Israel Venture Capital 2.0

Milk and Honey and High-Tech

In 1993 I was barely half way through my BA studies at Tel-Aviv University, highly focused on improving my pool game. I didn’t realize it was one of the more important years of my life – Gemini opened it’s doors on January 1st, 1993, lead by Ed Mlavsky, one of the key people in the history of the local high-tech.

Ed’s story is an amazing one. Born and raised in the UK, he moved to the US and held key executive positions in companies like Tyco and others. He landed in Israel in 1979, almost by accident, planning to stay for no more than 2 years. Plans changed, and Ed lead the Bird Foundation for more than 13 years, later leaving to start Gemini.

All this and more is well documented in Ed’s new and exciting Autobiography, just published by Weill Publishers. It’s an exciting book, telling Ed’s story while providing a great view into the early days of the Israeli high-tech scene.

Truly recommended, Ed’s book can be ordered by downloading an order form.

Gemini Round Table - Robert Swerling from Google

Yesterday we hosted another round table event at Gemini. We have done these round tables in the past (Few examples include: Cloud Computing, Future of the Internet, and many many others).

Our main guest today was Robert Swerling, New business development principal at Google. I never met Rob before, but it turned out he is a great guy, with a great sense of humor. He has also been an entrepreneur in the past, so he related to the crowd, which mostly consisted of current Internet entrepreneurs (Or in other words, young and very energetic).

Overall we had a great turnout, with almost 40 people joining us. Robert prepared a nice framework to discuss the current trends and prediction in the web world. I can’t say that what he presented was really new, but it did create an interesting discussion (even debate). The 3 key topics that Robert discussed were, in order of appearance:

1. Mobile Internet, with a key focus on the interoperability of various devices, and the idea that we still did not reveal the true potential of the mobile internet. The discussion was interesting, and some people had interesting ideas on how the handset fragmentation will stop (and reverse it’s trend). Check out @yanivg on Twitter regarding this.
2. e-Commerce, which was the most interesting part of the presentation. Robert spent the past 2 years focusing on e-commerce at Google, so he had a critical view on this industry. To summarize his view, he thinks that e-Commerce is way behind the offline retail. I would tend to agree (Check out the difference between Apple Store offline and online). In any case, we are looking at companies that are innovating in e–commerce
3. Privacy. Robert ignited a very interesting debate regarding the future of privacy. Many people talked about the privacy “paradigm shift”. After all, so much of the information on the younger generation is in the public domain. Still, I am not sure there is a real shift here. It will be interesting to see how the perception of privacy changes over time, especially when these kids grow older.

IVA 2009 – Business as Usual?

My last IVA conference was 3 years ago, back in Spring 2006. Since then, A lot has changed for me personally, mostly on the gain side (gain more companies, and probably more weight). Still, everything looked very familiar at the 2009 IVA today, and pretty much as expected. In other words, business as usual

Why do I say that? It was pretty much the same ritual, entrepreneurs looking for money, VCs discussing existing deals and some new deals. We had guests from the US and Europe, journalists writing and taking pictures, and even some active twitter postings. Overall, the eco-system is holding up, and the game continues. Same as last year, and the year before. But all this was on the surface. In reality, a lot of things were different.

Entrepreneurs: For the Entrepreneurs, this IVA was the best so far. After many years, they got the center stage. The usual (and very boring) VC panels were replaced by company presentations. So refreshing. I hope that the companies that presented got real value from these presentations, and that this format will survive for next year.

VCs: For us, it is almost like nothing happened. Most VCs have fresh money, there is good deal flow, and a lot of VCs are back in action, so follow-on rounds have a better chance of happening (compared to 3-4 months ago). However, the problems of the VCs are not now. Our problem is in the medium-long term. When will exits return? Will our previous (and new) investment be realized in good value before the next fund-raising cycle?

LPs: Did anyone see LPs? There were a few LPs, but overall, we didn’t see the reps of the global pension funds land in Israel for the IVA. This is due to their own problems. Also, I am not sure LPs were present in the past, so maybe this is the normal state.

Finally, it seems we have a new tradition. Last year (I did not attend) Tim Draper sang in front of the audience. This year David Cowan played a Naomi Shemer song on this iPhone. I can’t wait for next year – how about John Doerr live on guitar hero.

Nahum – 2 Weeks After

It's been 2 weeks since the accident, and a week since the Funeral of Nahum and Nava, and I have been thinking about them a lot. Clearly, Nahum was not a close friend of mine. We interacted a lot around eSnips, and some point (late 2008) we spoke on a daily basis. However, there is much I didn't know about him.

