A Conversation with Yossi Vardi

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You've created quite a reputation for yourself as someone who can divine the next big thing. When you go to invest in entrepreneurs and new ideas, what do you look for?

Let me start by telling you what I don't look for. I don't look at business plans. After 38 years I've found that 100% of business plans say that their idea is very good. I think they are useless. I also don't like PowerPoint presentations. I don't think you can judge the validity of an idea. Maybe someone else is working on the exact same thing elsewhere. I found the more I liked the idea the bigger my losses were. Falling in love with an idea makes your vision blurry. I don't like demonstrations because the young guys showing me are so enthusiastic they think it is the greatest thing in the world—at least in their life, and if you don't fake an orgasm, they go away very disappointed.

What do you look for?

First, I am most focused on the Internet and mobile consumer interface applications because it is the consumer who judges the product every time.

When I go to invest, I am first of all looking for talented people. Second, someone with good character. Third, that they are nimble and their way of thinking is fast because they have a terrific advantage. Fourth, I want them to be focused on one thing. Fifth, I like investing in the very early stage, the first investment where the risk is the highest and the valuation relatively low. This is an area where I feel most comfortable but most other investors do not.

How do you know if someone is talented or not?

This is a very good question. It is like in high school. Who really knows who is talented isn't the teachers or the parents, it is the peers. I have a panel, the best panel of people who know what is going on. I don't take cold calls. First, if someone is going to meet with me they have to be referred to by someone on my panel. It's been working for me. So far this year [2007] I've had five successful exits.

Over the past 38 years how would you measure your wins vs. your losses?

I'd say about a third of my investments have been losses and two-thirds have been winners. But let me qualify the wins: One-third are dragging and not doing great. One third gives a very good return. Of the remaining one third, about 10% gives a very high return, like 10 times the initial investment. In the last five years, I've invested in about 65 companies, and in all of my life about 90.

How do you feel about investing in people whose previous ventures have failed?

If someone has failed that is not a deficiency for me. I think that he has more motivation. I've seen many examples where someone was successful first and failed later and failed first and then succeeded. If they failed in an honest way, I don't see it as a deficiency. In the end, I think that people that are not willing to take the risk to fail are not true entrepreneurs. If you are afraid to fail, then you should go and become a banker.

Perman is a staff writer for BusinessWeek.com in New York.