JERUSALEM — Despite gloomy prospects for the short-term, two top Israeli venture capitalists said the current slowdown in financing for high-tech and Internet funding is providing a much-needed reality check from inflated expectations in the past.
Both speakers at the third monthly israel.internet.com InternetBreakfastForum told the audience of more than 150 that Israeli venture capitalists and Israeli technology companies are for the most part smarter and better prepared than a year ago.
“Last year seems like a long time ago,” said Jonathan Medved, general partner of Israel Seed Partners, which has $258 million under management and more 40 active portfolio companies, including Compugen, Xacct and Chiaro. “Retreats like the ones we have seen – of 90-95 percent of value in some companies – are simply unprecedented.”
He said his firm has closed several of its portfolio companies and is contemplating closing several more.
Speaker Gary Leibler, partner at AIG-Orion Fund, whose investors include Microsoft, 3Com, Global Crossing, Comcast and PMC-Sierra, said the worst is yet to come.
“Israel hasn’t fully appreciated what is coming,” he said. “Companies are still coming forward seeking huge valuations, but it just is not going to happen.”
They also cited current statistics that indicated a significant drop in first quarter 2001 VC funding in Israel.
They each cited numerous mistakes VC’s have made, such as not looking carefully enough at business plans, not seeking businesses with clear revenue models, stressing market share over profitability and racing to market.
Leibler said that last year’s mantra of “time to market,” the speed at which products must become viable, ahs been replaced by “time to survival,” where companies must hold on until conditions improve.
They said that easy money the conditions of last year will not return.
“Was it temporary insanity?” Medved said. “No. It isn’t going to happen again. We have returned to reality.”
Each cited steps that entrepreneurs must take: build a strong team, develop a clear business plan and business model, develop financial stamina and – in a point they each stressed repeatedly – take the money when it is available.
And both said cases of companies that turned down money last year seeking higher valuations returned, hat in had, several months later, looking for anything they could get.
Leibler said smart VC’s are now looking for useful partnerships, not just to go it alone, and are focusing on building companies, not simply looking for quick exits.
Furthermore, they stressed that Israel’s remarkable track record of creating innovative technologies and building successful companies was not a one-time phenomenon. They said Israeli companies are strong in areas poised to grow in the future, including security, networking and optics. In addition, Israel is continuing to attract money from global players.
“It’s never been easy here,” Medved said, in a reference to social and political conditions, as well as the current business climate. “Israel thrives on adversity and will emerge strengthened from this.”
