Tech Innovation in AZ: Behind the numbers with Leib Bolel of Grayhawk Capital

Every quarter, the Arizona Technology Council publishes a data report showcasing the performance of the tech industry in the state. We’re now adding an additional layer, with the stories of the people behind the numbers—the people who are the employers and employees, the innovators and investors.

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Leib Bolel is president and CEO of the Arizona Israel Technology Alliance, where he oversees the growth in bilateral trade between the technology communities of Arizona and Israel, as well as a venture partner at Grayhawk Capital.

Leib joined Molly Castelazo, storyteller-in-chief at Castelazo Content, in a lively conversation that ranged from the opportunities between Arizona and Israel, to the talent flocking to the state, to the outlook for venture capital investments in local companies. Here are the highlights, with timestamps to ease navigation through the video.

[00:57] Tell me a little bit about yourself, where you came from, how you came into your role as a venture capital partner at Grayhawk Capital.

Sure. So I’m originally from the UK, a place called Gateshead, New Castle in the northeast of the United Kingdom, grew up there, went to Israel for my undergrad. I spent about six years in Israel. After spending some time there, moved to Des Moines, Iowa, in the Midwest. I got my postgraduate, my MBA there. I started a software company was looking for, we needed to grow and I was looking for good talent. And we had several opportunities in different states we were considering. Arizona really fit a lot of that, a lot of those criteria. We liked the community, a great business environment, very, very open to new businesses coming in. And it was just a really good fit for us. Came over here. I sold out a couple years later and started the Arizona Israel Technology Alliance, both from passion for Israeli technology, and just a lot of the great values that it could contribute to the Arizona economy. From there, we built the team here. We have a director in Israel.

We’ve got some really important things that have contributed to stronger commercial ties between the two regions. We’ve seen many companies that have moved to Arizona—approximately twenty five, up from eleven when we started the organization. And about a year into that, there was a lot of opportunity on the venture capital side. We were seeing a lot of deal flow, both out of being involved in the Arizona ecosystem—a lot of young startups that I thought were promising and had potential – in addition to looking at Israeli companies as well. So I set out on a mission to bridge that in a different role by means of forming a venture capital fund. So I formed that and worked for several months getting everything, all the infrastructure in place. And I knew how to raise capital on the private side and that, you know, from a company perspective. But raising a venture capital fund is a very different animal. And I knew that in order for me to accomplish that, to surround myself with the right people as well.

So looking at the ecosystem over here in Arizona, I reached for Grayhawk Capital, which is Arizona’s most established venture capital fund, largest venture capital fund, founded in 1999, and I asked the founder and managing partner, Sherman Chu, to come on as an advisor to my fund, which was called Aretz Partners. And just a little fun fact, in Hebrew the word ‘aretz’ translates to ‘land’. And also it was fun because you had the ‘a’ at the beginning and the ‘z’ at the end, for Arizona. And after several months working together, Grayhawk was about to raise a new fund. And that’s when they asked me to join Grayhawk as a venture partner. And I’ve been here now for close to a couple of years.

[04:01]What was the company that you first started, the one that brought you out here [to Arizona]?

It was called Glimpse. Glimpse was a really interesting, innovative tech startup which was focused on—and it’s still around, the team are still here in Arizona. It’s focused on, on the back end it’s a CRM focus for non-profits that was able to geo locate nonprofits in real time and in different areas. So for users—the socially minded—it was a news feed where they were able to see what was going on really across the world. So if you think about Google Earth, you can zoom in and you can zoom out. And so we had that feature and we were able to locate nonprofits in real time doing specific things. So if there was a fire going on, if there was a mudslide, if there was a hurricane. And so you had anywhere from multinational, large global nonprofits to the small nonprofit teams of three or four, they were able to get the same amount of attention. And the primary value proposition of it was that you could make a micro donation to aid those nonprofits. So visually, they were able to get a lot of attention and they were able to increase their revenues and be able to provide a new source to things that were going on really across the world. And obviously, a great educational tool to see what’s happening in Australia, Papua New Guinea, India, everywhere else. So that was the company that we moved over here.

[05:53] Tell me a little bit more about the Arizona Israel Technology Alliance.

So at the Arizona Israel Technology Alliance we have one goal, and that’s to increase bilateral successes so they can … we’re agnostic to stage of company, agnostic to vertical that they’re in. We look at the aligned synergies and the aligned sectors that are prospering in Arizona and are very strong in Israel. And that’s obviously where we see the most amount of value add. So these can range from joint ventures to business development to R&D initiatives. POCs, proof of concept with the multinational corporations, within local industry leaders working with startups over here on potential opportunities in Israel. We represent a foundation called the BIRD Foundation, which is a binational grant facilitation of up to a million dollars in non-dilutive funding for joint ventures between U.S. companies and Israeli companies. And we focus on the Arizona market. So we’ve got a whole arsenal of opportunities.

