Recursive Ventures Managing Partner Itamar Novick on Investing in Early Stage Tech Companies | Ep66

It's kind of gotten to a point where you're either like a super, super early investor who backs founders early on when they're at the beginning of their journey, or you're a mega fund, right? That's sort of how we get the industry got recently pushed into. It's like, oh, you're Sequoia or Andreessen Horowitz and you manage billions of dollars. And when you can spot a potential winner a little bit later in the journey, you can pour all that money and resources into it. Or you're more of a person like me who really is there for the founders super, super early on before there's all the proof that you need to put big money to work.

Uh, welcome back to Seed to Harvest, a podcast with your host, Paige Finn Doherty. I'm the founding partner of Behind Genius Ventures and author of Seed to Harvest. I'm really excited to be joined today by Itamar Novik, a solo capitalist at Recursive Ventures. Itamar, welcome to the show. Do you mind giving us a brief background? Yeah, sure.

So first of all, thanks for having me. I'm excited to be here and would love to talk more about what I'm focused on in the investing side. So I've spent my entire career, which is a little bit over 20 years at this point, just doing startups. Startups is addictive. It's contagious. If you're passionate about startups, I always tell founders you should leap in and just do it. But that's what I've spent my entire career. I've been on all sides of the table. I'm a serial entrepreneur. The last company I was involved in, Life360, I took public in 2019. It was such a fun journey. I've also, I'm also an investor. So I've been trained on Sand Hill first as an institutional VC at a fund called Moritar Ventures. Later, I was one of the founders of UpWest Labs, which was an incubator that helped connect the dots between Tel Aviv and Palo Alto. As you can probably tell, I've mentioned Tel Aviv, so I'm originally from Israel, moved to the States 14 years ago. And these days I run Recursive Ventures, which is a solo VC fund. So it's basically just me, although I've got a lot of buddies, a lot of folks helping me out. It takes a village. And I am a pre-seed investor, mostly investing in US companies focused on leveraging data and AI to disrupt financial services, insurance, and real estate markets. So I am the person that writes that first check in when you're just starting your company and helps you get momentum. And really move forward, kind of build your company, raise more capital, and hopefully make it the next unicorn. That's what I do.

That's amazing. Wait, okay. So you said that you've been working in startups your whole career. What was the initial spark that got you into startups? Yeah.

So first of all, I was coding since I was 13 and I always like had this knack for computers and kind of, well, I guess I was a geeky kid. That's the truth, right?

So.

Let's just put it out there. Um, and, uh, yeah, and then I went to the IDF, the Israeli Defense Force, and I was again, this geeky kid and nobody knew what was happening. And inside the IDF, folks started hacking stuff. Like, whoa. Basically outta like hackers, mostly criminal, not necessarily like, you know, more on the security, like safety side of things. And nobody knew what to do about it. And I was a military criminal investigator. So that was kind of the first, I guess, sort of entrepreneurial thing that I did was like, I was tasked with building the anti-computer crime military investigation unit inside the Army. And it was like totally starting something from scratch. Like nobody knew what to do. How do you catch the hackers? How do you figure out what they're doing? And we're going to kind of like, you know, potentially bring them to court if, if they've done the wrong things. And that's why I really felt that itch of like, oh my God, I love starting stuff, you know.

Yeah.

new, figuring out complex stuff that other people haven't figured out yet. And basically from that point onwards, I just stayed an entrepreneur with whatever I do. Even like as a VC, I think like I put my entrepreneur's hat first and then I think like a VC.

Yeah.

Yeah.

Wait, let's get into that. So what are the, what are the areas that you are spending time in or excited about? What trends are you looking at?

Sure. So, okay. So for the last 5 years or so, a lot of my investments have been focused on data and AI. And I know now everybody's investing in AI and I'm excited about that. Competition is great. Love it. I really do. I'm a firm believer and have been that, you know, machine learning and now we're seeing the evolution of that, of course, with, with like OpenAI, ChatGPT, all that stuff. Now it's mainstream. Everybody's talking about it, right? I've always been a firm believer that that is like the next big leap in in technology. I mean, we went through like Web 1.0, then like Web 2.0, and then mobile came around and cloud. And I think AI is as big as any of those kind of shifting, you know, significant platforms. Bigger, but we'll see.

