1. VC Consolidation will continue BUT some funds will be raised for local VCs. As we enter 2010, there is still a big (global) question mark around the venture capital. Some are still believers, but others keep talking about the broken model. In 2010 we will see a trend similar to the US, where we some funds are over subscribed (Greylock, Accel) and others won't be able to raise at all. Same in Israel - I would expect to see some of the bigger Israeli funds with fresh money, but some funds will go away.
2. 2010 will be great for Israel M&A. I am very optimistic regarding the overall “exit” market for 2010. The IPO window is open, and the M&A pace is increasing. Q4 was excellent for Israel, with companies like Dune, Jajah and Guardium being acquired for nice amounts. The M&A trend will continue (Even this quarter), but we will see a small number of Israeli companies going public this year. In other words, the big Israeli IPO will wait for 2011.
3. Internet Acquisitions will increase. I just KNOW that Google will buy here at the end. But I don’t think it will happen in 2010. However, Microsoft is a bit more aggressive in Israel. As such, I expect Microsoft to acquire, but Google will not make their move before 2011 (or maybe Q4 2010). In general, I do expect one large web acquisition in Israel, unrelated to Microsoft and Google. It could be a startup company, or maybe a large spin-off …
4. Global tech leaders will continue visiting Israel. In the past couple of years we had the honor of seeing Larry Ellison, Steve Ballmer, Sergey Brin, and others. I would expect this trend to continue, and I am definitely waiting for Eric Schmidt to fill the new Habima. Steve Jobs and Apple? Not in 2010.
5. AOL. AOL has been the most active global internet company in Israel. Similar to the US story, some local AOL assets will be sold BUT new ones will be acquired. In other words, AOL will be exchanging their local asset base.
6. Angels will increase investments. As markets improve, the angel activity will increase, with some Silicon Valley angels investing in the local market. The angels have been a real alternative for the VCs in the past 2-3 years, and that trend will increase.
7. Deal Flow. I expect our deal flow pace to rise (More entrepreneurial activity), more focus on Europe/Asia, and some companies being started by returning Israeli entrepreneurs.
   

Overall, and without being over optimistic, I expect 2010 to be a good year for the Venture. I hope it will be a good year for the Israel Venture, and specifically for the web scene.

1. No new VC entrants: That was an easy one. There were absolutely no new US VCs in Israel this year. Norwest opened their office, Battery expanded, but all these are old news. Expectations to see an Index/Accel/KP office resulted in nothing. I get full score here (10), but it was truly an easy prediction.
2. Cleantech is Semiconductor 2.0: I thought that 2009 will be the year of cleantech explosion on the deal flow, with every ex-Semi executive starting a new green company. In reality, it didn’t happen in a big way. We did see a bunch of power management deals during Q4, but by no means an explosion. score: 7.
3. Google (and Microsoft) will (finally) acquire in Israel: Wow, I was wrong. Google are still with 0 local acquisitions, and Microsoft was also inactive this year. Now I am sure this will change in 2010, and I am even more sure that if I will continue to predict this for every year going forward, I will hit it right at some point. Score: 0.
4. There is a world beyond the US: I was sure we will see more companies going after the Asian markets. That didn’t happen, but we did see a whole bunch of companies that are focused on Europe. We even invested in one of those (eKoloko). I identified the trend, wrong regarding the geography. Score: 7.
5. Yozma 2.0: I was sure we will government programs to help the hi-tech sector. Nothing happened. The market rebounded fast, and the need was reduced. Score: 2 (Just because there is some government work on the biotech side).
6. Web 2.0 Acquisitions: I was expecting some acquisitions of the leading Israeli web companies. Jajah was the only one (And it’s not really Israeli). I was correct in predicting a wave of M&A as we saw in Q4 (Dune, Guardium), but the web was quite ignored. Score: 5.

Total Score: 5.1 (F!) In summary, I could have done a better job. I had some good ideas, but overall I missed the amazing stock market recovery, the iPhone arrival in Israel, the nice Q4 tech acquisitions. Tomorrow I will post my 2010 predictions, hopefully I will get at least C+ when I grade this in January 2011.

