California dreaming, Israeli style

A representative from an Israeli startup presents his business plan to a roomful of California venture capital professionals last week in Tel Aviv. (Photo: Shimi Nachtailer)The scene outside the conference rooms at the David Citadel Hotel in Jerusalem was electric. …

A representative from an Israeli startup presents his business plan to a roomful of California venture capital professionals last week in Tel Aviv. (Photo: Shimi Nachtailer)The scene outside the conference rooms at the David Citadel Hotel in Jerusalem was electric. Well-dressed business people wearing name tags huddled in groups of two or three, others paced with cell phone to their ears, and everyone looking as though they are on an important mission.

And an important mission it was – the VIP VC Mission to Israel which brought more than 48 representatives from 21 California-based venture capital firms and other investors to Israel last week to study investment opportunities in local venture capital funds and Israeli start-ups. The four-day trip was put together by the California Israel Chamber of Commerce with the help of the Israeli Ministry of Industry and Trade, the Silicon Valley Bank, Ernst and Young, and the Israel Venture Association, and California Funds Lightspeed Venture Partners, Silicon Valley Bank and O’Melveny & Myers.

They were in Israel to hear presentations from people like Dr. Dan Haronian, the co-founder of Siband which develops a silicon multi-band technology. Before his talk, Haronian was standing outside the conference room explaining the investment opportunity his startup can offer to one of the California investment companies that participated in the trip.

“We’re so new, we don’t have a website yet,” Haronian sheepishly admitted. But that didn’t stop the delegates from packing one of the conference rooms to hear his presentation.

For years, the California Israel Chamber of Commerce has been bringing delegations of Israeli businessmen to California – but this is the first time that they have organized a large-scale delegation in the other direction.

“These are top-tier investors, most of whom have never been to Israel, but all of whom are familiar with the cutting-edge capabilities being developed by Israeli company. This is a fabulous opportunity and the timing couldn’t be better,” said Shuly Galili, executive director of the California Israel Chamber of Commerce. “There has always been interest in Israeli technology, but the number of participants on this trip is a sign that there is great confidence and renewed dynamism.”

The Israel Venture Capital (IVC) Research Center issued figures during the mission that Israeli venture capital firms raised a net $28 million in 2003, following an outflow of $145 million in 2002. IVC forecasts that Israeli VCs will raise between $1.5 billion and $2 billion in 2004-2005. More than half of the money raised by Israeli venture capital firms comes from foreign investors, according to Yoram Tietz, partner in charge of Ernst & Young’s high-tech practice in Israel. In the peak year of 2000, Israel’s venture capital industry raised nearly $3.7 billion.

One of the most valuable aspects of the trip, Galili believes, has been to introduce the California investors to the Israeli venture capital community, opening the door to partnerships and cooperation in investment.

“They recognize that the Israelis have the advantage of being here on the ground, with their finger on the pulse. It is important that these two groups meet and are able to discuss how they can work together.”

From what she observed over the course of the trip, there are clear signs that the members of the delegation are following up on what they have seen and that investment will follow. Several delegates were already planning follow-up visits, “and some are even already asking when we are going to organize another mission like this one.”

According to Isaac Applbaum, a partner in Lightspeed Venture Partners – one of the mission’s sponsors – the primary goal of the mission was to introduce the participants to the vast potential Israeli entrepreneurship has to offer.

“The purpose of the mission was to touch feel, see, hear, and learn Israel. About half of the attendants have never been here before and most of them haven’t invested in Israeli companies. And now, everybody’s talking. We had a dinner with Israeli VCs last night – there were about 180 people, and the place was completely abuzz with people talking and trading information,” Applbaum told a press briefing.

Harry Weller, a partner in New Enterprise Associates based in Reston VA, said the trip has been an eye opener.

“We’ve seen a number of excellent companies and technologies,” he told ISRAEL21c. “The question is how go forward from here.” NEA, like more than half of the firms who came on the visit, does not currently invest in Israeli companies nor have an office in Israel.

