Israel Venture Capital 2.0

VC Presentation - The financial slide

Almost every VC with a blog will, at some point, write an amazing post on how to prepare the best VC presentation. I guess that it makes sense – every venture capitalist would like to see his own wishes implemented in the material he gets from entrepreneurs. (For some examples, check Jens Lapinski, Guy Kawasaki, and David Hornik).

This post is not another VC presentation guide. Well, not a complete presentation guide. I am going to focus not on the full VC presentation, but only on a single (and probably most important) slide – the financial slide.

In the past 7 years, I have seen many presentations. Some are amazing, some are just ok. But one thing is beyond me – even though entrepreneurs are coming to see VCs for money, they don't put enough effort in presenting their financial forecast in a way that makes sense and that is VC compatible. Below, I have listed 6 tips on how to create the financial slide. I also included an example of a financial template that can be used (I think) when making VC presentations (Will be interesting to see how many entrepreneurs will use this in their presentations to Gemini…)

#1: You need a financial slide. I guess this is obvious. I have met many entrepreneurs that come to a VC meeting with no financials. That's like coming to a rock concert without a ticket. In other words: YOU HAVE TO HAVE FINANCIALS.

#2: The Excel file is not enough. One of my favorite quotes is "We didn't prepare a financial slide, but we will be happy to show you our highly complex excel-based model". Usually, the 1-page summary slide is more than enough.

Just a few days ago I had a meeting with an experienced entrepreneur that I appreciate and trust. He was proud of his highly sophisticated financial slide (Copied/paste directly from Excel). He said that a sophisticated financial slide gives all the answers required AND shows strong understanding of the business. I actually agree with those points, but I think that the sophistication should come AFTER a simple summary. Bottom line: THE EXCEL STAYS HOME.

#3: Will you make 68 cents in year 4 of the business? Since financials slides are outputs of sophisticated models, the outputs are always a bit funny. Almost every plans that I see shows that in a few years the company will generate (For examples…) $55,283,189.45. I think that numbers should always be rounded, especially when the budget goes beyond year 2 & 3. In the example above, $55M forecast is more than enough. In other words: ROUND NUMBERS.

#4: No graphs. This one is probably subjective. I think most VCs don't really care for the graphic presentations and are happy to read through a simple financial summary. I always ask the entrepreneur to skip through the graphs directly to the actual table summary. In the same words: NO GRAPHS.

#5: Take the top-down approach (as well as bottom up). Similar to the previous point, many entrepreneurs don't bother to check if the business model they created actually makes sense. This is beyond the rounding errors. Is it really possible in your vertical to triple the revenuers every year? Taking a quick glance at the final summary helps in making big changes that should have been created in the internal process.  In other words: DOES THIS MAKE SENSE?

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Techcrunch Expanding to TechcrunchIT

Arrington announced today the launch of TechcrunchIT – The enterprise infrastructure version of Techcrunch. Not a big surprise – after all, Techcrunch has become the world's most important tech publication, so why not expand into adjacent areas. But this specific announcement goes beyond the regular expansion. After proving that an online blog can be much more popular than any magazine and after beating to death publications like Business 1.0 2.0 and Red Herring, Techcrunch is now going after folks like the CIO magazine.

There are other reasons why TechcrunchIT makes sense (at least to me). I am seeing more and more infrastructure opportunities in the Web space. Scaling consumer companies is a big challenge, and many entrepreneurs are gaining knowledge and experience on how to help this scaling process. In addition to that, the enterprise and consumer web worlds are definitely converging. I assume TechcrunchIT is a close relative to of Software-As-a-service and Enterprise 2.0.

ICQ – Ten Years After

The 1^st week of June has always been an important week in the short history of Israel. Mostly known in relations to military history (Six Day War started on June 5^th, 1967, and the Lebanon war started on June 6^th, 1982), the most famous Israeli Internet exit was completed on June 5^th, 1998, exactly 10 years ago.

On June 5th, AOL announced the acquisition of ICQ, paying $400M in cash ($287M + $120M earn out). The 4 founders of ICQ (Arik Vardi, Yair Goldfinger, Sefi Vigiser, and Amnon Amir) became local celebrities.

