Gabriel Jacobson MBA2017 and Michael Vardi MBA2017 began working on the prototype for London and Tel Aviv-based smart-mobility startup Valerann in their first year at London Business School. Launched in 2016 and initially conceived as a smart road stud to be used in traffic control and road monitoring, the co-founders made a shift to a software-as-a-service (SaaS) solution to grow the company, and in February 2022 they announced their latest milestone, a US$17 million (£13 million) Series A raise. We sat down with them for an interview to find out more. Here they reveal some surprising lessons from their entrepreneurial journey to date.
10 life lessons for startups
1. There are three crucial stages of development for a startup – technology development, sales cycle and funding – that need to align in order to be successful
2. Find strategic investors; ones that can add real value and not just money – especially startups who operate in sectors not well covered by the investment community
3. Understand that one’s coming to help. If something goes wrong, you have to fix it yourself
4. Be honest with your cofounders and your people in terms of what’s working and what’s not working, both at a company level and at a personal level
5. Take it personally – you can be a human being and a business person at the same time and still retain your sanity!
6. Focus on creating value for clients, not on your exit strategy. All exits are just a follow-on to a company that actually creates value for someone
7. Prioritise learning, because the learning curve as a first-time entrepreneur is very steep
8. Give the people who work with you the environment, the opportunities and the resources to grow. If you don’t, they are just not going to be there
9. Cultivate true persistency, because the nos don’t matter – the only thing that matters is the one yes
10. Spend time really trying to understand the problem you’re trying to solve. If you solve the wrong problem or solve it in the wrong way, it will take you a lot more time to fix.
Where did the idea for Valerann come from? Why smart mobility?
Gabriel Jacobson (GJ): one of our co-founders, Shahar Bahiri, used to work for a company that worked in roads on the physical infrastructure side. Through Shahar, we all got familiarised with the world of traffic infrastructure. After analysing the world of road furniture devices and road-side technologies, we realised that there’s a huge amount of invaluable information that can come directly from infrastructure, but that the industry lacked the ability to collect, analyse and then utilise it in a cost-effective way. So, the original idea was to use the existing roads infrastructure around the world as a data-generation tool – basically, make roads smart and create a so-called perfect data source for traffic movement and control. The thinking was twofold. First, having “perfect” information about traffic movement can allow you to predict the movement of vehicles and traffic flows, and anticipate and prevent congestion and accidents and hazards, etc. The second reason was to use the data to monitor and, in the future, potentially control the movement of autonomous vehicles – there was a big hype around driverless vehicles when we started the company.
Michael Vardi (MV): Neither Gabi nor I came from the smart transport space, but we understood that it was a huge market that has a big impact on people’s lives and that it was right for disruption; both in terms of how many legacy systems there were out there and just how unmodernised traffic systems were. We also realised just how fragmented the market was – there was no single leading player or one organisation that was positioned to create a winner-takes-it-all dynamic. We realised that there was a lot of space [in the industry] and we thought we had found a solution that would add value. When Gabriel first talked about the idea, I didn’t really understand it completely, but I thought, “OK, this is a space that is ripe for disruption – we can make something happen here.” And really, we’ve been on a journey of discovery ever since in terms of thinking, “How can we best disrupt this space?”
And what have you discovered along the way?
GJ: [laughing] Do you want the positive or the negative?! Starting with the positive, first of all, we found that Michael was right – it’s an industry with a huge amount of potential that we can unlock by using data. And by that, I mean using AI techniques and big-data analytics techniques to unlock the huge value that is currently embedded in the industry. The sheer amount of data out there is incredible and we can manipulate it to improve traffic flows, ease congestion and save lives. But the other thing we’ve found is that it’s not just about being creative in terms of developing a new product, such as a smart pavement or a new type of cement – you really need to come up with an innovative idea to exploit it. You need to come up with a deep-technology solution that is based on data analytics to disrupt this industry, and that’s the direction we finally took.
MV: Another thing we found was that, for a startup, there are three crucial cycles of development. There is the technology-development cycle, then there is the sales cycle – selling that technology to customers – and then there is the investment cycle; attracting funding into the company to enable the other two, and these three cycles need to stack up – they need to align. But, in our industry, which is critical infrastructure – where safety is key and where everything you put into the road needs time actually in the road to prove its mettle – those three cycles don’t stack up. You need a lot more time to develop the product and sell than you have to raise the money that you need. So, while we believed that the value proposition of the sensors and the data we provide could really transform how we manage roads, the [business model] was not sustainable for a startup. That’s why, about two to three years ago, we started the transition from being essentially a hardware supplier and completed a full pivot to becoming a data-only player about a year ago.
