Meta, especially the early dollars, because when you try to understand product market fit, going to first through— so the problem with ads is that they're expensive. The good thing about them is that you get immediate feedback, right? Because in the morning you, you put the ad in and, and, you know, 10 hours later you already have, uh, people using or not using your product. But we are looking for, for people— and talk about go-to-market— we're looking for people that have an edge in marketing. Meaning we are looking for, as much as innovative they are about product, we're looking for something that they're innovative about distribution. And that could be through some unique influencer or going through a market that most people don't see or having some other edge that is not just buy ads on Meta. So yeah, we're definitely looking for that, you know, intelligence in marketing, if you will.

On the LP raising side of things, who are you targeting? What sizes of checks are you looking for? Any LP fundraising system that you're deploying successfully right now?

Yeah, so no, first of all, we're not fundraising right now. We closed the fund. So Fund 1 is, as I said, just shy of $35 million, and that's what we're going. Majority of our money is private money, which is great. We have a whole bunch of consumer entrepreneurs, both in Israel and in the US, that are investors in the fund, and they bring us deal flow, and they bring us feedback, and They're really a kind of— we feel that there's an energy of entrepreneurs, I want to say, behind us or in front of us or whatever you want. And yeah, and probably for Fund 2, we'll probably look for a little bit of a bigger fund and maybe some institutional money as well.

And the deal flow, you said, comes mostly from your founders. What are other sources? How many pitch decks do you receive on a weekly basis and how many make it to deal flow? Deal flow, generally speaking? To do deal, I meant due diligence, not deal flow.

Yeah, so, um, one, I've been in the, the, in the local ecosystem for a long time, so, um, I do get a lot of deals for consumer stuff. Uh, people just know and they say, oh, you have a consumer company, you should go to talk to Danny at Sticker. So we get a lot through that. Um, our, our LPs, our founders, they all send us deals. I would say we get about 10 a week, something like that.

10 pitch decks a week, right? And they're qualified ones. They're qualified, they're relevant.

I mean, they're relevant in the sense that they're consumer. Not all of them are quality. And we probably work on— we have kind of 1 or 2 deals that we're spending real time on every few weeks. I would say probably we really due diligence in a single year about 20 to 25 deals.

Okay, so 500 pitch decks a year and 20 deals out of this, which, um, would be—

yeah, no, no, deal's probably less. So yeah, yeah, so it's probably less, probably I would say 300 to 400 a year, and out of that we will invest about 10 companies a year.

You have an AI in the back end that analyzes the quality of the deals, the pitch decks, their numbers? Uh, what's your flow?

Yeah, so look, we, we, we, we have an analyst that is a computer science graduate, and she does— helps us a lot on, on AI infrastructure. Um, we are— a majority of the deals we look at are pre-launch or early launch. The data is not, is not of high quality. We're not looking at, you know, deep data sets for a long time, but we're doing a lot of work actually for AI to help us on getting quick understanding of markets. One of the things about doing consumer is that you get a widespread of markets. Every company is completely different and is very different on the competitive landscape. And AI can really kind of get you up to speed on what exactly is this category, who's the winner, what's happening, what are some of the deals that happen in this category. And, and that has been a huge, huge help and increase in efficiency for us.

And on the due diligence side of things, do you leverage still that analyst or it's mostly your brain when you see yellow flags or red flags?

No, I think it's, it's our analysts, it's AI, it's our, our intelligence. And also, um, look, we have a partner, Oren. He's a, he's a great guy. Uh, we've been working together for a few years, and he's, uh, uh, we spend a lot of time talking about these deals. What is it that we like? What's— what don't we like? What do we need? Should we meet them again? What is this question? Uh, what, what will this company, um need in order to get to real scale. So, um, it's just spending a lot of time thinking and kind of talking about it.

Interesting. And basically, on the valuation side of things, when a founder comes to you with this valuation, this investment, what's the process after that? Do you negotiate it, or do you usually give them like your valuation, your terms? Uh, tell me a bit more about that.

Yeah, so one, I think two things. One, we really want to lead all our deals, or as much as we can, and price them the way we want. Uh, we, of course, we, we try to understand what the situation is, and we, we're not trying to be over-negotiating on one hand. On the other hand, we want to have enough percentage to make it interesting for us. And I think when we didn't do that, and the, you know, our first deals, I think we see it, it just doesn't move the needle. So it's very important for us, still small funds, checks are, you know, maybe somewhere between half a million to $2 million, but we still want to hold, you know, somewhere between 8 to 15%. So that drives a lot of the value that we see in companies, and it doesn't fit, it doesn't fit.

And do you usually lead rounds or join others? What's your philosophy on this?

Yeah, we lead. Again, you know what, The most important thing is we try to create our own opinion. So we will never say to entrepreneur, look, find a lead and call us when you have a lead, then we'll consider, because that's outsourcing the decision. So we want to lead deals, we want to price deals. Sometimes there are situations where we got conviction, we were willing to lead, but someone else came before us to lead it, then we will follow. But that's only after we were basically willing to lead as well, and just, it didn't work out, right?

And what's your philosophies on VCs that don't lead? Like, should they be here? Are they useful in the ecosystem, or—

of course, no, you know, we, we did— we led a deal last year, $7 million round. We, we put in $2 million. We were the— we set the price. We were the, the lead of the round. But other investors came in that sometimes even bigger checks than what we put in. They were great because we couldn't fill in the $7 million on our own. So for us, we can't operate in a world where there are no followers. So we love everyone that's willing to work with us and put money to work with us. For us, it's a big feature.

Do you usually co-invest with Israeli investors? Is there some collaboration? Collusion happening on deals?

