Call of Dudi: Inside the mind and life of a tech multimillionaire
Call of Dudi: Inside the mind and life of a tech multimillionaire
From a humble upbringing in Israel to Wall Street to London, and ultimately becoming a multimillionaire, David (Dudi) Gershon continually sets his sights higher. Now, he claims his new app will eliminate the need for physical cash.
David (Dudi) Gershon's house in Kfar Shmaryahu surprises even visitors who have seen numerous homes of the wealthy. Spanning about 10 dunams, its outer wall consumes a significant part of the entire street. Behind it, spacious lawns are trimmed with surgical precision using a robotic lawnmower, and trees are tended by two gardeners. The central residential building, designed in bright white, features high walls with many floor-to-ceiling glass windows. With its meticulous cleanliness and art objects scattered around, it gives guests the feeling of visiting a museum.
But the main surprise lies beneath the floor. The living room floor is transparent, revealing an Olympic-sized pool, 50 meters long, with two swimming lanes stretching underfoot. The astonishment that grips you is no accident. The house extravagantly represents the fulfillment of his childhood dream: to be a rich man.
"When you make an exit fast enough, you can manage to enjoy it," he says. "It took seven years to build this house, and if I had made an exit five years earlier, I would have enjoyed it five years longer. As an entrepreneur, you have to think not only about how to maximize the value of the company but also about how long you will have to enjoy the money."
How did the idea for such a house come about?
"When we planned it, we brought up everything we would like it to include. The rest is already the work of an architect. There is also a basketball court and a tennis court, and there is a cinema and a spa. It is a really fun house, and today everything is architecturally resolved. For example, there is no smell of chlorine from the pool because its space is sealed. It's a sophisticated house, our dream house, we almost never leave it. This house is a fulfilment of a dream."
Did you dream of an Olympic pool inside the house?
"I swim six times a week, and with all the equipment I carry for swimming training, it's better to have a private lane. It's annoying when you're in a public pool and people cross your path. I do professional training, hard, with schedules and a professional coach (Leonid Kaufman, former coach of the Israeli national swimming team). I also like tennis, and when you want to play you have to book a court, but here I don’t need to."
Does the money you have calm you down?
"An exit gives you a sense of satisfaction that frees you from all pressures. When you are the owner of a company, not just a start-up but also a real company with profits, it is constantly measured by how much it grows, and you are constantly stressed to increase it. You feel like you are on a carousel, and you have to continue and whip the horses to increase the speed. After you sell, there is relief. You stopped this race. I felt that this is it; this is no longer my problem. You can call it redemption."
Physics is the vocation, but there is no livelihood there
Gershon's (59) redemption came in 2014 when he sold his options pricing company, SuperDerivatives, for $350 million. The buyer was Intercontinental Exchange, the technical operator of the New York Stock Exchange at the time. According to estimates, $170 million went directly into Gershon's pocket.
But the race to get there started many years before when Gershon, as a boy growing up on the streets, felt the lack of money and realized its power. "Around the 7th-8th grade, the elite kids started wearing Levi's, very expensive pants back then," he recalls. "My parents couldn't spend that amount on pants, and I knew I couldn't ask them for it. My father, Shlomo, was a laborer who immigrated at 18 from Bulgaria, and my mother, Sima, was a kindergarten teacher and worked at the Volcani Institute at the time. So I went to the central bus station in Tel Aviv, bought fake pants, and stuck a Levi's label on them. There was always a gap between us and other families. When everyone heard records, we didn't have a stereo at home, just a poor old turntable that we got from someone. I grew up with a sense of lacking."
Even without much money, the living environment near the Weizmann Institute led him to science-seeking youth circles. In the 8th grade, his extraordinary abilities were recognized and he skipped to the 9th grade. "I was the focus of all the science teachers. The physics teacher brought me more and more material to read. I delved into the theory of relativity. From a young age, I was very enthusiastic about physics and thought I would become a physicist. Towards the twelfth grade, I thought about how I could combine being an El Al pilot and a physicist."
Why combine the two?
"I thought physics was my vocation, but I knew that as a physicist I had no chance of getting rich."
Gershon earned a bachelor's degree in physics and mathematics from the Weizmann Institute and a master's degree and doctorate in physics from Tel Aviv University. "But when I saw that my teaching assistant at the university, who was an immigrant, was unable to find a job in academia in Israel, I realized that I needed a 'Plan B'. The same TA heard that the investment houses on Wall Street were looking for mathematicians and physicists, and in 1992 I went to the Kellogg School of Business Administration in Chicago for another doctorate, this time in finance."
Why finance and physics?
"Knowledge of finance with high-level physics makes you a rock star on Wall Street. Just being a geeky physicist is not enough, but when you're ambitious, the sky's the limit. They prefer brilliant physicists who are more connected to models and describing processes. This is desirable in a trader in the capital market, especially when it comes with boldness and persistence under pressure."