Companies approach us. It could be on the scouting side. It could be on an acquisition side. It could be on market penetration. Both Israeli companies into the US market by Arizona. It could be on the Arizona market. Particularly, I would say, a strong sector’s going to be on the cyber security side and seeing how they can, you know, look at the talent that’s coming, that some of the solutions that are being developed. Some of the infrastructure and integrating it into their own companies or being able to leverage in other ways. So our goal is for there to be a win-win on the Arizona side and on the Israeli side. And if we are able to assess that, there’s a strong potential within that. And those are engagement that will assist companies with.

It’s not just a matter of enterprise. We work with all municipalities, cities, counties, the state of Arizona has been a great partner of ours working alongside. Governor Ducey has done some incredible stuff. He was the one that, you know, was highly involved and supported the efforts of opening a new trade office in Israel. Arizona has two international trade offices now, one in Mexico, one in Israel, the first one in Israel. And that’s governed by the Arizona Commerce Authority who are big partners of ours. So it’s really about strong collaboration, strong network and working across … It could be on the research side. It could be on the enterprise side. It could be on the government side. It’s just a matter of when it’s right.

[09:09] Could you give us a picture of what the tech ecosystem in Arizona looks like?

Yeah. We talk about ecosystem here. You know, Arizona has had some good successes on, you know, with the likes of WebPT and formerly Infusionsoft now Keap. You know, I would say those are – they go back several years. I think we have a long ways to go. But we’ve got a very strong trajectory that we have the opportunity to capitalize on. I don’t think there’s any comparisons that we should be going to the other regions and saying we could be the silicon this or the silicon that. I think we’re Arizona. But there’s a reason why I moved over here and there’s a reason why many other companies move here.

We are in a very strong point for growth. And, you know, looking at the talent pool that I would say there’s two primary talent pools: the talent pool coming out of the academic institutions and the talent pools that are moving here. I think definitely before COVID—I don’t know what the current stats are today—Maricopa County was the strongest county growth in terms of relocating. I believe it was six hundred and twenty people, I think it was either a week or day; it was definitely something astronomical. And that says something as well.

You know, if you look at a more concentrated geographic areas—the Bay Area, Seattle and others—we have a great standard of living, cost of living, being able to make maybe not the same amount of salary, but the dollar goes a long, long way. But there are the tax implications are more favorable. So in terms of talent, they are coming in droves. And I think retaining them is going to be something that’s going to be reflective of the type of the types of companies that are founded over here and are being able to grow here.

[11:13] And what are the various factors that will impact founders’ ability to found companies and companies’ ability to grow here?

I think talent is definitely going to be part of it. If you look at specific verticals, it’s always more opportunistic and makes a lot more business sense to be around the industries that are very strong. So if you look at, for example, the aerospace and defense sectors, there’s about fourteen hundred companies within the aerospace and defense sectors here within the supply chain. So having an aerospace company come to Arizona, there’s a very strong value proposition you want to be close to. That brings down costs, opens up more opportunities, the same sandbox. So in other verticals as well, Life Science, Bioscience, we have a core foundation. Beyond the foundation, [people are] very amenable to collaboration as well.

We’re in a very business-friendly environment and people are receptive to new companies. People are receptive to meetings. Warm introductions go a very long way and network is a strong part of it. And, you know, it’s I don’t want to call it irony that we’re on the phone. But Steve Zylstra was it was a big proponent of me moving over here. He Was one of the first people I interacted with. And he definitely was a great resource in in connecting with some of the right people initially when we came in. It’s encounters like that that I think send a strong, very strong signal to companies either being established over here or looking for a good home for them.

[13:00] Do you think the willingness of people to help each other out and collaborate is different here than in other places?

I think there’s two different factors that go hand in hand. You’ve got you know, I’ve lived in other states and the environment there was incredibly friendly and really receptive. But the amount of deliverables were really limited because those industries weren’t strong. When you have the infrastructure in place, you’ve got the sectors that are thriving. And you have the network as well. And that makes you know, that’s a very strong case to build a company in such a location.

[13:54] What are some of the challenges you see for growth in the tech industry in Arizona?

You know, you have a little bit of a catch 22 in this. I get this question asked often and one that I’ve spent much time talking with people, people who have the same question as you do. If you look at trends in other markets that weren’t necessarily, you know, synonymous with technology innovation where today there’s a strong cohort of unicorns there. And one example would be, you know, Park City and Salt Lake. And it really came from a couple of unicorns that were established there. And that brought in a lot of venture capital to the market. People understood that it’s a great place, an alternative place to look at the talent that’s coming out there. And they’ve been very successful. So definitely more venture capital can be a resource. But venture capital isn’t going to come to a place where there’s not enough opportunities for them. So you have this vicious cycle. I do believe that we need a couple of crazy people to be able to create unicorn companies. I think that would definitely change the dynamic.

