ISRAEL 
HIGH-TECH & INVESTMENT REPORT

- from the October 1998 issue


Big Venture Funds Stand Ready
to Pick Up the Momentum When Wall Street Stops

As one of the world's great hubs of telecommunications and internet technology, Israel is the site of a full calendar of conferences. Recently, we attended two of the Four Majors- namely, Ernst & Young with its local office of Kost Forer & Gabbay, and the Israel Venture Capital Association. Sandwiched between was the second annual Hambrecht & Quist Conference. The last of the Big Four Conferences is the Evergreen Robertson Stephens, which is scheduled for November. The cherry on the high-tech conference cake is Telecom Israel '98, which is an exhibition of the Israeli communications and information technology industries. Besides the leaders in the field, more than 100 selected startup companies will be presenting their innovations and achievements. These startups are seeking individual and institutional investors or strategic partners.

Each of the conferences has different motifs but they share a number of similarities in common traits. Among their similarities: they have an international flavor with guest speakers and participants from various parts of the world, and: the average age of conference audience attendees has dropped significantly from past years, to the 30+ level. "David Efrati, veteran high-tech lawyer, one of the panel chairmen and a founder and honorary chairman of the Israel High-Tech Industries Association, openly worried that "the new generation did not know who he was". At one time it was the American visitors who predominated but now it is an impressive mix of Australians, British, French, Japanese, Indians and other Europeans participants.

Two of the Big Five international accounting firms not only acted as sponsors but presented the results of parallel studies - high tech global, and high-tech Israel. It gave an opportunity to evaluate how strongly Israelis is positioned in terms of the numbers of engineers and the number of startups when compared to such high-tech Meccas as California, the home of the Silicon Valley, and Massachusetts with its plethora of high-tech enterprises along the fabled Route #128. The Ernst & Young Tel -Aviv offices maintain a staff of no fewer than 100 professional experts. The veteran highly respected Israeli firm Kesselman Consulting, allied with Coopers & Lybrand, presented up-to-date figures reflecting investments in Israel high-tech.

Not unnoticed is the Israel that is approaching the millennium, with its impressive number of foreign companies listed for trading on the American technology- laden NASDAQ market. Earlier this year the number of Israeli and Israeli related companies listed on NASDAQ exceeded 100.


Our own Israel High-Tech & Investment Report appears on the NASDAQ website as an "on-line information resource." One day in August the NASDAQ website had no fewer than 18 million visitors. Even if only a small percentage visited our web pages it provided these outsiders with a powerful source of information about the Israeli high-tech world. We met with the executives of EASDAQ, the European stock market for high-growth companies, and Nouveau Marche. The goal of these stock exchanges is to be one of the key players in global trading.

We look forward to establishing a presence for our Report on the websites of these and other stock markets. Trading on EASDAQ takes place through its European members and is said "to offer seamless trading and settlement across Europe within a highly regulated, liquid market.". EASDAQ founders are drawn from the financial communities in Europe, Israel and the US.

With the August advent of falling share prices accompanied by the near- disappearance of the Initial Public Offering market on NASDAQ, it is likely that venture capital companies will play an ever-growing role though different than in the past, in financing Israeli startups-ups and more mature companies. Our own feeling is that valuations of high-tech companies, for the purpose of investment, will remain level or decline. For venture capital firms this situation offers a new window of business opportunity. "Deals,", the expression used in the industry for financing transactions, according to conference speakers, are expected to be more reasonably priced. One venture capitalist suggested that this process had already begun. Recently deals ballooned in price as a result of a major infusion in the course of recent years of local venture capital. The sum invested was nearly $2.0 billion. This past summer we heard of high-visibility announcements of mergers and acquisitions. This contributed to the illusion that entrepreneurs had uncovered the ultimate road to personal riches.

After a summer marked by "big deal" announcements of the caliber of Mirabilis and Memco, with the onset of September the fall conference season began in earnest with Journey ''98. Ernst & Young with its local office of Kost Forer & Gabbay found good names to co-sponsor its "second annual venture capital high-tech entrepreneur journey.".

Among these were the Silicon Valley Bank;, Broadview, the merger and acquisitions specialists, VentureOne, a venture capitalist firm;, Wilson Sonsini Goodrich & Rosati, lawyers to high tech entrepreneurs; and Globes, Israeli '' business daily.

The nearly nine hundred attendees were treated to a program of overview of the venture capital industry. "Information technology is the single largest growing sector and looks to hold this position for the foreseeable future," stated David Witherow of VentureOne. The internet and telecommunications markets are prime targets of Israeli entrepreneurs. "The money brought in through venture capital and as a result of the peace process is a major change in the high- tech field in the last decade," said Benny Levin, founder of NICE Systems which has 50% of the American market in voice logging systems in the financial and air control sectors. NICE went public in 1996, made a secondary offering in 1997 and recorded a 74% increase in 1997 revenues 1997 to $69.3 million. Finding a niche and moving into the large markets, US in the case of NICE, was part of the rapid growth achieved by Mr. Levin and six army buddies who served in Israel Defense Forces'' military intelligence unit.

Reprinted from the Israel High-Tech & Investment Report October 1998

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