Did the need to make changes surprise you?
MV: The need for the new focus became clearer and clearer over time. I wouldn’t say it surprised us, but we weren’t planning to do a complete pivot – it was just that, at some point, we realised that, as a company of our size, focus is super-important. We realised, “Okay, this is what we need to do. Let’s focus, even though it means [having to let go] of super-talented, resourceful and impactful people, and not developing some IP that we think can have a significant and unique value.” What we are seeing now is the fruit of that focus.
GJ: We thought when we started that the best idea was to create a perfect closed system that will provide clients with everything they need – they could get it all from one system. But as we learnt the industry characteristics, we understood that, actually, the way to add value – or the way to provide a product with maximum value to clients – is with an open system that uses many different sources of data and which works in partnership with other players to generate value. We learnt that this was the right way to go, but we could only have known that after getting to know the industry inside-out.
Will the Series A funding be used to develop a particular area of focus or geography?
MV: Our go-to-market approach is three-pronged [where, who and how]. One is to do with geography, the other is about how we go to market, and the third is to do with who we focus on. Those are the things that define our strategy. In terms of geography, we really focus on three territories – western Europe, because of how the road markets are structured there; the US, because of the size of the opportunity there; and South America, because of the amount of activity and the number of private toll-road operators there. In terms of our go-to-market strategy, we try as much as possible to go through partners, because that allows us to scale – if I can enable a partner to sell our solution, they can then sell five or 10 projects, whereas alone I can generally only sell one or two – maybe four maximum. And I can enable more than one partner, so it’s an exponential enabler.
How did the Covid-19 pandemic affect the business? Have you found that investors have been happy to have significant conversations remotely?
GJ: Yes! In fact, I think we were our investors’ first Series A investment that was done completely remotely! The investors only met us face-to-face for the first time after the round was completed. Of course, this did not affect the fact that they have spent substantial time on video calls and were able to work through a full diligence process, regardless of not having physical meetings. I have since heard of a couple of other similar stories in our network, and I was recently part of a webinar where leading VCs said they were open to investing in companies even after a short time without meeting face-to-face, so I think this is the new normal.
What have you learned about the whole fundraising process?
GJ: First of all, we learned that it’s very hard to raise money as a hardware company, where you are developing deep technology that is meant to disrupt a large industry. There are not many investors out there who have experience in this space, so you have a smaller pool of investors to approach in the first place. When we changed to become a data company and an AI company, things became much more straightforward. I think in terms of fundraising it is always about being very persistent, not giving up on finding the right partner, because money is not the entire story when you fundraise, right? That’s especially true in the early stages of a company – you need to find the right partner that can add value far beyond money itself. We were successful in that, I think. It took us some time, but eventually, we found very good investors [including HG Ventures and others] who add a lot of strategic value for the company, not just money. So, my advice to startups, especially ones that operate in sectors that are not well covered by the venture investment community, is to find strategic investors – ones that can add real value and not just money.
“You can have 100 people saying ‘no’ and just one person saying ‘yes’ and you can build a huge company on the back of that”
How do you find investors that can add strategic value?
GJ: For us, firstly it meant getting investment from companies or investment funds that could open doors with clients; ones that could help bring business into the company. That was one thing that was very important and I’m very happy that we were able to do it. Second, it’s about finding investors who have a lot of knowledge about your industry or adjacent industries, so they can add real strategic value to your planning. For us, it was also very important to have an investor from the United States, because this is one of our key markets.
What did you get from the “LBS experience”?
MV: Four things come to mind that were extremely useful about LBS. In terms of classes, I would say it was the soft skills and the negotiation and bargaining classes, especially interpersonal dynamics because it makes you think about how you are interacting with people and the gap between how you think you come across and how you are actually being perceived.
The second way in which LBS was extremely helpful was connecting us to different alumni and people in the network – people who could connect us with chief execs of engineering companies and transport companies, and so on. The third was the student body – people in our cohort were also very forthcoming and very proactive in saying, “Hey, I can introduce you to this person and that person”, and trying to help us out.
And lastly, which for me was a huge thing, LBS gave us time to mature the business while not taking too big a risk. We actually started the company in our first year at LBS, and that gave us time to develop the company and mature our thinking and get comfortable with what we were doing at a time when we had actually quit our jobs. Having that framework at the time was super-useful – I don’t know whether we would otherwise have had the courage on day one to say, “Actually, we’re not going to get jobs – we’re going to go with our current understanding [of the business idea] and just do this.”
GJ: I must say it was actually the feedback that I got from LBS alumni that persuaded me to go to LBS [in the first place]. We tried to utilise LBS as much as possible to bring the company into being. And I think it was successful.