Collaboration goes a long way as well within the industry sectors but it only goes so far. And I think that, what we’ve seen is that there is you know, there’s definitely more companies that we’re looking at in Arizona, Grayhawk Capital, you know, we’ve invested throughout partners about $56 million into Arizona. And $290 million in exits. That’s over 18 investments. So we know this market well. We know where the opportunities are. We do see them quite a bit. And we’re seeing more. We are seeing more, which is definitely encouraging for us. An optimal outcome, we would love to be able to deploy all our capital into Arizona companies. But, you know, we’re raising a new fund now. We do see a lot more here. We expect it to be more deployments, more investments into Arizona tech companies. It’s not just about technology as well. But manufacturing, there’s so many different industries out there. And so you have this dynamic that you go back and forth.

That’s definitely one challenge that we have. I spoke to a founder recently. You know, she’d raised about $70 million for an Arizona company, and she never looked at Arizona for venture capital investment. She went straight out of Arizona, went to the Bay Area. Those are things that we know of. It’s apparent. We know many companies that have done that. And it’s definitely a challenge over here. With that said, we’re in Arizona where we are surrounded by three of the largest global economies with Texas, California and Mexico. Mexico is a hidden gem for us, you know, especially in the manufacturing side. And if you look to south in Sonora, there’s a lot of value. Then there’s companies that see that as a strong value proposition as well. Remember, we spoke about surrounding yourself or being close proximity to specific industries. So the auto manufacturing is a particularly strong in Sonora. So those are challenges. Capital is a challenge. And when you are growing the company and then many opt to go down that path. There’s many, many that don’t as well. And obviously they will have their own considerations.

So I would say, you know, retaining talent as well. We look at data and statistics. How much talent from the academic institutions stay in Arizona or are they going somewhere else? Once the professionals are in Arizona, then, you know, the trends are that they stay over here. It’s a great place to raise a family and to be able to do things that mean the, you know, well, hiking over here. The activities that are available. But when students graduate. How do we retain them in the state? That’s also another challenge.

So there’s definitely a catch 22. What comes first, is the chicken or the egg? Is that the companies or the venture capital? Is it being able to have those companies to retain the students? Or do we create value propositions for them to be able to stay and opportunities for them to stay? So there’s different dynamics. I don’t believe every that there’s any place that doesn’t have their own challenges. We face our own challenges here. But I would say on the bright side of things, we have far more opportunities than the challenges that we have. So we’re in a great place. I think five to 10 years from now, we’re going to be in a very different limelight in terms of people’s synonyms with Arizona. For me, it was the Grand Canyon before I came to Arizona. And I think one day there’ll be other adjectives and terminology to use for Arizona, specifically when it comes to business and commerce and technology.

[19:01] What’s your sense of how the amount [of venture capital] invested in Arizona has changed over time and where that might be going in the future?

Yeah, I would say the majority of the capital, based on the data that we’ve seen, the majority of that capital is coming in later-stage investments. So these aren’t necessarily seed stage investments or early stage investments. These are generally C, D, you know, companies that really established strong growth. If you try and put one investment of $60 million versus multiple investments or dozens of investments over $60 million, they weigh up very, very differently. So we tried to break it down in terms of where is that capital being invested in? You know, how much of it is going to early stage? Some of it is going to growth stage. How much is going to, you know, beyond that. You know, we’ve definitely been stronger from stronger investment trends into technology companies in Arizona. That’s definitely a good sentiment. We do expect it to continue.

This year is definitely, I think, all around, I think traditionally what we’ve seen over the last five months have been some very, very large financing and investments of large companies—$100, 200, 300 million capital raises. And so we look at numbers. I don’t think they’re going to be 2019 numbers for 2020. It may be, you know, somewhat close, but I think the majority of them are going to be for larger investments that make up that capital rather than smaller amounts that I believe go a long way within the earliest stage, early stage startups. I think we’ll see a decrease in the early, early stage investments and we’ll see, you know, either a static or somewhat of a decrease on the larger ones. But I believe the majority of the venture capital that’s going to be raised in Arizona this year is going to be the largest financing round. I don’t want to say we’re on the tailwind of this pandemic. I wish we were. We still don’t know. There’s a lot of unknowns. I don’t think anyone knows yet. But, you know, look at 2021, 2022, 2023, I think we’ll continue to see those trends go up.

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