There are many potential answers to the Why? question. “Make money”. “Be Famous”. “Make a difference”. “Prove something to myself”. “Prove something to someone else”. Maybe every entrepreneur has its own unique answer. There is no right or wrong here, but the true answer can have a huge impact on the end result.

One of my goals in the due diligence process is to answer this question (in the best way I can). Why? Because in the best cases, the motivation behind a company is aligned with our interest to invest in potentially long-term large scale businesses. In other words, hunger breeds results.

During our conversation, we talked about the stage of the company: A working product, growing distribution, a good team, and some initial revenues. We both agreed that it’s time to take the company to the next stage. Leverage the existing foundation of the venture and build a real company: Roles & responsibilities, clear processes, scalable models. It’s time to graduate from elementary school to Junior High.

As the company grows, it’s also time for the CEO to change its title. No longer “founder & CEO”, but rather “CEO & Founder”. Think about it – at the early days of the business, the founder roles are the most critical: Being agile, identify quick opportunities, recruit fast, make unusual bets. At the second stage, it’s about professional management: all the structures I talked about before.

Not all founders can grow to become great CEOs. But I actually do think that many of the founders can make that leap. Maybe the first thing they need to do is to change their business card and embrace their CEO title.

Why haven’t you blogged for since mid September?

Can’t really say. For some reason, I couldn’t bring myself to write. It’s not that I didn’t have anything to say. I actually had a lot to say, but my typing hands were heavy.

Do you think you are now officially back to blogging?

I can’t promise anything. But I will try. I will also be blogging at the Gemini blog.

Can you highlight the top 3 events that happened in your life in the past 60 days, just to fill the gap.

Sure. Business: We made another investment (eKoloko, an official post to come tomorrow). Music: I saw Pearl Jam live again, and I also saw Shalom Hanoch live. Sports: Patriots are back at it, Hapoel Haifa are not. Overall, seems like everything is “normal”.

Do you feel the Venture Industry in Israel is active again?

Absolutely. Deals are happening, especially since a lot of funds have dry powder to invest. However, Israel is part of the global venture industry, which is going through some turmoil. Nothing dramatic will happen in Israel in 2009/10, but we may see some changes in the local investment scene in 2-3 years.

What makes you optimistic?

AdMob. Mint. Gomez. Good companies are being acquired, and it feels that if we invest and support good companies, we will be rewarded.

This year I decided to be a bit more specific, something beyond just general health and world peace. So, here are my 3 wishes for the new Jewish year:

• 5 great deals: When I talk about deals, I mean it in the most broad sense. Some combination of exits, strategic accounts, partnerships or massive distribution. 5 amazing business deals that will make a direct or indirect influence on Gemini’s success.
• 3 amazing rock concerts: I already have tickets for Leonard Cohen, Shalom Hanoch (1AM at the Barby) and Pearl Jam (again). Although we are back in Israel, I hope to attend at least 3 world class rock concerts with real emotional impact.
• 1 historical championship: Between the Patriots and Hapoel Haifa, how about another historic championship. Odds are low, but hey – I am asking for just one.

Add 5+3+1 and it equals Nine(9), the Hebrew letters of the new Jewish Year: תש”ע.

Shana Tova!

Aren’t we supposed to be in a downturn? Isn't the venture model seriously broken? Give us 52 more weeks like that and we will be just fine.

But still, this is not good news. A few years back I saw Paul Deninger speak at an Always On conference. Paul is a very smart guy, and extremely knowledgeable about the Venture Business. He said that one of the worst trends in the VC world is the growing gap between supply and demand. In other words, too many sellers, not enough buyers.

I saw Paul earlier this week at the E&Y Journey conference. We talked about the need for patience, and how the long term view of early stage companies is highly correlated to patience (both for the entrepreneurs and the VCs). Back to this crazy week of M&A, and we have 3 examples of short term gains, and no long term view:

• Omniture: Already public, could have acquired a few companies in the upcoming years.,
• Brightcove: Supposed to be profitable and very strong. Great potential for a 2010 IPO.
• Mint.com: Early traction, at least 2-3 years away from real early success.