And you found out that you are cool-tempered?
"There are those who collapse or go crazy under stress; I found out that I can handle it very well. I have calmness. I don't go crazy when something terrible happens; I don't do nonsense; I don't get discouraged. If I had remained a physicist, I would have had a lot of fun, but I wouldn't have discovered the entrepreneurial qualities that I knew I had: passion, courage, and imagination."
You didn't say the word emotion.
"Emotion is dangerous; you must not work with emotion. Decisions must be logical. With emotion, you can cause terrible damage. Business decisions must not be made based on emotion, but only on a clear economic analysis. You can be nice to the employees, but other than that, emotions should play no role. This is how a company should be run."
The first million
Proximity to America's financial corporations began to yield Gershon the money he dreamed of. "While studying for my doctorate, I already started advising a bank that belonged to Bank of America for $1,000 a day. When my father heard about that amount, he cried. I think it was his monthly salary. He couldn't believe it. I took them to fancy restaurants, sent them on trips around the world, bought them a car and an apartment; they enjoyed the well-being I had. Money gives you freedom to enjoy life."
From here, the financial journey progressed rapidly. In 1994, Gershon got his first official job as an employee on Wall Street, at Deutsche Bank, where he worked for three years. From there, he moved to Barclays New York, and in 1998 he was sent on its behalf to relocate to London, where he was responsible for currency options.
"I started as a beginner trader, which means that the maximum amount I am allowed to lose in a day is not that large. After a successful first year, they increased my amount, and when I arrived at Barclays I was already a senior trader, responsible for the area of currencies in Latin America, and later they increased my responsibility for all developing countries, including Africa and Asia. I moved to London to be the global manager of the entire field of exotic options on currencies."
They paid you well, I guess.
"Ever since my first job as an options trader at Deutsche Bank. A good trader earns a salary of $200,000-$300,000 a year, but the real game is the bonus. Bonuses can be in the millions of dollars. The bonus is everything; people live for the bonus, period."
What does this actually mean?
"That you meet very unpleasant people, rigid, focused, working from 7:00 a.m. to 5:00 p.m., and your job and theirs is to make money. Those who are late buy breakfast for the entire desk, those who continue to be late are let go. It's a period of terrible stress. We don't enjoy the work, but the bonus is satisfying. That's what we came for."
That sounds like a terrible lifestyle.
"Life as a trader is hard and exhausting and full of stress. We are slaves to money. It's working without friends, without personal relationships between people. It's enough to annoy someone and you get fired. That's the environment. On Wall Street, people were mean to each other. When someone was fired at the desk, no one was sad. It was like 'what do you care'. Two guards come to someone and say, 'Pack up your things and come with us,' and no one cares. They’ll bring in someone else instead. At Barclays I had more friends, but still, the social situation there was difficult.
"It's a nasty side, but there are professional ethics rules, where everything is very calculated: when the boss asks why you made a certain trade, you have to explain to him exactly at what point you planned to take the profit and where to make a 'stop-loss'. We work on statistics, and it is allowed to lose as long as the methodology is clear. Obviously, the only days you have fun are at the weekend, and even then it takes time for the body to get rid of the stress. Everyone suffers there and burns out so quickly, knowing that you can retire from Wall Street before the age of 40. I lived like this for a decade, and as time goes by, you get used to the stress and understand that’s life. Even as you advance in management positions, the stress decreases, and you mainly have to make sure that your employees don't do anything stupid."
Are you living in an environment of cheaters?
"The mainstream are honest people, just not nice. Honesty is actually a quality that is highly valued on Wall Street. A manager wants to know that he can trust his employees, otherwise he could suffer huge losses. When I said to someone, 'To tell you the truth...' he cut me off and said to me: 'Always tell me the truth!'
And outside of work?
"Professionally, everything has to be perfect, but outside of my profession, no one cares if your behavior is horrible. I saw people do cocaine after work, I saw quite a bit of sexual harassment. I was part of an environment where no one connects with you. I had an extraordinary event with someone at the desk named Klein, who was obviously Jewish. My parents came to me for Passover and were planning to make a seder together, so I said to him, 'I'm making a seder with my parents at home, do you want to join?' And he answered in the most unpleasant tone, 'I don't celebrate these things.'"
Were you offended?
"This is how the people were, and you don't get offended and you don't cry. We were iron men, even on bad days. At most we go to the bar to drink something. Every day is a new day, that was the slogan."
And on one of these new days, sometimes the bonus you dreamed of arrives?
"There's a lot of tension before a bonus call, because it's not a fixed number in your employment agreement, the boss has a lot of influence and sometimes he has to compensate for the losses of others at the desk. The number is secret and you only know it at the last minute. When the number is high, you're on a high, because that's the only reason you work. But if the number is too small, it's as if you worked for a whole year in vain."