Back then, in 1998, this acquisition made some big headlines in Israel. $400M in cash? For a company with no revenues and not even a business model? In the US market, such deals were already happening, with Hotmail being a great comparable. However, in Israel this was a first. As I was not at Gemini during the ICQ exit, I went an asked a friend who was working for an Israeli VC back then. He said that everyone passed on the ICQ deal, as it was hard to digest a company with no revenues, and not even a business model. After all, Yossi Vardi was quoted after the acquisition saying that "Creating revenue is a big distraction". To give Vardi a lot of credit, he understood the Internet play before everyone else did. 

Check this great article from the New York Times, dated June 9^th, 1998. Check out the opening paragraph: "America Online said yesterday that it would pay at least $287 million for a company that has never taken in a penny in revenue and has no plans to start charging money." Also check out the quote from Bo Peabody, now with Village Ventures: "When you chat, you look at what you are writing, not what other people are writing. Moreover, advertisers worry that their advertisements will be associated with content that they do not control and may be embarrassing. As a result, chat services that do take ads receive the lowest rates of any type of Internet service." What was true in 1998 is still true in 2008.

10 years later, the ICQ deal is still a unique event in the local Internet history. Since then, there were many great exits (even in the ICQ space, with Skype being the best one), but the local Israeli scene did not manage to replicate the success. In fact, there were 3 unique attributes to the ICQ deal that were quite rare:

1. A successful distribution of a direct to consumer play, with a real global brand. The other 2 real Israeli internet success stories are quite different (888.com operating in the gambling word, with a lot of white label assets, and shopping.com, being a leader in a relative smaller niche).
2. A market leader in one of the core sub-segments of the Internet (After all, instant messaging is one of the top applications along with email, shopping, etc.).
3. A company started by 4 very young entrepreneurs with no real business experience. In the US, there are many like that, with Facebook as a most recent example. In Israel, we rarely see startups with big ambitions started by entrepreneurs that are young (and naïve…).

Having a 10 year perspective, why haven't we seen more ICQs emerging out of Israel? I think there are 3 fundamental reasons for that:

1. Since there are not enough Internet success stories, the local entrepreneurs lack the relevant role models and don't have the belief that a large-scale exit is possible. In a world where success-breeds-success, another Internet success story will inspire other entrepreneurs to follow suit.
2. The bubble hit the Israeli Internet scene hard. Unlike in the US, where many of the VCs made a lot of money and had a strong belief in Consumer Internet offerings, the industry post bubble was reduced to 0. There was not funding, and no entrepreneurial activity. With a slow recovery post bubble, all the recent Internet companies in Israel were created in 2004/5 or later.
3. Building on the slow recovery, Israel has been lacking relevant talent. This has been improving recently with the entrance of Google into the local market, and with talent emerging out of ICQ/AOL and 888.com.

Would things have been different if ICQ was not sold in 1998? What if Yossi Vardi and the Mirabilis gang would have kept going? I don't think that would have changed much, since AOL did a good job in maintaining the local ICQ business unit, not moving it to the US.

I have to finish this post with a positive note. As an investor in the Israeli internet scene, I am POSITIVE that we will see ICQ (and bigger) exits in the next few years. Beyond the Gemini portfolio (Always biased), there are already Israeli companies that are demonstrating large scale offerings, including Metacafe, Gigya and Oberon. Hopefully those companies (or others) will reach $1bn by early June of 2009.

Generation Y & Generation Z

Two weeks after everyone else, I finally had a chance to read the excellent article written by Sarah Perez on Generation Y changing the office (and the general web). This whole trend is something that has been influencing the venture capital world for a long time, as the big companies of tomorrow will be those that appeal, attract and present real offerings to Generation Y. I am personally amazed when I hear of companies (JC Penny?) that still don't allow free internet browsing for their employees. I am sure that is going to change for this generation.

Anyway, check Sarah's article on Read Write Web.

Generation Y is defined as the children that do not remember the Cold War. On a more personal level, I am starting to think about the next generation (my own kids). In US terms, Generation Z is defined as the children born post 9/11. In global terms, Generation Z will be the 1^st generation in a "globally warmed" planet. I think there should be an Israeli version of that (like always) – kids born post Nov. 4^th, 1995 – The Rabin Assassination.

How are these kids different? Hard to say, but at this point I will call them the iPhone generation. They can't imagine a world without a personal, mobile, triple play connection with 100% availability. Just a few days ago, my daughter asked me: "How old were you when you got your first mobile phone?" – I think I was 31.

One small thing bothers me regarding these definitions. What will come post Gen Z? Maybe we should have started Generation X with the letter A, giving room for a lot more generations.