So – here is a wish for the new year, a post called “Crazy IPO Week”.

As I am a VC, you would expect to hear now about some great portfolio companies, or at least about exciting product companies. That wasn’t the purpose of this trip. Together with 2 good friends, I went to visit Babcom Centers, Galila Line technologies, and Galil Software, three leading companies in the new emerging sector – the IT services industry based in the Galilee.

The rationale for this new trend is quite straightforward. There are a lot of Arab-speaking Israelis in the Galilee that are educated (Degrees from the Technion, TAU, etc.), extremely talented, yet can’t find the right position in high-tech or tech-services. Instead of losing these talents, new emerging companies in the Galilee hire them, train them, and leverage them to provide top notch services for the rest of the industry.

Here is a quote from Babcom Centers:

“Babcom is located near large Arab population centers in the Galilee, housing thousands of educated and skillful men and women interested in developing a career near their homes. The high availability of these high-quality human resources enables us to offer operational flexibility, quick response to our customers’ changing needs, as well as the ability to rapidly recruit educated employees, particularly women, meticulously selected in our uncompromising evaluation centers.”

And another quote from Galil Software:

“Galil Software is a software service company located in Nazareth. By recruiting from the highly skilled workforce available in the Galilee, Galil Software is uniquely positioned to offer high quality services at competitive prices. In addition, Galil Software’s proximity to major Israeli high tech centers ensures that customers have direct and continuous access to our R&D teams, significantly reducing the risk, cost, and management attention required to support off-shore outsourcing activities.”

We started the trip at 8AM, and were back home at about 8PM. Not a short trip, but much easier than a round trip to Bangalore. With a cost structure of 20%-40% lower than R&D in the center of Israel, the proximity (Combined with quality) of these emerging companies make them a really interesting alternative for outsourcing to Eastern Europe or India. Beyond that, providing real jobs to the Arab Israelis is a huge “small” step in making Israel a better place.

My Portfolio companies are not working with Babcom or Galil yet. Some are too small, some haven’t really checked these options yet. I was so impressed today, that I will talk about these ideas with all of my companies.

In 2006, When we started the (LGiLab) we were looking for a great GM. Our thought – someone who has a great understanding of the industry, with good contacts and strong knowledge. We looked hard, and finally found Ouriel Ohayon, who was then the editor of Techcrunch France and doing Biz Dev at ICQ.

Back to 2009, I can easily say we made the right decision. Ouriel did a great job as he became the master of knowledge on everything that was consumer internet and mobile. He helped us find great opportunities, and analyze all of the many projects that came through the lab. He was personally responsible in finding us both Outbrain and Eyeview.

Now, after 3 years of working together, Ouriel is going back to his roots: Being an entrepreneur. He will be leaving the Lab in order to find the best possible project for him. It may be Appsfire, it may be Topify, and it may be a whole new project (that I haven’t seen yet). All I can say, he has A LOT of great ideas. Check out his blog to read more about his specific plans.

In fact, with the help of Ouriel, we just closed an Internet seed deal (on our own). We are officially announcing this deal later today (Check later today on this blog). I am sure there will be many more like those in the next 24 months.

Ouriel – good luck on your new journey. I am sure you will build great things.

I will not cover all the topics that were discussed. Yaron created a beautiful presentation, and many of the issues are presented there (Check it out here). But I do want to touch upon one VERY IMPORTANT issue.

Trust.

The actual question that was presented: “What is the percentage of companies you meet just to learn about your portfolio competitors? Do you share the numbers you see in competitors’ info with your portfolio companies?”

I can write a very long post on how we never do this, and why doing this is wrong, and how VCs that do this should be fired immediately, etc. etc. Instead I will write a very simple sentence.

Never.

Never meet companies “just for learning” and never meet “to gather information”. Every information we share (with anyone) is done in full understanding and endorsement by the company. That’s it.

Still, if any company feels uncomfortable – they can easily use Confidela and send their material through the Watchdox system – and in that case no one can do anything with it. In the next few weeks we will fully integrate Confidela to Gemini's website, and sending secured documents to our firm will be very easy.