Who do you share these feelings with?
"At the time, I only had two Israeli friends in New York's time zone that I could talk to. If it been in Israel's time zone, I would have called only my parents. That's just the way it is, money creates jealousy and the parents are the only ones who are always supportive. Siblings too, but with the parents it's pure, and you want to tell them to make them happy."
How much money was enough to make them happy?
"In Wall Street numbers, let's say you expected a $2 million bonus and in the end you only got a million, it doesn't matter to them. In both cases they faint from the number."
Are the successful traders pampered only with money?
"The CEO of a bank in New York took all the top managers to a strip club, and the manager of the trading room paid all the good traders to hang out there. But there was no sex, or money for a lap dance. In the movie 'The Wolf of Wall Street' it was much more extreme."
Did you feel disgusted?
"That was the way this world worked. This way of entertainment was considered the most standard way to relieve stress. For me it was like coming to a restaurant that is not kosher for a religious person. You come because everyone comes, but you only order a salad."
Is this era over?
"Earning a lot of money from trading with almost no restrictions and taking huge risks - all of this ended in the financial crisis of 2008. New controls came in, regulation was put on the banks, and the risks they agreed to take decreased greatly. he bank is looking for as little risk as possible, and this brings a different profile of employees. It’s a completely different world now."
In the year 2000, Gershon set out on his own. He founded SuperDerivatives, which was based on his deep familiarity with the American capital market. The company developed a system for pricing risks, trading management and revaluation of financial derivatives - all tools designed to help stock market traders. One of his first investors was super banker Lou Ranieri, a Wall Street veteran who inspired Michael Lewis' book Liar’s Poker. "He heard about me and asked to meet. I told him about the company's model and he said 'it can be huge, I want to invest in it, provided you leave the bank and manage it'. It took me more than three months to digest the idea of leaving the bank and really running my own company. I was on a path where I made a lot of money without any risk. I told Ranieri that if I didn't make more than $100 million from SuperDerivatives, it wouldn't be worth the effort, because I thought that in a ten-year career at the bank I would pass that amount without a problem. He checked my models at several banks, was enthusiastic, and I decided to go for it."
In the financial crisis of 2008, the company fell into a serious crisis, when the customers - from banks to small brokers - simply stopped paying. Gershon returned from the headquarters in London to the development center in Israel. "The world was in such a terrible state, and I decided to move to Israel and put things in order from here. We cut expenses to survive, fired a lot of employees, switched to selling data instead of our systems, and in 2010 we got back on track."
I went to rest, then I invented digital cash
In 2014, the exit came, SuperDerivatives was sold, and Gershon's material dreams came true. This was also supposed to be where the drive ended, and Gershon did seem to relax. He serves as a professor of finance at the Hebrew University, and among other things donated five million shekels to the Faculty of Business Administration for the establishment of a fintech center named after his parents. But it was the establishment of the center, he testifies, that rekindled his entrepreneurial appetite. "I'm have a bigger drive now, and it's not financial," he says. "I have a drive to change the world, to make a revolution. I want to create digital cash in Israel, through an application that transfers the cash to the phone. Maybe it will be the digital cash of the whole world."
The venture, which was born four years ago, like the new application, is called KashCash. Partnering with him are those who were by Gershon's side in SuperDerivatives: Dr. Yuval Levy, Ariel Shub and Udi Sharim. The application will be launched in about a week, on July 7, in the first phase in cooperation with nearly 190 businesses in the Ayalon Mall in Ramat Gan. “I upset the balance in my life, which was calm. KashCash took that freedom from me."
How was the idea born?
"It started with a thought about giving tips and a way to give cash to children. From there it became a complex and big matter, and the need to succeed in this became stronger than me."
What does KashCash actually do?
"This is an application that transfers the cash to the phone. The money is deposited in advance in a trust account at the bank, and if there is NIS 200 ($53) in the account, for example, that is the amount available to you. The application is used as a virtual ATM. With the push of a button, money passes between two users, when there is really no transaction of money but only a change in allocation in the database and in the business that will receive payment in cash, money will be withdrawn from the trust account to the business's account, this completely simulates physical cash, both at the ATM and as a payment to the business.
What excites you so much about the digitization of cash?
"There is a problem. The consumer doesn't have ATMs anymore, they are disappearing, they charge a high fee, to get to them you have to find parking, and since we don't want to go to them every two days, we withdraw a lot of money - and then we are afraid that it will get stolen from us. Withdrawing cash money is not convenient. On the other hand, the use of cash is only increasing, which proves how critical it is."
Who else is it critical to? Everyone pays with credit on a smartphone and transfers money with Bit.