Still – his sudden death made me think about his legacy, and I now know that I have learned a lot from Nahum. Not all things can be written, but still, there are few things I took from him that will always be with me.

First of all, Nahum looked at the business in a very unemotional way. Every challenge was treated in the best way possible, without ego, and without personal emotions. I admire that, and I really think that putting emotions aside creates the best outcome for all people involved. That was the way Nahum treated the many challenges we had at eSnips, especially toward the end.

Second, Nahum always emphasized the big picture. It's never about the details, but the need to focus on the large, and important issues. I think that relates to his physics background, and for me – it's a critical part of my day-to-day job.

Finally, It was all about the attitude. No matter when we met, Nahum was always joking, always smiling, and always "playing the game". Even when I disagreed with him, it was always a pleasure to interact with him.

Yesterday I looked through all the old emails from Nahum, and I have many of them. I was hoping to find some emotional nugget, or something personal. Nahum, like Nahum, was always right to the point. Here is the email I got from him once all the eSnips transaction was finalized:

"All, we finally received all signatures on the Logia agreement this morning. Thanks to all involved. Nahum". What a way to summarize 6 months of hard and frustrating work.

I will definitely miss him.

Back

I left Silicon Valley on April 1st.

I travelled through the Northwest, visiting California, Oregon, Washington, Idaho, Montana, Wyoming, Utah and Nevada.

I spent a few days in Atlanta (mostly shopping).

I landed in Israel 2 weeks ago, and been running around trying to organize our new life, and get back into the work action.

But today I decided to make it official. I am back. Going forward, it will be much easier to write about Israel Venture Capital 2.0.

Butte, Montana

I am currently traveling with my family around the US, sort of a goodbye trip before we return back to Israel. Today we stopped for lunch in Butte, Montana. I never heard of this place, and I was quite surprised to find so many restaurants. A quick conversation with our waitress revealed a bit of the local history: Turns out Butte was the largest copper mine back in the early 20th century. At some point it was the largest city between Seattle and Minneapolis, with 100K+ people. Here is a direct quote from Wikipedia:

“Butte began as a mining town in the late 19th century in the Silver Bow Creek Valley, a natural bowl sitting high in the Rockies straddling the Continental Divide. At first only gold and silver were mined in the area, but the advent of electricity caused a soaring demand for copper, which was abundant in the area. The small town soon became one of the most prosperous cities in the country, especially during World War I, and was often called "the Richest Hill on Earth". It was the largest city for many hundreds of miles in all directions. The city attracted workers from Ireland, Wales, England, Lebanon, Canada, Finland, Austria, Serbia, Italy, China, Syria, Croatia, Mexico and all areas of the USA.”

But after World War I, the place began to wind down it’s copper production, and right now there are about 30K people only, and according to our waitress, about 50% of them are retired. And I must say the place really felt like a Ghost town. Beautiful but run-down buildings, empty streets. As you drove around town you can only think about the history and imagine how the streets and Saloons looked like 100 years ago.

Personally, it made me think about Silicon Valley. Isn’t the same quote above relevant to Silicon Valley today? The place attracts workers from all over the world. We won’t be around to see what happens in 100 years, but not sure technology will not move on to somewhere else (How about Israel? The Copper mining industry moved to Chile…). Also, Butte tells an interesting story of the US 2009. Amazing amazing past, but a lot of declining industries, and a real need to for reinvention. I guess that’s what Obama is all about.

 

Farewell Silicon Valley

Well, it’s official. What was done is done, and what I did not manage to do, well, there will be a next time. We are on the road, and although we will be landing in Israel only in May, I am officially done with my 3rd Silicon Valley Chapter. 1982-1983, 2000-2001, and 2006-2009.

Will there be a 4th time. Probably not, but who knows…

Attached is a small farewell video. I was looking for the right song, and after passing obvious selections (Homeward Bound or Two of us) to not-so obvious selections (All Apologies, All together now, or Pink Floyd’s Money) I finally landed on my favorite Mashina song (Yes, in Hebrew): Come Back, Come Back.

See you all in Israel.

High Quality Reference Checks

Reference checks are an important (actually, crucial) part of the business. A lot of people look great on paper, and are lousy in reality, and some people (not as many) are lousy on paper, but awesome at their actual work. Usually, the keys for understanding the quality of the person are held in his references: the official references, and the hidden references.

