Wednesday, November 26, 2008

Title Backdrop

As the title of my blog suggests, I have ventured to the Levant, searching for those savants that combine entrepreneurial zeal with original thought. Indeed, it is my belief that the strength of Israeli high-tech rests on the high concentration of entrepreneurial and technical savants. By this, I mean super-geniuses that dwarf even the brilliant people around them. These are the people that render “key man” insurance useless, as they are truly priceless.

Start-ups are often built around such technical savants, and the high incidence of such talent explains the high concentration of start-up innovation in this part of the Mediterranean. I can't provide a good explanation for the prevalance of such people, except maybe to point to the preceding generations that devoted themselves to study, observation and proficiency.

Entrepreneurilsm is a trait found most common among immigrants. So it is no surprise that a country of immigrants has produced so many people with a penchant for risk and an eye for opportunity. Even as immigration has dwindled, entrpreneurialism and individualism is fully engrained in Israeli culture.

And before anyone assigns political significance to my use of the geographical term Levant(which historically refers to lands in modern day Lebanon, Jordan, Syria, as well as all of modern-day Israel), please note that I have taken poetic license.

A Plug for Wix

Wix is the first rich media authoring application, where anyone can build a professional, yet cool website for free. The quality is on par with most professional, Flash websites, which cost thousands of dollars to design and hundreds to maintain.

With well over 250k registered users since June, Wix is growing fast, in particular with small business users and creative professionals, who like to showcase their work and material. These users know their website is their face to the world, and need their website to reflect their own taste and style. Such users are fed up with the rigid template model of traditional website builders, but don't want to pay a hefty fee to flash developers, web designers and hosters. Many of these users actually have MySpace profiles, which are great for communication, but degrading for a professionals and artists who want to move beyond friends and family.

Wix started a premiuim offering in October, which allows businesses to use their own domain and erase any mention of Wix or advertising from the site for a small monthly fee. More services and functionality are on the way, as the Wix platform is a true software framework that can support just about anything.

Instead of relying on volume traffic to bring in ad revenues, Wix is leveraging its technology-based platform to sell a basic, yet differentiated subscription service over the Inernet. Strong SEO work has already had an impact, and we are very excited about the progress and feedback we are getting from delighted subscribers. If you haven't resgistered already, try it!

The Israel Practice Page at BVP

BVP updated its web site today and for the first time, there is an Israel Practice page that describes a summary of our views on the Israel opportunity from a venture perspective. Some of you may note the divergence between our sectors represented by our existing Israeli portfolio and my interests and directions going forward. BVP is firm with a long history, but that has not stopped it from looking forward and initiating the change necessary to stay ahead of the pack. This is not about clairvoyance, but rather agility on the firm and partner level. In fact, one of great strengths of BVP is the ability of its partners to adapt an investment focus to ensure new a steady flow of new opportunities that may be overlooked by others. By definition, this also means abandoning market segments that we have spent a lot of time analyzing and scrutinizing, but which regrettably no longer offer venture returns at an appropriate risk level. The reasons vary, but include market segments where:

- start-ups don’t fare well anymore due to obstruction by much larger players and their often obtuse customer base
- total required capital nears or exceeds the likely exit value
- new market opportunities that already suffer from overinvestment

That areas such telecom hardware or chips are no longer my focus does not mean all companies are doomed. On the contrary, it means that I have sufficient exposure to the opportunities I like, and a recognition that too much of one good thing can actually be bad. For instance, I have complete confidence in my wireless portfolio(Siano, Altair and Axis), becomes they command market leadership, have highly differentiated products that are shipping, and are more or less fully funded.

The Israel page of our website now points primarily to several areas of software, which has attributes that are appropriate for leaner times. As these roadmaps evolve in my mind, I will write more about each one of them. At this point, it is sufficient to say that I seek highly efficient companies that accomplish a lot with very little, and then leverage initial traction to achieve rapid economies of scale in product development and sales. This might sound nebulous and dubious, but this should at least prompt entrepreneurs to think about their business plans in a new light.

Finally, for those of you unfamiliar with BVP, I wish to point out the celebrated Anti-Portfolio on the BVP website. This page highlights those opportunities that we neglected and rejected, only to become resounding success stories. We don’t claim to invest is every great opportunity, but want to make sure that those we do invest in are among the most successful.

Tuesday, November 25, 2008

"Risk Capital"

My American readers may not be familiar with this term, but this the direct translation of the Hebrew term for “venture capital.” Does this explain the relative riskiness of early stage, Israeli high tech companies? Probably not…but it certainly explains some of the indignant responses of entrepreneurs as I reject their venture on the basis of being too risky.

Few would believe how many entrepreneurs have told me with a straight face that they thought my job was to take big risks. They find my rationale for rejecting the opportunity to be inconsistent with the very nature of my business, and thus completely incoherent. As far as I see it, my job is to reduce, eliminate and manage investment risks, until these risks seem acceptable given an expected return. I have no idea who first coined this pejorative Hebrew term, but it was likely a journalist unfamiliar with business, or perhaps it was a nefarious ploy by a dying socialist to ward off Israeli financial institutions from investing in risky capital.

Some Background

I am a venture capitalist who straddles the Atlantic, working in Israeli high tech for a US based investment partnership, Bessemer Venture Partners. Venture capital has been my life for the past 12 years, since I immigrated to Israel from the US. Back then, the venture capital market in Israel had only just begun to sprout, and in my search to find interesting companies, I quickly discovered that Israel itself was a start-up. And like generations of immigrants before me, I too was an entrepreneur of sorts in a national endeavor to build a more prosperous country. All of this gives me what I presume to be a unique perspective on venture capital and Israel, as I am not a native of either country, though I hold citizenship in both.

Founder of Bessemer(left) and the Founding of Tel Aviv, 1909(right)

Bessemer was founded in 1911, when Israel was still a quiet, desolate province of the vast Ottoman Empire. I use this juxtaposition to illustrate how far Israel has come since its founding almost 60 years ago(the picture above is the founding of Tel Aviv in 1909). For those in the high tech industry, venture capital and Israel might seem as natural as milk and honey, but one often forgets that Israel is probably the only country in which to quote Sir Isaiah Berlin “socialism preceded capitalism; trade unions acquired power before industrialists.”(“The Origins of Israel”)

Regardless of this overlooked fact, I continually marvel at how the country is able to produce so many entrepreneurs, who take one financial risk after another until success is theirs. The per capita statistics of entrepreneurialism in Israel rival the Silicon Valley, which is why I am happy to practice my trade in Israel.

However, I do not let my amazement and pride at Israel’s success prevent me from being critical or officious at times. Typical of an immigrant who assimilates through careful observation and emulation of the new country and its people, I have thoughts on many of the cultural idiosyncrasies and habits that characterize business in Israel. In short, some of posts will express delight, while others express frustration.

Welcome to Savants in the Levant

Welcome to "Savants in the Levant"... my cerebral atelier, where I will write my thoughts on venture capital and start-ups in Israel, technology and media trends, and most probably politics. While the purpose of this blog is foremost to provide me with an intellectual outlet, I also aim to communicate with the entrepreneurial high tech community. I have little interest in pleasing the anonymous public, but will promise to be candid with my writing, and perhaps entertaining as well.