Yeah, it's super interesting to think about how— have you been investing mainly at the pre-seed and seed stage in AI over the last 5 years? Or talk me through like why invest early?

Yeah. Oh, absolutely. So I've been a super early stage investor since 2010. I started out focusing more on Series As and Series Bs because that's what we did back on Sand Hill Road. Then I ran an incubator. So that's as early as you get, like, you know, it was like 2 founders and a dog trying to, you know, build a company. And since then I've been really more focused on pre-seed and seed. And I think the reason why I do it is because those are the stages that I love most. So maybe this is more of a personal choice.

Mm-hmm.

But I also think that kind of the world that we're kind of entering here, like a lot has changed in venture capital over the last years. And it's kind of gotten to a point where you're either like a super, super early investor who backs founders early on when they're at the beginning of their journey, or you're a mega fund, right? That's sort of how we get the industry got recently pushed into. It's like, oh, you're Sequoia or Andreessen Horowitz and you may manage billions of dollars. And when you can spot a potential winner. A little bit later in the journey, you can pour all that money and resources into it. Or you're more of a person like me who really is there for the founders super, super early on before there's all the proof that you need to put big money to work. And I think a lot of folks are sort of in the middle are gonna have a harder time, especially with AI where productivity gains are gonna be so significant. And who knows, maybe you can build a unicorn with just 10 people and ChatGPT, right?

Yeah. Yeah. That's super interesting. I, I'm always curious cuz most of the investors I interview on the show are super early and I'm a little biased cuz we only do pre-seed and seed, but it, it's, uh, I guess I'd be curious to understand like, how do you feel now that AI's gone more mainstream? What are, maybe like, what are some of the misconceptions that you're seeing?

Well, it's interesting cuz I, I do have a little bit of a contrarian view on that. I think we are conflating inflection points with sort of exponential growth, right? And a lot of the conversation now around generative AI is it's exponential, it's exponential, it's exponential. I'm not sure it's exponential. I think we've had a major breakthrough with transformers that were actually like, you know, researched and invented by Google. They should get more credit for that, but whatever. And then, you know, companies like OpenAI. Came, took that innovation, made it mainstream, right? Like building the right interface, getting all the data in, publicly available data, and building something like ChatGPT, which is now completely mainstream. And that's the inflection point that sort of happened. And now we're building on top of that. But I know a lot of the, even like the media or like even you go on YouTube and you look at all those like, you know, bloggers talking about, oh gosh, every week there's this new innovation and this new thing happening and it's moving so fast. I think it's definitely moving fast, but I think it's not gonna be exponential until we hit another inflection point. We've already hit one. We've got this new set of capabilities. They are freaking amazing. You can do a lot of stuff with this thing. Not everywhere, not all the time, but it's helpful on many dimensions and it's gonna get better. But it's not that AGI is gonna, you know, like kill humankind next year. And some people are talking about it that way, and I'm just not. Convinced that's really where we're at.

That's super interesting. And then what do you think— I guess one of the things I've been thinking about a lot is like at the earliest stages when you're investing, it's kind of difficult to see trends, or maybe even like the language isn't even there. Like I remember in, in our first fund, we made 5 investments that ended up turning into generative AI investments, but there wasn't even that language really to describe them. I'm curious how you think through Like what are some of the other things that you've seen bubble up to the mainstream surface that you've invested in? Because you have a pretty impressive track record. If you want to share some stories of things that maybe were unexpected that bubbled up.

Yeah, I guess. Well, I mean, you're also an investor in future of work and I love that because I've been a firm believer for a very long time that one thing that, you know, this level of connectivity that we have is going to enable is complete freedom on where and how you want to work from. Right? And that, I think that's magical. And I've been a big believer in that. So I'm an early investor in Deal, which is probably the fastest growing company in history. I mean, it's just remarkable. I met, I met the team in early 2019 and like, it took me 10 minutes to realize that, wow, this is like, this is so true.

Like, yeah, wait for the context of our listeners. Do you want to explain what Deal is?