MV: As a start-up, it’s super-important to be given the time to mature your thinking, especially for first-time entrepreneurs – there are so many things that you don’t know. Just having that confidence to really get to grips with something is not easy, so one big piece of advice I have is to find something in your first year, and in your second year have a good run at it. That way, in the end, you can make a good decision and say, “Okay, do I want to go with this full-time or not when I leave?” because that is a lot scarier.
What was the hardest challenge you have faced to date?
MV: For me, the biggest challenge – one that is way bigger than anything I have faced in the past – is the realisation that no one is coming! If something goes wrong, you have to fix it. No one is going to tell you that you’ve done a good job; no one is going to tell you that you’ve done a bad job; no one is going to tell you whether you are making the right decision or not. And you need to be able to sustain confidence when no one is going to give you anything.
Do you have any coping strategies you would care to share?
MV: Something that has been very helpful for me, which I think is down to Gabi originally and which we and our cofounders have got better at over time, is being honest with one another – about where we are at and about what’s working and what’s not working. It’s crucial to do that, both at the company level and at a personal level.
GJ: Transparency and being as honest as possible with yourself and with others is something we have developed as we have progressed, and I agree that it’s very important for the company and for your own mental health. Also, when you start a company, people always tell you not to take anything personally and to be very ‘cold’ in your approach. I think that’s wrong! I think you can be a human being and a business person at the same time and still retain your sanity! I do take things personally, but in a good way, and I think that Michael and I are always trying to be human beings in everything we do and not alienate ourselves from situations. It might be easier, but I don’t think you necessarily get to the right decision that way. You need to try and retain your empathy in every situation.
Are you targeting an exit at any particular time? What is the future for Valerann?
MV: We don’t think much about an exit. We think more about where the company is going in terms of the value that we want to bring and how we want the company to be and what we want the industry to look like. Today, less than 4% of the world’s roads are actively managed, and that has dire consequences – estimates suggest about 20% of congestion and 31% to 35% of fatal accidents could be cut if we had better data-management systems. With a system like ours, which is affordable, cloud-based and potentially ubiquitous – could we extend that to 10, 20 or 30% of the world’s roads? What would the global impact of that be? That’s something we think about a lot more than an exit and wonder how we get to that point.
GJ: I think this is a very important point – I think good entrepreneurs are obsessed with creating value for clients. This is all they care about morning, noon and night; day-in and day-out. And I think this is something that we are becoming ourselves – we are becoming people who talk about our clients and the value we can bring them and resolve their pain points. These are the only things we think about, all day long! I think that exits, of all types, are just a follow-on to a company that actually creates value for someone.
Any other tips for the aspiring entrepreneur?
GJ: There should be a degree course on this and we could teach it for three years! But, to try to summarise everything in one word, I would say persistency. I know it sounds corny and everyone says, “Yes, I have persistency!” but actually, most times I would say, “No, you don’t!” I don’t know many people who have true persistency, by which I mean the persistency to carry on knocking on doors even though they’re being shut in your face 10 times a day. Persistency is going through the most difficult hardships you can imagine and still trying to knock down the walls. So, I would say what entrepreneurs need to succeed in one word is persistence.
MV: The reason for that, by the way, and this is kind of the next step, is because the nos don’t matter. The only thing that matters is the one yes. You can have 100 people saying ‘no’ and just one person saying ‘yes’ and you can build a huge company on the back of that. That’s why persistency is so important – people can give you 100 nos, but the truth is they don’t really understand your business; they don’t really understand the potential and are just using their own frameworks to assess something. You are the only one who really understands your business, so you shouldn’t take the nos personally – try and learn from them and look for that yes.
I would also say because there’s no one there to support you and because the learning curve is so steep, you really need to prioritise learning. That’s important, both for you and for your people. And if you don’t give people who work for you the environment and the opportunities and the resources to grow, they’re just not going to grow. And if you don’t provide those resources, they are just not going to be there.
I would also advise spending time really thinking about the problem. People say you should focus on solutions and not problems. That’s true once you are a well-oiled machine, but when you still don’t understand the industry and the company is still not properly set up and things are not yet all clicking into place, it’s important to spend time addressing the problem. And there are many types of problems to solve, from how can I develop better to what are we missing in the company? It could even be what problem are we solving? Spending time really trying to understand the problem is key because if you solve the problem in the wrong way, or solve the wrong problem, it will take you a lot more time to fix.
Valerann’s founders are deeply human-centric in their approach to business and are looking to recruit more humans – engineers, salespeople and business-development people – to help in their quest to make the world’s roads less congested, less polluted and safer. Find out more: https://www.valerann.com/careers