Com.Ventures - The Marker Internet Event

A week has passed since the Marker Internet conference (Here is an English version of the conference agenda). Overall, it was a quite a success, with thousands of attendees, and a lot of offline and online discussions. Personally, I did not have a chance to attend the panels, but it was a great opportunity to meet with entrepreneurs and other VCs and to establish the "state of the union" of the Israeli Internet.

Overall, there is good news and bad news.

• Good news - The energy level is high, and the overall activity is on the rise. Many new companies are emerging, and it seems that 2006 is probably the best Internet year since 1999.
• Bad news - There is still a lot of skepticism regarding the potential of Internet Israeli startups. I talked with various industry experts and with non-Israeli VCs, and many of them are excited about Israel, but are still not sure if they will do an early stage investment here.

Why is that? I believe we are missing An Internet eco-system. Compare Internet to Semiconductors. You have big companies (Intel, TI, etc.), successful exits (Just recently: Saifun, Passave), and a lot of talent. We need to create the same kind of eco-system for Internet. Hopefully, we will see the seeds for that in 2006.

Comments

[Zeev]

Traditionally Israeli companies excel in technology and don't do a very good job in marketing. Since most web 2.0 companies do not offer a substantial technological breakthrough Israeli companies loose the inherent advantage of developing in Israel. We are then left with the disadvantage of being away from the main market which is the US. Some people say that in the Internet it makes no difference were you are based, yet we for the most part seek seasoned professionals with marketing/ sales/ bus dev experience in the US market to help grow our companies. The simple truth is that you will find a lot more of them in CA then in Tel-Aviv.
I think that creating an Internet eco-system is a very ambitious goal (although you are doing your part to encourage it). We should probably look at what have Israeli companies excelled in over the past 5-10 years that can be relevant for web 2.0 and beyond. We have a lot of experience in messaging/ VOIP with ICQ, Commtouch, Comverse, Vocaltec etc and there is no reason why an Israeli company would not be the next Skype. Personalization/ vertical search/ business analytics are also areas that Israel has a lot to offer, last and not least image recognition. Israeli has the brain power and know how to lead the development of the next images/ video search technology that will power the future of the web.
In most other areas that web 2.0 companies cover Israeli start ups are in a disadvantages, why would we be able to create a better Myspace? or the next Linkedin.

[Net]

Danny, I agree a lot with Zeev here. Most of the Israeli start-ups are very good at technology but not in marketing/branding etc - web2.0 (or whatever you like to call it) is more about brand/marketing and eyeballs than technology. Unfortunately I don't see too many promises in the web2.0 space here in Israel, but I do in technology. Therefore I belive that we migh be better of looking for good technology that can power the future web2.0(how I hate that word..)companies. I dont believe we will be seeing more Skype's - there is only one Skype - now its time to look for the next big disruptor...Having said that, I believe that Spearcast has a good shot :)

[Aner Ravon]

I differ. I think you overlook the significant maturity process the Israeli companies have gone through in terms of marketing and business planning. I meet Israeli companies that develop in India and in the Ukraine and that have fantastic business sense. Better than most California buzz talker I know. The Israeli high tech market is no longer the little pond of ex-intelligence and technion guys (thank god!) who can engineer great stuff but have no clue on how to monetize it. It has matured a lot over the last 7 years or so due to objective circumstances, and yes, we can’t and shouldn’t fight India and China and their good + cheap labor. I do believe, however, that the Israeli market represents a very good and very unique blend of marketing and technology – better in than the Indian market on one extreme and the US market on the other – and that’s where the advantage is. The younger Israeli’s are great and intelligent consumers with strong motivation and very good learning skills. It’s time to neglect this “we suck at marketing and are good with technology” old truth because it’s becoming untrue. We should focus on where the Israeli market can have a sustainable advantage and that is, I believe (believe it or not) with rapid and cunning execution – exactly inline with the current Internet themes.

[zeev]

Aner,

I hope that Israel has more to offer then just technology. If that was the case I would be out of a job :) since I am a bus dev/ sales/ marketing person and not a technologist. The question that I am looking at is not can we have a number of successful Israeli companies that will just do a great job at execution. Of course we can, and I hope that TriPlay is one of them. But what should a larger trend be.. does it makes sense to start a company in Israel that is all about marketing.. even if we are becoming more mature and have a lot more experience due to our exposure and work in the international market to try and find the advantages of the Israeli market. Historically these advantages are technological. Having more marketing experience means that we should be much better at exploiting these opportunities, or better yet identifying them and using the unique talent that is available to come up with better products.
If the VCs can do anything to encourage an Internet eco system in Israel it should be about fostering and sharing knowledge and finding a way to connect the dots between the great talent and wonderful ideas that so many of us are working on.

[Assif Stoffman]

(this note is actually a comment on “enterprise software 2006” but due to a technical error couldn’t be published there)

I’d like to address this issue from a perspective of an incubator which is actually a pre-seed investor with (really) hand-on approach (at least the one I’m involved in).
There is a debate on the role incubators fill or should fill in the VC industry (incubators can present nice return to their shareholders in other industries as well, but naturally I’ll focus only on the VC one); I believe that incubators have financial justification only if they understand their position in the value chain: they must take higher risk than the traditional VC, usually a development risk but sometimes even market, business or personnel risk. Of course, the risk/return analysis resulting from this perspective is quite complicated but let’s leave it for now.

The incubator I’m involved in always tries to predict future trends in the industries we’re active in; being the first investor in each of our companies it is important for us to have a sense whether the company we’re investing in has the potential to be there once the trend begins and VCs or industry partners will seek for solutions our companies offer; of course – there are high odds that we are wrong and the trend will never start – but that’s the name of the game… (and, not less important, we’re taking the risk on relatively small amounts of $$$ and the Chief Scientist shares the risk).

As for the enterprise software space – it’s my belief that the space will go throw a change which is similar to the change the medical device space has gone through in the past few years: there will be acquisitions, even in large volumes, however valuations will be lower and at different stages than today.
For VCs it’s a challenge to find the right mechanism do deal with this change.
For incubators – I see a big opportunity.
For entrepreneurs – I’m happy to say that the real ones don’t care about these changes. They want to build companies.