Yeah. Yeah, of course I should. That's a good point. So Deel basically enables you to employ employees or contractors, anybody, anywhere, even on Mars, if you find good employees there. I'm kidding. But like every, every country around the world. So instead of having to go through complicated regulatory and payroll stuff in, I don't know, pick a country, Yugoslavia, you can just go to Deel and they enable you to manage your entire workforce globally on one platform. So I met them actually the first week of Y Combinator when they just came over and they just pivoted from a completely different idea to this idea. And I was kind of feeling the pressure here in Silicon Valley around, wow, like talent is so expensive in Silicon Valley, but you know what? There's talent everywhere. There's talent globally everywhere and we want to tap into it, but then there's all those regulatory hurdles. who are making our lives harder and being able to hire those people, which are some of the best and help them, you know, have them help our cause. So as soon as Alex and Shu pitched that idea to me, I was like, this is spot on. Like if you don't do it, somebody else would do it and this would go big. And yeah. And I decided to invest and, you know, that was early 2019 and guess what? 4 years later. It's, you know, over $300 million of ARR, profitable company valued at over $12 billion. So future of work.

That's wild.

Yep.

Yeah. When, and remind me when you invested, like what stage was that in early 2019?

Oh, I was one of the first checks. It was as early as like, I mean, they'd started a company, had a different idea. Yeah. And I met them a week after they pivoted to the new idea. They had zero customers. We didn't have a working system. It was like an idea and just, you know, very awesome founders.

That's awesome. I, I think about that a lot is like some of the, uh, the biggest wins can be the most unexpected where it's just like, it's a great idea and there's not much to point to that like, well, I, I guess I'd be curious to understand like what other findings have you had where you've seen things pop up from your personal experience and that's translated into another investment that you made. So you mentioned like you were feeling the pressure of Silicon Valley talent being really expensive and thinking about expanding internationally. I'd be curious to understand what other personal insights led to other investments that you've made.

Yeah, I mean, a lot goes back to data and AI and it's actually, it's almost weird because I was, I started my career in startups as a data engineer. And that was like a little bit over 20 years ago. So it's been a while and I've just seen this evolve into a point where, you know, as a society, people on a personal basis and also businesses, right, were initially making decisions with a little bit of data. And then they started, you know, making more and more decisions with data. And I think now we're living in a business society, at least in a business settings where There's a lot of data-driven decisions being made. Sometimes it's not the best thing. Sometimes, but more often it's great, right? It helps you make the right decisions. And I kind of have a moralistic view on that, thinking that we're just getting started. I think a lot of stuff and AI is sort of an evolution of that because when you think about what ChatGPT does, it basically is the best algorithm to predict what the next word would be. So it's taking all this data and making a decision on what the right sentence is based on the data. It's like human, it's like machine doing what humans are doing, which is ingesting a lot of data and making a decision, right? So I think we're just getting started on that journey. I think we're gonna see the amount of data out there 1,000x over the next 10 years or something.

Yeah.

Some crazy number and our ability to make better decisions for ourselves. And for our companies is gonna improve. So I've been consistently investing in data infrastructure, data-based solutions for different business verticals, AI-based solutions for different verticals, because this trend is not gonna end. It's just gonna get better and better and better. And honestly, like, help all of us as a society get more productive. And then maybe we can spend more time on the beach in Bali while Stuff is getting done for us, which is brilliant.

I love that. Well, speaking of Bali, tell me what life is like as a solo capitalist, because I think sometimes there's a misconception that that's what life is like as a solo capitalist.

So I keep bitching about it. I was the CFO for our listing at Life360, so I ran an IPO. And if somebody comes to me and tells me, hey, can you run an IPO for me again? I'd be like, mm-hmm. I don't know about that. It's pretty brutal. I'd say being a solo capitalist is second best to that. It's like as almost as hard, right?

That's, that's a pretty wild— yeah. Talk to me more about that parallel or how you think through comparing those two.