In the VC business we do a lot of reference checking. After all, it’s part of any (good) Due Diligence process, and also an important part of interviewing executives for our portfolio companies. However, although I have done these many times, I have learned that good reference checking is hard. Really hard.

What factors impact a good reference check? the 2 key factors are Proximity and Culture. Here is a simple 2x2 matrix to explain that (Sorry for the MBA like template):

All this is quite straightforward, but there are a few important insights in all this:

1. Try and find a reference from someone you know, or at least someone that will have the time and energy to help YOU.
2. Don’t be confused, some references will give you all the time you need, because they are helping the person you are checking on.
3. The Culture part is always hard. If you don’t prepare for these calls, you will get fluffy answers with no real substance. The key to all this is to ask direct answers and repeat them till the “truth comes out”.
4. In addition, try to get to the distant-different-culture references last. Use the information and knowledge you got through the interview (and other reference) to ask direct and specific questions.

Final word – The Israeli-American cultural difference in giving references is always amusing. Israelis are very direct, and their reference is perceived as negative in situations where is actually quite positive. On the other hand, the Americans us the sandwich model: Positive comment –> not-so-positive comment –> positive conclusions. It’s always hard for Israelis (at least for me) to catch that middle part.

Gemini’s Spring Party

Last week we held a small party here in Silicon Valley. Officially, we were celebrating our new fund. But beyond that, it was a great personal opportunity to say good-bye to friend and colleagues. As I said before, these are my last few days in Silicon valley, as I will be landing in Israel at the end of April (after some time off).

I personally had a great time at the party. Success factors included the great weather, the amazing location (Allied Arts Guild), great food (All organized by The Red Currant), great photos (by Adi Nevo)and a lot of good friends. This photo tells (almost) all.

Below is a nice photo of the Gemini team (not everyone, but more than 50%). From left to right: Adi, Dror, Menashe, David, Orna, Yossi, and myself.

Israel Hype Cycle

By now, most Israeli related entrepreneurs and investors have read the article written by Sarah Lacy on Techcrunch. Clearly, Sara got everyone excited, as 346 comments were accepted (just as a comparison, a previous article on the failed online advertising world got 600 comments, but clearly that topic has a wider audience than Israel).

If you haven’t read Sara’s post, she basically provided data showing that Israel is a missed opportunity in the past decade, provide minimal returns. She had a lot of compliments about the overall tech scene, but a lot of criticism regarding the actual financial results.

2 key points regarding Sara’s post:

1. She got the facts wrong. Israel returned way more than $860M in the past 10 years. Gemini’s companies alone passed that number (any by a lot).
2. She got the message absolutely right. Overall Israeli VC returns are not good enough. VC backed companies are not big enough.

In the past I wrote (On Venture Beat) about the Israeli quest for a billion dollar company. Back in 2007, I thought that some major trends are going to help Israel produce larger companies. I still believe in those key trends:

1. The quality of life in Israel has gone up, and with it the desire for better financial returns. Entrepreneurs today are looking for more than $1M out of their company.
2. Investors are much more patient than before. I call it Israel Venture Capital 2.0.
3. Talent is returning to Israel from large companies, and those people are thinking BIG.
4. Finally, more Israelis have experience strong returns and are looking to do it again with improved results. Few examples (In Gemini’s portolio) include Dov Moran (Modu), Amir Ashkenazi (Adap.tv), Yaron Galai (Outbrain), and the Rakib Brothers (Novafora).

But there is one more thing that is important to point out. I think this is another great example of the Hype Cycle. Gartner invented the Hype Cycle a few years back. They called it “the technology hype cycle”, but in reality, it’s applicable to a lot of things out there (In the past I wrote about the Blog hype cycle). Specifically in this case, Israel seems to be going through the hype cycle as well:

• “Technology trigger”: Back in the 90’s, the Israeli startup scene (and VC scence) was invented.
• “Peak of inflated expectations”: Well, this happened twice, but Israel was inflated in 2004-5, when a lot of people thought Israel is soon to be the “next big thing”.
• “Trough of Disillusionment”: Today. Right now. Sarah Lacy’s post is all about the “reality”: Israel is now what we thought it was.
• “Slope of Enlightment”: This is where optimism comes in. I think that in 3-5 years, we will see Israeli companies emerging with amazing results, getting results across all tech areas: from media & internet to Medical IT & devices. everything.

As most of my close friends and colleagues know by now, I am returning to Israel next month (A dedicated blog post is coming in a few days). It’s not only because Israel is my home. I truly believe Israel is going to deliver big big time in the new few years.