"There are families for whom a credit card is an enemy. Payment systems like Apple Pay or Paybox are actually a shell of a credit card: instead of walking with plastic in your bag, you walk with a phone. But this has nothing to do with cash. What KashCash does is that instead of going to the ATM to withdraw NIS 200, you use the phone. It hides the bills, which are our biggest nightmare. You have to count bills, be afraid of theft. What's exciting here is solving a problem that no one has dealt with before, because it's super difficult."
You still haven't convinced us that there is a problem. Besides children, let's say, that you want to give them money, who else will benefit from it?
"Everyone who uses cash, and only one or two percent of the public does not use it at all. 70% of people go to an ATM at least once every six weeks. According to Bank of Israel data, last year 145 billion shekels were withdrawn from ATMs, about half of that from kiosks, and half from banks. The amount of cash is growing, and there are populations that constantly receive cash, such as couriers who receive tips or foreign workers without a bank account. There is also a whole world of people who need to help others: parents who help children and even elderly parents with money.
"KashCash is actually a cash wallet and behaves like a wallet. It is limited according to the amount of money in it, and the control over the amount of money that is transferred is only in the hands of the person transferring it. That is why I say to all these people: instead of going to the ATM, do it by phone. KashCash can be the ATM that is on the phone in your pocket. Those who use cash can continue to do it, I simply save them from using plastic and dealing with physical ATM withdrawals. And of course it's smart cash, everything you do is recorded with you. Not digital currency, but digital cash."
Who wants a record of cash? Most people use it to pay under the table.
"We need to say goodbye to some myths. Contrary to what people think, most people use cash as a means of managing the budget, and under the table payment is not the main use of cash. And there are entire industries where cash is used, but not under the table. In the construction industry, for example, the law allows paying salaries in cash. Cigarette distributors and dairy products in Israel charge money from shops only in cash and the bank has nothing equivalent to that."
Let's say there is demand, there still needs to be enough businesses to cooperate for it to work.
"Businesses will be able to receive payment in KashCash through cash register software or an application for suppliers. The payment will be made from an escrow account in the bank, where the loaded cash is kept. This required us to build an entire ecosystem from nothing, and convince, in the pilot phase, chain owners in the Ayalon Mall to join the system before it even exists and to agree to receive our digital cash. Now almost all the chains in the mall have agreed, and it's the public's turn to enter the field, and the business owners will pay a fee of 0.4%, which is an incentive."
What are your chances of succeeding a second time?
"If we are lucky, KashCash will be huge, if not, it will be a small successful company. I don't think that KashCash will close and be worth nothing. My plan is that in five years 30% of ATM withdrawals will go to KashCash. I am convinced that the model we built is correct, and also If in the end there will be another way to do it - it will be a very important milestone on the way to creating digital cash. Like with an electric vehicle - there are all kinds of batteries, we don't know which battery there will be in 100 years, but in the end they will be able to produce a battery that will move the world from fuel to electricity."
“Art is also an option, and I know how to price it”
Gershon is married to Tami Zango Gershon and they are the parents of four children, ages 10 to 17, all of whom attend the American School in Evae Yehuda. Tami was previously a senior lawyer at the State Attorney's office, "one of the best, if she hadn't retired she would have been the state attorney," says Gershon. "She handled terrible cases, like that of the father from Kfar Yona who murdered his three children in 2010. Terrible cases, she dealt with monsters. With the sale of the company, her ambition to pursue a career in the prosecution diminished. A matter of balance in life."
Meanwhile, Gershon's business mind continues to work, and he is already thinking about additional applications in the field of options pricing, which he has been living and breathing for 30 years. "If I still have the strength, I want to start a venture of options and art," he says. "I am a world expert in options, and in their pricing there are laws of nature that can be recognized. The idea, broadly speaking, is to turn art into a classic financial asset as well."
You grew up with parents who admired your success. Aren't you afraid that your children will grow up in your shadow and find it difficult to achieve what you achieved?
"They will leapfrog me, that's for sure. I've always been around people who are better than me, I've never felt like the king of the world. I don't feel I’m on the same scale of the truly amazing stories."
When did you cry?
"When I watch the news, I cry easily, I cry when I see funerals of soldiers. It's not related to business."
How do you relax?
"The pool is my place to de-stress. When something bad happens to me, I go into the pool, and there is never a moment when it's fun for me. The workout hurts, or I'm short of breath, or my hands hurt. I've been swimming for two to two and a half hours, intensely, for 25 years. Do you know someone who is 59 who swims 200 meters butterfly every day? The swim itself is suffering, but after it I feel amazing. It's a matter of discipline, and also of fear that if I don't persevere I will deteriorate and stop. As in high-tech, I need to feel an improvement trend, because if you don't grow, then you're actually getting smaller. You constantly whip the horses to increase the speed. Until the exit arrives and you feel relief."