I think a lot of folks who are not necessarily venture capitalists, they look at venture capital and say, oh my God, this is the best job ever. And like, this is great. I want to be a VC and. I totally encourage them to think about it, but it's not as glamorous as it seems sometimes on the outside. And when you're doing it solo, it's actually even harder. So think about it this way. You, if you're a solo capitalist, you're probably almost always fundraising and you're doing it by yourself because, you know, as readers of your book know what, what, you know, VCs do is on one hand, we raise money from limited partners. And on the other hand, we invest. And those 2 are also connected in different ways. And you got to do both and you got to be very successful in both. And of course, entrepreneurs, they don't necessarily know the fundraising from LP side as much and they don't care. And that's fine. But we have to do the work, right? You and me, we have to go out there and we kind of need to sell ourselves. And unlike companies which are inherently differentiated by nature, like you always have this competitive landscape and you can say, oh, I'm different and better than this and that. For VCs, we're like all the same. You write $250,000 checks in pre-seed companies. I write $250,000 checks in companies, right? So how are we different?

Right.

It's, it's hard to differentiate yourself, raise the money, do all that, right? So that's on one end. On the other hand, as a solo capitalist especially, I mean, making an investment decision is a wicked hard decision, right? Every investment that you make has an implication on your career and how you're perceived as an investment professional. Of course, there is room for failure because we're investing very early and unfortunately most companies are not going to make it. But you, you really have to put your investor hat on and make a balanced, thoughtful investment decision on behalf of your limited partners who trusted you with their money. And that's significant and it's meaningful. And you got to make the most out of that capital on their behalf. So both sides of that equation, raising money from LPs and investing are harder than they seem and gets you to a point where, I don't know about you, Paige, but I'm working 24/7. Love it, but it's a lot of work.

Yeah. Yeah. It's, it's interesting because they're both very different activities. Like, and, and I think one of the things that I've learned as I've gone on is like conserving decision-making power is like one of the most important things that you can do as a solo capitalist because Like you should be saving most of your decision-making power for like the big chunky investment decisions that you're making. I don't know what your deployment schedule looks like, but for me, like, you know, 10 to 12 times a year, there's a lot of nos in between that, which arguably can take some, like a similar level as a yes. So I'm curious, can you share some of the reasons? Why you might say no to a founder?

Yeah. I mean, the honest truth is, and that's also something that folks outside the business don't necessarily talk about enough, is that guess what? 99% of the time we say no. And it's draining to say no. And for me, the main reasons why I say no these days, and I'm a pre-seed investor like you, which means very early on, not a lot of proof points, but what I focus on is team and TAM, total addressable market. So when I think the team is necessarily incomplete or they're not really very fundable for various reasons, they don't have the right skill sets to do what needs to be done. They don't have the subject matter expertise. They don't understand their space well enough. Then, you know, those could be good reasons, unfortunately, to pass on an opportunity. The other one, which I've learned the hard way, is, has to do with, with total addressable market, right? So. I think what the venture capital model sort of dictates for good or for bad is you gotta really shoot for like, shoot for the moon, right? It's gonna be a huge outcome. You're really trying to, you know, invest early in companies that could be worth billions of dollars. And you can, you can only really build a multi-billion dollar company if you're going after a very large market with a lot of customers that are willing to quite a bit for your services or product.

Yeah.

So what I've done early in my career, and I've made over 115 investments in my investment career, I've fallen, I've made the mistake of like really getting, falling in love with the founders and the solution and the technology, but not realizing necessarily that there aren't enough customers out there that will buy this thing. And then when you invest, even if it's a successful company, it doesn't become huge. that unfortunately doesn't play well in the venture capital market.

That's super interesting. Okay. One of, this is like one, one of the questions I like to ask the guests that I have on is what questions do you have for me? Or do you have any questions for me?

Yeah. What do you think are some of the differences that us as VCs should think about when we're thinking about investing in Gen Z founders? I know you're You're doing a lot of that.

I am.

And you know, it's, it's a whole new generation, very exciting stuff. How should we think differently about investing when we're looking at this new generation of Gen Z founders?

