Israel Venture Capital 2.0

iPhone 2.0 – People standing in line

2008-07-11T11:24:58-07:00

I just got into the office after a meeting in downtown Palo Alto. As I was driving down University Avenue, I could see the very long line outside the Apple Store. People have been waiting here for hours (days?). The lines were at least 2 blocks long, with a lot of TV, media, etc. I tried to capture the event with my blackberry (sorry, no iPhone), so check out the picture below.

The long line for the iPhone reminded me of the long lines outside the Cellcom stores back in 1994. Cellcom is the largest Israeli mobile operator, and when they launched in 1994, people stood in lines for hours just to get a phone. Back then, it was crucial – after all, Cellcom was the first to offer an affordable mobile phone package. For most people, it was the first time they could enjoy the cellular experience (BTW – I got my first mobile phone in 2000…). You can read more about it on the Hebrew version of Wikipedia (Sorry, No English).

The long line for the iPhone also reminded me of the long lines outside the movie theaters before the first screening of the "Return of the Jedi" on June 6^th, 1983 (exactly 25+ years ago). The buzz around the Star Wars trilogy was high, and people couldn't wait to see the final chapter. It was the first time I ever saw people setting up tents in front of a movie theater.

I am a big believer that the iPhone is a breakthrough. It's a platform that is really going to change the world of mobile internet. However, the 1^st cell phone application (voice…) had a bigger (and immediate) impact on the consumer. In other words, I think the buzz (Jedi like) is the biggest driver behind this demand, much more than pure need (Cellcom). As an investor, I do hope that one day I will invest in a company that will launch a product so great, that it will make people stand in line for a full day just to get access to it.

Very Short List

2008-07-07T07:00:00-07:00

Are you familiar with Very Short List? If you are, you can stop reading here. If not, check it out. I personally think it's one of the best online services out there.

The idea is simple – a daily email with a single recommendation on something cultural. It can be a good book, a great movie, a DVD to buy, or maybe a short clip on You Tube. Some recommendations are for free stuff, and some are for stuff you need to buy. Overall, it's a very simple service that has opened my eyes to great things. Some examples include the great commercial for Bravia, the adapted do-it-yourself music video of Bob Dylan, The emotional British advert for Lloyd TSB, and most recently a great review on the amazing Mad Men DVD.

In my opinion, VSL such is a great service because it manages to combine a few great things:

Great content - their editors know what to pick and recommend.
Easy to consume - A single email a day, with ONE recommendation only. Never more.
Somewhat Interactive - Responsive to its consumers (Every month, you get an email with the 3 most favorite recommendations as were "clicked" by the crowd).

I wish there were other similar services that will provide the same value but in other disciplines. Maybe Digg is moving to that direction with their new upcoming recommendations, and Outbrain (A Gemini Portfolio Company) is definitely providing similar values with a different service. As a consumer, I am hoping someone will come out with VSL for world events - a single email (every day) with a summary of the best (Doesn't have to be the most important) global story of the day. I personally raise my hand for that.

Bill Gates – Goodbye from Israel

2008-07-02T09:00:00-07:00

Last Friday was a big day for the Software Industry. Bill Gates stepped down from his active role at Microsoft. Everyone across the internet wrote about it (Random choices include More Ramblings, Wally Bock, Engadget and my favorite at Venture beat). Like always, I tried to take the Israeli view.

What is the Israeli view? On one hand, Bill Gates and Microsoft were early supporters of Israel, opening up Microsoft R&D Center almost 20 years ago (1991), a few years before the local industry really took off. However, Bill visited Israel only once and that happened recently (October, 2005). He was in Israel for no more than 24 hours, although he did give a lot of positive press, constantly talking about the strong commitment of Microsoft to Israel. (Check reviews of that visit in the Jerusalem Post and in Globes). 24 Hours over the past 30+ years of Microsoft? Clearly Israel was not high on Bill's agenda.

With that in mind, here is a different view on the topic. Who is the Israeli comparable of Bill Gates? Who is the most influential CEO/Entrepreneur in the local Israeli Software industry? Someone that really had a major influence on the local industry as well as the global high-tech. I put some names together in a short poll below. The winner (?) gets a free ride with Bill Gates on his next trip to Israel.

VC Presentation - The financial slide

2008-06-29T10:00:00-07:00

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

2008-06-23T14:41:18-07:00

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

2008-06-05T08:00:00-07:00

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:

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).
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.).
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:

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.
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.
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

2008-06-02T11:13:51-07:00

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.

Welcome VMWare, Welcome IAC

2008-05-30T15:26:28-07:00

The past few weeks have been relatively good for the Israeli VC scene. Companies are being acquired on a weekly basis, showing the quality and the strength of the Israeli startups. We are all used to reading about Israeli acquisitions done by Microsoft (Recent examples include Kidaro and Yadata) or IBM (In fact, IBM has been cleaning the Israeli storage market, acquiring FilesX, Diligent, and XIV). Those companies have been operating in Israel for a long time.

Recently, the acquirer base in Israel had been growing. Just this week, VMWare bought B-Hive (Undisclosed amount) and announced the opening of their Israeli R&D center. Just before that IAC announced their first Israeli acquisition, buying GirlSense (A Pitango company). For Israel this is good news. Making the 1^st acquisition in a new geography is always harder than the second. We have seen many examples of companies that acquire multiple companies after they commit to operate in Israel (Intel, Cisco, IBM, Microsoft, EMC).