Zvi Alon, the Chairman of the Board of the Israel-California Chamber of Commerce and Chairman and CEO of NetManage, explained that this mission would make it possible for companies like NEA to gain a foothold in Israel.

“We seek to accomplish three goals with the mission. One, Create Awareness – making sure people are aware of what’s going on here, the investment culture, the company culture. Two, provide a framework for networking, and three, building trust. If you’re going to invest in an Israeli company, you’re going to need the trust. I’m totally convince we accomplished all of these goals,” Alon told reporters in Jerusalem.

On another day of the mission, sitting around a boardroom table in the David Intercontinental Hotel, overlooking the Mediterranean Sea, a group of the California delegates paid careful attention to the rapid succession of presentations by both fledgling and established Israeli companies.

All of the Israeli companies giving the presentations were excellent prospects for investment, according to the California delegates themselves. They had been given the task of whittling down by the delegates – while still in California, they had reviewed information on 150 companies, out of which 30 had been chosen to present their companies. Most of the companies either have products on the market, or were very close, and are looking for early-stage investments of several million dollars.

The companies, in quick succession, presented a 15 minute overview of who they were and what they did. The investors who developed a deeper interest in the company would follow up with a request for their business plan and more in-depth meetings.

In one boardroom appeared a representative of Nexense, in which GE Medical Systems has a 10 percent stake. The company specializes in measurement solutions: using their “revolutionary technology” that can apply to measuring distance, temperature, volume, and flow, among others.

The current focus is on medical applications such as measuring heart rate – and in the automotive sector, cooperating with GM on sensors for air bags which would detect the presence of a person in the passenger seat and whether it was an object, an adult or a child, and the airbag would respond accordingly.

Today, a small company with 20 employees, it is a company on the brink boasting that they were poised to become a multimillion dollar company in 2005.

Next in line was a company called Redbend, a company that delivers solutions for installing and updating complex software – and focuses on the wireless market. Current customers include AOL, ICQ, Siemens Mobile, Sun, and Installshield.

This was followed by a presentation from a company called SentryCom, which has a technology for voice recognition which they believe holds great potential for combating Internet identity theft as well as Homeland Security applications.

The questions to the presenters from the potential investors were quick and to the point. In addition to details about the product, the investors ask about the market landscape that the company is operating in, who its competitors are.

According to Applbaum, the atmosphere within the VC community both in the U.S. and Israel is different now than it was during the high tech boom of the late 1990s, but that the pickup of the economy worldwide and fundraising by Israeli venture capital firms has triggered renewed interest in Israel.

“The rebound here is driven by what’s happening in the world economy. In the last 24 months, we’ve invested in six Israel companies. Entrepreneurs who took to the sidelines during this down time in 2000-2002 are coming out of the woodwork,” he said.

“But today, we have realistic expectations. It’s different from ’99. Even entrepreneurs who were successful then realize it was a once in a lifetime opportunity, which is not going to happen again. The exits are going to be smaller, the time tags are going to be longer. And we find that Israeli entrepreneurs have the patience to move the ball forward and stick with the companies,” Applbaum said.

Alon said that a big advantage of investing in Israeli startups is a difference in career and work ethics, saying Israelis tend to stay at their jobs far longer than high tech professionals in Silicon Valley.

“A big advantage for Israel is talent and longevity on the job When you train someone and don’t have to replace them every 2 to 3 years, there is a substantial return on your investment. Israel can offer entrepreneurship, and infrastructure – the culture and the ability to go ahead and create things which are complex and involved,” he said.

Warren Lazarow, a general partner in O’Melveny & Myers, one of the mission sponsors, said the participants were especially impressed by their Israeli counterparts in the VC world.

“Israelis are creative, smart people, and that’s what it’s all about. Finding entrepreneurs you can trust, that have good management, skills and have great ideas – that’s what we’re finding and that’s what’s exciting,” he said.

“When the participants met local VCs and talked to them, they saw the same partnerships they have back in the Valley – it was just like they’re looking in the mirror – the same ideas about looking at investments, analyzing management, talent. They were surprised at how familiar and comforting it was. It was a realization that the local Israel talent had the same mindset.”