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    « All Apologies | Main | A Small Rule for Cellular Disconnects »

    Good times R.I.P – The Israeli version

    It's been a brutal week, and the local Silicon Valley investors are all sending messages regarding the future of the economy and what needs to be done. Every VC/tech blog has published the Sequoia presentation, the Benchmark blast email, and the Ron Conway "Important Please read ASAP" message. The messages are all the same: The big downturn is here - It's time to tighten the belt, cut costs, increase runway. All markets will be softening and everyone will get hurt.

    I think this realization is clear, but like any global message, its need to be localized. How will the Israeli startups be affected by all this? Here are some Israeli-related questions (and answers):

    1. Can I raise money for my startup? In the past few years we have seen a strong consolidation in Israeli VC scene. Many local VCs left the business (Israel Seed, Walden, Concord, and Star to name a few). Many of them were replaced by the Israeli reps of US funds. In good times it worked well – Israeli startups got funded by the local VCs or by the US VCs. In the downturn, the early stage companies in Israel will suffer. The Israeli US funds will stay away from early stage, A-round deals. This will create a larger gap for the early stage startups, and this gap cannot be filled by the decreasing number of pure-play Israeli funds. This means that fundraising will take longer – at least 6 months.
    2. Should I target the US market? One of the big advantages for Israeli startups – the ability to go after any global market. Compared to the local Silicon Valley firms, the Israeli firms can easily shift their marketing strategy and go after Europe or Asia. Although we are entering a global recession, the US market seems to be the worst. It's time to work on your French/Spanish/Polish/Chinese.
    3. Should I open a US/European office/HQ? Planning to relocate the management team to the US? Might be a good time to think again. The 2 office structure creates a huge overhead, and with the current soft markets, working out of Israeli can be good enough.
    4. What should I know about finance? Everything. A few years ago, life was easy: Raise money, put it in the bank, use as needed. Now, everything is different. Every aspect of financial management should be looked upon. Examples: How are you protected against a potential sharp change in the Dollar-Shekel exchange rates? How are you protected against the potential disappearance of your bank? Are your liquid assets truly liquid? 
    5. Do I have an advantage as an Israeli? We have a great ability to innovate and bootstrap. On the other hand, scale is not (considered) our thing. Usually – bad news. Right now – great news. Fast maneuvering is a great capability in hard times, and all Israeli startups should leverage that. I have seen that in the past: In 2001 I worked at Commtouch, a growing .com with 500 employees. With the 2001 downturn, the company headcount was reduced to 20+ people (!). Gideon & Amir, the company leaders refocused the business and create a healthy, profitable company. I am sure we will hear more Israel-based stories like this one in the coming years.

    Do you have any other Israeli-specific recommendations? Please comment/email.

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    Comments

    Israelis like hard times. perseverance...
    dont we always cut too little and too late?

    Israelis have big dreams.I suggest we adapt to the situation by shooting lower. I think it is easier to raise Angel money then VC money today. I suggest entrepreneurs to plan in a way that consumes as little funds as possible until the money starts flowing in from the company business model. Besides being able to raise less and less times, you will also be left with a larger part of your business.

    Just fly under the radar, and the rockets will miss you.

    Indeed it seems that US markets have been over-emphasized as target markets and now, as the empire loses power, perhaps it's time to start teaching Mandarin in Israeli schools. It's a fun language :)

    In IT Field, a good way to reduce costs is to think about Open Source.
    VC's refused to JBOSS in 2000 the necessary funding to develop its product. It became an industry leader thanks to OPEN SOURCE.

    In a way open source can be seen as grid computing with humans ;-)

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