Yeah, first of all, a lot of collaboration. Again, a lot of the Israeli VCs don't do consumer, but the consumer funds, we work with them a lot. They're good friends. VCs in general, look, again, I've been in this industry for a long time. Some of my best friends are in other VCs. And so absolutely, it's exactly, I think, like in, you know, say, exactly like Silicon Valley, you know, you compete and then you partner. But in Israel, it's a smaller ecosystem. So again, a lot of these VCs are close friends.

So you exchange notes, sometimes you compete, but there's some lines to not be crossed. What would be these lines not to be crossed?

Look, I, at this point in my career, I'm very open with people. I share what I'm working on, I share what they are, and I think I expect people I work with to not steal deals, or when I tell them about it, be open about whether they're competing or they're gonna collaborate. And I would say 99% of the times, I think that's been, uh, if I play open, everybody else plays open, and it's fine. It's really good.

You've been in the space for, yeah, more than 30-plus years. What have you seen change in the VC ecosystem?

Oh wow, a lot. Look, I think a lot of change, but you know, the biggest— I would say the biggest change right now is what's happening with this whole, you know, vibe coding software development. That is the biggest change I've seen in, in the industry for a long, long time. The fact that you have companies now that get to— we have one company that is going to do $30 million of revenue this year, and they have 2 people in the company. That's it. That's something I've never seen in my life before, and that's a huge change for the VC industry.

And do you feel VCs are catching up to that AI revolution? Like, I still see VCs not deploying AI and deploying systems and still relying on their good old traditional ways Change is hard.

I'm 57. It's hard, you know. I'm old. I, you know, really, it's— you wanna look— I think everybody wants to do everything AI, but it's really difficult.

Well, change happens when value is obvious, right? So for example, if I would deploy my systems to get you more deal flows, you'd instantly see more deal flows on the table, make better decision. I could also deploy some of my systems to get you more investors, right? And step the $35 mil to $70, like, almost overnight. But I think people need to see the results before they buy and adopt something, right? Even vibe coding. I vibe code every weekend, I deploy stuff, but are the applications that I'm building— do they get money? Do they get users? Do they get praises? Not always, right? So I think that the loop needs to be closed between invention and seeing the value on the other side.

Um, I agree 100%. I look, you know, I do— you do investing in a certain way for a long, long, long time, something you need to change, it's hard. And, um, look, we, we, we have, uh, every week we have an hour where we talk just about how we, how we are using AI and how we can use AI better. Also some of the tools we had, you know, we had a CRM that was not great with AI. We moved now to this different system that's much more AI compatible. So these things require effort and thought and thinking about them.

Right. And granted that a lot of, I mean, not in your space, but me, I invest in B2B AI SaaS companies, lots of wrappers in that space. We also witnessed SaaS-pocalypse, right? Gotta be careful, but it comes down to one thing, and it's like value and hooking customers to something, like get them on board as quick as possible. And once they stick around, it's still about humans, human habits, right? Uh, it are these humans coming back again and again to your platform? The cost of switching is, is high most of the time. In B2C, it's a bit easier, I would say, because it's like packaged good that we consume, and it's like almost instant, right? And software is a bit harder because it requires a bit more education, uh, generally speaking. Um, difference between US companies and Israeli, or the US VC ecosystem versus the Israeli VC ecosystem— what, what's the difference between both and what's the similarities?

So I think there are a lot of similarities. I think the VCs act in the same way. I think deals are done similar ways. I think there's a few things. I think one, there are— there's a lot more VCs in America, all over America, that you've never heard of that do certain strategies. So I think for every specific company, there'll be a specific VC in America that's highly relevant. In Israel, things are much more, um, you know, they have a few cyber funds, generalist funds, maybe a couple consumer funds, and that's it. Uh, and, um, I think the Israeli entrepreneurs in general are much, are a lot more of hacker mentality, which is good and bad. I think the good part of it is that I think they know how to hack distribution or hack products to get to product market fit really fast. Sometimes it hurts on scale. So there's a give and take there, but I think that's something very different between the Israeli entrepreneur and the US entrepreneur.

And as a reminder for the audience, give me examples of big Israeli founder success There was Fiverr, there was Monday, right? Monday.com. Like, give me a couple of success stories here.

Yeah, I mean, look, last year, yeah, of course there was Wiz, which was, you know, Google acquired for $32 billion.

Wix, right?

Wiz. Yeah, Wiz. No, W-I-Z.

Oh, because there was Wix also.

Also Wix. Yeah, we apparently Wix and Wiz. Um, and, uh, so those were great success stories. But look, you know, um, last year there was an IPO of a company called eToro, um, and, and eToro is a consumer company, went public. Um, there was, uh, Resident Mattresses, which is a competitor to, um, Casper, to Casper, and they did way better and they, they got sold for $1.1 billion. There was Oddity, which is the company behind Il Makiage, that they went public, they're worth, I think, I mean, now a little bit less, but they were worth a few billions at some point. So there've been a lot of consumer success stories, not to mention, as we said about Wiz and a few others on the cyber side.

Right. Yeah, no, these are all impressive. I think Israel is still like highest startup per capita or highest foundership per capita in the world, right? And incredible. I mean, you mentioned hackers, so like, my mind is like, okay, yeah, army. A bunch of people go through the army, and nowadays it's more of a cyber war than a physical war, but also grit, because there's still a bunch of infantry and foot soldiers, and that teaches incredible skills that can be transferred to the startup world, right? Like, I think that's the unfair advantage that Israel has. I'm incredibly bullish myself on, uh, Israel companies, certainly we'll have a fund just dedicated to funding Israeli founders for sure. Danny, thanks for showing up today. Where can people find out more about you?

Yeah, so sticker.vc, and my email is daniel@sticker.vc. So anyone has something to talk about consumer-related, we'd love to hear it.

I was, uh, Dan and Charles from