Foreign Policy Blogs

A Candid Discussion with Steve Rhodes

Steve Rhodes


As the Middle East continues to plunge in a multi-faceted and what appears to be an increasingly regional crisis, there are debates and even hope about the future of entrepreneurship in the region in the face of the Arab Spring. Corruption, the status of women, the Israeli Palestinian conflict, Iran’s nuclear program, and now the specter of a military conflict with Syria have cast a dark shadow over the region’s economic dynamism and business growth. But despite the regional turmoil, there are companies that move against the tide of pessimism. The Trendlines Group of Israel is one such company. It invests in very young companies known to be in seed stage.  Trendlines’s key focus is on innovation-based companies in the life sciences, cleantech, and agritech. Steve Rhodes is the company’s Chairman and CEO. He sat down with Reza Akhlaghi of the Foreign Policy Association to discuss Trendline’s investment philosophy, the spirit of entrepreneurialism in Israel and the Middle East, and the prospects of doing business in the region.



As one of the leading incubator and seed-stage investing companies in the Middle East, one of the key themes of the Trendlines Group and its subsidiary, Trendlines Agtech, is ‘improving the human condition’. Can you elaborate on this dominant corporate theme at Trendlines and name the key regions and countries you are active in?  

When considering in which areas to focus our investment activity, we thought long and hard at Trendlines about our values.  Like any other investment company, our goal is to make a profit for our shareholders, but that was not enough.  It was important for us that our investments would also have the potential to do some good in the world.  And when we look at the most pressing needs of the world, none is more pressing than feeding a growing population.

Our investment activity itself is focused exclusively on Israel; all of the companies that we establish are established and operate in Israel.  Having said that, the technologies themselves are applicable to countries around the world and, in some cases, particularly to developing countries.

For example, I just completed a 10-day visit to China.  While there, I found tremendous interest in our biological insect control company EdenShield; China has tremendous environmental problems, so low-cost, non-toxic pest control is of great interest.  Similarly, our company BioFishency drew lots of inquiries.  The company’s low-cost bio-filter can increase the productivity of fish ponds by 300% to 400%; this can make a dramatic impact on the livelihood of a subsistence fish grower.

These and many other Israeli agritech innovations will be highlighted at the Agrivest™ 2013 Conference to be held in Tel Aviv in early December of this year.

One of the leading factors behind the social unrest in the region known—rightly or wrongly—as the Arab Spring is believed to be the lack of opportunity for an increasingly connected middle class in increasingly inefficient, corrupt, and authoritarian states that failed to provide a suitable environment for upward economic and social mobility. Could the post-Arab Spring environment herald the emergence of a whole new business environment and entrepreneurship? What factors would it depend on?

It would be nice to believe that a more vibrant and entrepreneurial Middle East will emerge from the aftermath of the “Arab Spring,” but I believe there are three critical changes that need to occur for the local economies to blossom.  The first is the urgent need for stability.  The current environment of unrest and uncertainty scares away capital and distracts entrepreneurial instincts.  The second is upgrading the status of women; history shows that modern societies that oppress women fail to produce strong economies.  Finally, we need to see the acceptance of Israel as a permanent fixture in the Middle East.  The Arab world has expended untold energy and resources on trying to combat Israel, and its leadership has used Israel as a convenient scapegoat for all the ills of the Middle East.  Stable governments focused on building their own countries’ economies are what is needed.

Would you say there are untapped new business and transformative ideas in Arab countries that deserve to be invested in? What do you see as potential obstacles in investing in promising companies in Arab countries?

Without transparency, stability, and the elimination of corruption, I cannot imagine investing in the Arab countries.

Do you attribute your success in Israel primarily to the country’s entrepreneurial spirit, for which it has made a reputation, or chiefly to the government’s economic policies?

The Israeli government’s economic policies have been helpful, but the true engine of our success has been the entrepreneurial spirit of our people, which powers innovation and provides the determination to succeed in the face of tremendous odds.

What are the key aspects of your funding model? What does your pool of investors generally seek before investing in a seed-stage company?

There are two key elements to Trendlines’ funding model.  The first is that for every $10 we invest directly into a company, we spend another $4 on support services for those companies.  We believe that early stage investing cannot be just about investing capital – the risk is too great.  Providing a very rich package of support services increases the chances of success and reduces the risk. 

The second element of our funding model is attractive leverage that we receive from the Israeli government.  The government realized many years ago that the private sector would generally not take the high degree of risk required to invest in very early stage companies.  The result was the implementation of a unique risk-sharing program of grants used by the government in order to entice us, the private sector, to take a level of risk that we would not otherwise take.

What is the focus of Trendlines Medical and how does it differ in operations and investing philosophy from Trendlines Agtech?

Trendlines Medical invests in innovative medical device technologies, while Trendlines Agtech invests in agricultural technologies.  The operations and investment philosophies of the two units are largely the same:  we focus on products that will improve outcomes, while saving money, and that can make significant progress in a relatively short period of time.

Healthcare and medical are areas that Trendlines is particularly focused on. What are the key criteria you’re looking for to invest in medical and health companies? Do you seek innovation in a particular area of healthcare that would make a company particularly attractive for investment?

We have two main criteria for our medical investments – we want them to improve healthcare outcomes, while reducing costs.  In addition, we look at time-to-market and money-to-market; these items are particularly important since we are very early stage investors.  While Trendlines will look at many areas of healthcare, we have a particular interest in cardiology, surgical tools and devices, and orthopedics.

How has the global economic slump impacted your business over the past few years? Does a slumping economy necessarily lead to more start-up activity?

Interestingly, during economic downturns, we see increased start-up activity at Trendlines.  This may be for several reasons.  One is that other sources of funding dry up.  A second reason is that as people, unfortunately, lose their jobs, they start thinking maybe it is time to pursue their dream of being entrepreneurs.  A vibrant incubator program can help a country speed recovery; in fact, in 2009 at the height of the last global recession, the Israeli government had the wisdom to increase spending on the incubator program.

Would you invest in a struggling company with a promising outlook (either in terms of its patent ownership or technology) in a leveraged buyout (LBO) arrangement? Is LBO something you’ve looked at as an investment strategy at Trendlines?

We have made two turn-around investments in the past few years.  Basically, we invested in companies that were either on the verge of, or in, bankruptcy.  Our investment hypothesis was that we could use our considerable support infrastructure in order to turn the companies around.  One of the companies we turned around was sold last week to Baxter International – a very nice outcome for a company that was once in bankruptcy.

Do you agree with Chris Schroeder, author of Start Uprising: the Entrepreneurial Revolution Remaking the Middle East, that despite the disappointing political picture emerging from the post-Arab Spring Middle East, the region is on its way to becoming a center of entrepreneurship and innovative business ideas?

It would be wonderful, if true.  There is definitely a lot of entrepreneurial spirit among the Palestinians, particularly in the Ramallah area.  It would be fantastic if it would take root and spread.  Corruption and radical Islam are a real threat to this and I hope the entrepreneurial spirit prevails.  In other areas, such as the Gulf States, I think that the status of women and the control the ruling elite exert over their economies put a damper on local entrepreneurs, even though I am certain that there is tremendous potential.  I hope Schroeder is right; that would be great.