That's a super interesting question. And I'll caveat that with saying that not every founder that we invest in is Gen Z. I don't, I need to like get the numbers for it, but I would say like a good amount of the folks that I back are like first-time founders. We have some repeat founders that have had exits in the past, but I think that one of the— there's a couple like different unique things. I think like one, being an adolescent of the internet is really interesting. And I think what I've found is there are people who have this— I say this from my own experience, but like, were kind of nerdy as kids and then found kind of like a home or like a friend group on the internet and then just like dove in headfirst and Figuring out like the context and like the social webs and like how, how things like work together in specific niches. And so I always really enjoy exploring like how the founders that we work with view the internet as like an extension of themselves. And I think like in a remote-first working environment, that becomes a real advantage is that like we did grow up with the internet and we know how to use it really creatively and we've used it socially for a long time. And so. I think jumping from using the internet in a social way and building up that social capital and then turning it into businesses in different ways is really interesting because if you think through like the Lean Startup methodology, there's a lot of folks that are my age that use the internet to build up an audience and then use that audience to iterate on a specific product. Like in my case, it was building Behind Genius Ventures, like a lot of The things that I thought through, I thought through with the community I'd built on Twitter, and some people do that on TikTok or Instagram. And so I think I really enjoy working with people who have a very like iterative approach to company building and might've built online communities before. I would say a lot of our founders, especially the Gen Z ones, have that in common, have done some community building online. And that doesn't have to be like Company oriented. It can be social as well. But I find that to be really an interesting aspect of Gen Z.

No, I, I think, I think that's spot on and I'm definitely, yeah, yeah, not Gen Z, but feels to me like if you wanna be successful as a Gen Z entrepreneur, you gotta really cater to your audience and what your audience is sort of expecting you to be and become as a founder is this voice. That they can relate to. And you're right, it can be a business thing. It can be a social thing. It can be, maybe it's even a political thing. It really depends on who you want to be, like, be yourself, but get out there and get the following. And I think what that exhibits, what that shows is true leadership that can attract people, attract talent, attract capital, you know, help accelerate your business, your startup.

Yeah.

I think it's a prerequisite almost to be successful, right?

Yeah.

And it was, it's interesting.

It's interesting too, cuz I do feel like it's democratized the networks that people have traditionally come from. Like, I feel like a lot of the folks that we've invested in, I've met through like Twitter or people I've met through Twitter versus like, I didn't, I, you know, I went to San Diego State. I didn't go to like an Ivy League school. And I think traditionally those networks have been more concentrated based on the schools that you're in, but especially as the Adoption of like the internet and AI accelerates, I think that opens up some really interesting opportunities like nationally and globally. So I'm really excited about that.

Yeah.

Okay.

You can walk with us in entrepreneurship. There you go.

Yeah.

Everybody can be part of this. Don't hold back.

Yeah. Last question I have is, what advice do you have for yourself 10 years ago?

Oh, wow. Make even bigger, bolder, better decisions. Especially earlier in your career. So 10 years ago, I was in my very early 30s. And, you know, you're kind of, maybe you try to be a little bit more conservative because you've been told that you should, you know, go down the path like everybody else and do all those, like check all the checkboxes. And sometimes that inhibits you from like making bigger leaps, like leaps of faith or going all in on an opportunity. And I, what I didn't realize in my very early 30s is that, gosh, I've got like 30, 40 years to figure this out, right?

Yeah.

So you can take on more risk early on in your life, in your career. And if it pans out, great, you've made this huge leap forward. If it doesn't, guess what? You've got enough shots at the goal and you can figure it out later on in your life and your career and you'd be just fine.

I love that. Well, what an excellent point to end And, um, Itamar, thank you so much for joining us. Special thank you to producer Riley Jennings and podcast editor Tate Doherty for your help on this episode. If you're listening and you'd like to connect with me, follow me on Twitter or LinkedIn, Paige Finn with 3 N's. Thanks again for listening. I really appreciate it. You can look out for new episodes every Monday at 5 PM PST, and if you'd like If you'd like to learn more about the strategies and tactics of seasoned institutional investors and rising venture stars, check out our YouTube channel at Seed to Harvest. Also, my TikTok channel is Seed to Harvest, where I post a lot of behind the scenes. Um, and if you like this episode, please rate and review this podcast wherever you get your podcasts, if that's on Apple or Spotify. Anyways, thank you so much for listening. I hope you have an awesome rest of your day. Bye.