"In boom times, venture capitalists were glamorous stars jockeying
for their next appearance on CNBC; now, they seem to be hiding under
their desks for cover. Few brave VCs did show up, although we had to
invite more than a few at a breakfast the Red Eye staged É."
Three weeks before the convening of the Sixth Annual International
Israel Venture Association Conference held in Tel-Aviv at the
beginning of April, conference organizers reported that only 300
guests had signed up, all from Israel, none from the rest of the
world. However, on the day of the opening of Tel-Aviv Conference
proceedings were delayed by nearly two hours due the crush at the
registration desks. An impressive five hundred attendees from Israel
and abroad registered.
On the eve of the conference at a reception held in a art
gallery/museum in the ancient port of Jaffa, the leaders of the
local industry greeted visitors from Singapore, China, United
States, England, South Africa and other countries.
Inside the Conference halls the mood was downbeat. It took only a few
minutes, as the keynote address was delivered, to realize that the
Israeli Venture Capital Industry was steeling itself for a harsh
period ahead.
Most of the "good news", according to Yigal Erlich Chairman of the
Israel Venture Association, was in the past and the future looks
bleak. 2000 saw extensive massive funding activities and a banner
year for the industry. At the end of calendar year 2000 Israeli
venture capital organizations had $6.5 billion under management. The
local industry had raised a record $2.3 billion for further
financing. Local firms, mostly active in telecommunications, were
involved in $10 billion worth of merger and acquisition activity. In
the course of 2000 the 60 active local VC firms had accumulated a
cache of $2.0 billion for investment.
The new buzzword for the industry is
"co-opetition" whereby VCs will cooperate rather than compete for deals.
The trends emerging are: a continuation of volatile markets, decrease
in foreign investments, the maintaining of existing portfolio
companies and difficulties in raising new capital.
"Lots of opportunities and lots of fright" for the industry, warns
Erlich. Turning to specifically Israeli issues, Erlich was hopeful
that progress would be made in tax alleviation. Currently,
non-Israeli VCs are liable to substantial taxes on gains from their
investments in Israel. The government will be relaxing regulations
regarding the limitations for Israeli pension funds to invest in VCs.
The insurance companies will probably shortly enter the field,
predicted Erlich.
The "bad news" Erlich projected, is that for the rest of 2001
startups will receive little attention and nearly zero funding.
Furthermore, if the local industry manages to raise $1.0 billion in
new funds it: "will be a great year".
The venture capital industry could be exhibiting a short term narrow
view perspective by cutting back on investing in startups. It is
doubtful whether the development of Israel's high-tech industry can
move forward, as it has in the past decade, without the support of
institutional funding. The message for startups is that survival
means finding other than Venture Capital Funds for financing their
needs.
Recently Red Herring reported on two venture capital meetings held on
the American East and West Coasts.