Specifically, I am proud to see a growing number of multi-national Internet companies in Israel. When I started this blog, 3 years ago, we had only AOL. Since then, Google, Yahoo, and IAC have all opened offices here, expanding the potential exit for Israeli web companies.

However, it's not all just good news. Israeli companies are continuing to sell early. I am sure B-Hive could have continued to build something larger. Hopefully, we will continue to see great companies acquiring in Israel, but we will also see some great IPOs of long-term, sustainable businesses.

My top 5 “What If” moments in sports history

2008-05-23T23:54:51-07:00

As I spent the past week at home (with the baby) I had the opportunity to watch the Chelsea-Man united game on ESPN 2. It was a great match, with an unbelievable ending. Chelsea was so close to win, just think… what if John Terry would NOT have slipped. What if…

What is a "what if" sporting event? Some matches in sports are very decisive. When Man United beats Arsenal 4-0, there is no "what if". Man United was the clear winner, and nothing could have changed that. Unlike that, there are many matches that are decided by one small play, one last minute event, leaving the crowd with an amazing thought: "what if" that exact play wouldn't have happened? The best "what if" matches have an impact beyond the actual game. In the case of the case my beloved Patriots (way back in February), the last Giants drive made the difference between an 18-1 season and a 19-0 season.

When I wrote about the Pats game, Guy Horowitz, an ex-Gemini and a good friend commented about his favorite "what if" moments. His comment inspired me to list my own top 5 "what if" moments. I have been "sitting" on this post for over 3 months, but the game on Wednesday gave me an incentive to finally publish. Anyway, I went through a fascinating process to dig out old sporting events, and talk to people about their own "what if" games. To be honest, I can easily mention 40, 50, and even 100 games. But the focus here will remain on MY OWN top 5.

Event	Sports Category	Description	What if…
Michael Jordan shoots the winning basket on Game 6 between the Bulls and the Jazz (1996)	Basketball	On his last championship game (before the second retirement – out of three), with ~20 seconds to go Jordan steels the ball from Karl Malone and a couple of seconds before the end of the game, hits a 20-foot game-winning jump shot. At that time, it was almost certain that this would be his last NBA shot. How appropriate it was that it was the shot that brought him the 6th championship.	What if Jordan hadn't stolen the ball or hadn't made the shot? Would that stain Jordan's winner reputation? What effect would that have on the US market? (No kidding, the Air Jordan shoe is still the highest selling shoe)
Bob Rensenbrink misses the winning goal for Holland during the world cup finals (1978)	Soccer	The Orange dream team of the 70's made it to the finals twice: Germany 74 and Argentina 78. In an amazing game that is tied at 1:1, with 2 minutes left to play, Rensenbrink hits the post, sending the game to overtime. Holland breaks apart, and Argentina wins their 1^st ever world cup.	What if Rensenbrink would have scored? Holland would have entered the exclusive club of World Cup champions (instead of Argentina), and would have been the only European team to win the cup outside Europe.
Buffalo misses a last minute field goal, losing the super bowl to the giants	Football	With 10 seconds left on the clock and a 1-point lead for the Giants, Scott Norwood from Buffalo missed a field goal, giving the championship to the Giants. Buffalo lost in their first super bowl appearance. They made it to the super bowl in the next 3 seasons after that, but lost in all their appearances.	What if Norwood would have scored? Buffalo is also the only team to win four consecutive AFC Championships, though they failed to win any of the subsequent Super Bowls. Maybe Norwood's field goal would have been the difference between the best team in history and the worst team in history.
Bill Buckner's Error in the World Series vs. the Mets (1986)	Baseball	The Red Sox faced the Mets in game 6 of the World Series. Boston led the best-of-7 series 3 games to 2. The game was tied at the bottom of the 10^th, when Mookie Wilson hit a ground ball to Bill Buckner at first base. The ball rolled under Buckner's glove, through his legs, and into right field, allowing Ray Knight to score the winning run, forcing a seventh game, which the Mets won.	What if Buckner had caught the ball? Could the Red Sox win the championship 18 years before 2004? The reality is that Buckner is the symbol of the Red Sox performance (Curse) till 2004.
Boris Becker almost loses to Joakim Nystrom in the 2^nd round of Wimbledon (1985)	Tennis	An unknown kid (17 years old) by the name of Boris Becker played the 7^th place player Joakim Nystrom. Nystrom served for the match in the 5^th set, but Becker managed to break the serve, and win the last set 9-7, later advancing to win the entire championship	What if Nystrom would have won? Tennis would have lost its youngest Wimbledon champ, and won of its greatest players. I was in London in 1985, and watched the Becker games with high interest. Nystrom would have had a major impact on me…

Picking just 5 means that there are many great moments that didn't make the list: Derek Sharp's winner shot for Maccabi Tel-Aviv in 2004, Oscar's last minute header saved by Dino Zoff in Brasil's 3:2 defeat against Italy in 1982, Dave Roberts stealing second base in the bottom of 9^th of Game 4 of the ALCS, reversing the Bambino curse after 86 years, and Ronnie Rosenthal missing a great opportunity for Israel against Columbia in the World cup qualifying match of 1990.

There are many other great moments like these. All bring great memories and inspire great "what if" dreams.

Naomi

2008-05-18T23:20:33-07:00

Finally, after 9 long months (like always…) our 4^th daughter was born. Her name is Naomi, and I personally think she is great.