I don't keep up with too many blogs, and basically ignore Twitter (vainly hoping it will go away, proving to be a bad nightmare of SMS run amuck). And my own blogging has been slacking off of late.
But I do try to read Brad Feld's blog who usually alerts me to anything interesting going on in the discussions swirling around VC/entrepreneurial economy of the web. Brad often points to Fred Wilson, partner at Union Square Ventures and also prolific blogger. I have tremendous respect for both Brad and Fred, even know I don't think I have ever met either of them in person (which says something already about our world). Brad and Fred have been commenting on the debate raging lately about the future of venture capital and start-ups in the US, and I am thinking about how this all applies to the Israeli venture economy.
The current state of affairs was recently summed up by Dave McClure in a blog posting which I think we hear in Israel need to wrestle with. In short, Dave says (in his own "abstract"):
Abstract: VC funds are getting smaller (good), & angel investors are growing (also good), but both need to get smarter & innovate. Startup costs have come down dramatically in the last 5-10 years, and online distribution via Search, Social,Mobile platforms (aka Google, Facebook, Apple) have become mainstream consumer marketing channels. Meanwhile acquisitions are up, but deal sizes are down as mature companies buy startup companies ever earlier in their development cycle.
A few weeks ago Michael Eisenberg started to discuss role of government via-a-vis the venture economy in his aptly titled "Humus Manifesto."
I want to the conversation in a slightly different direction. Bottom line, we are thousands of miles away from the US, where the Twitter/Facebook/FourSquare paradigm is playing out. Yes, Facebook became a way of life in Israel (more so than Twitter), but there still is a feeling that we are in some sort of lag. I hear that from Jeff Pulver, but more importantly I see it in the reality of investments and start-ups.
Our angel class of investors never reached the sophistication of Silicon Valley, New York, the US in general. One reason is we never got wide enough, which prevented us from going deep. Especially in web/internet related applications/services. Putting Yossi Vardi (and semi-Israeli Jeff Pulver) we do not have prolific well known angel investors. We do not have any serious professional [focused] angel/seed investors. I include myself in being outside the loop, because in hindsight we invested too much money in too few companies. Looking back over 4 years, we would have been better off deploying smaller amounts in more companies (starkly put: better to invest $50K in 10 companies than $500K in one company), and then cherry picked. But we still would have been challenged by the lack of Series A investors like Union Square Ventures. Our "traditional" VC funds were focus-less, just look at their web sites where they say "we are focused on bio-tech, pharma, enterprise software, mobile, internet, new media, etc etc."
There are glimmers of hope in areas I know nothing about, like pharma and medical devices (see TEVA and Peregrine Ventures).
But in the world I do claim to know, internet/web, we are falling behind. And I blame the investment community, or lack thereof. We cannot put entrepreneurs in fast-paced world through 6 months of due diligence. They will lose the market generating spreadsheets. We need to sa yes/no very quickly, and move on. And when we say yes, lets take a lead. Invest manageable chunks of cash, and stay very involved. And as active shareholder, need to role up sleeves and live the company product, ecosystem. The best angel investors/fund managers in the US are using the stuff they invest in...there is no other way.
I also blame the entrepreneurs, who have failed to adjust their own way of doing things. For example, salary levels -- yes, I know you can get more at Intel, but you chose not to work at Intel. So please, don't cost the company 40K NIS a month. Take as little as you can. Your equity is what counts. And get product out as quickly as possible. And be part of the global conversation, which for now is mainly taking place in English. If you speak/write Russian and/or Chinese, than be active in those worlds (which is a huge advantage over many of your US counterparts, who are largely cut off from anything outside of North America).
Unlike Michael Eisenberg, I do not see the government playing a major role in the near term future. Long term, sure, we need great education, in the most well-rounded sense (i.e. not only engineers), but short term the government can only be a source of waste. The Office of Chief Scientist program should be shut down. In its place, if we have spare cash, the government should match any private investment of up to $100K. To make sure money is not being siphoned off by people of ill-repute, can have a screening committee of volunteers from the tech community.
But it is the private investment segment and the entrepreneurs themselves that can make a difference.
I believe in our ability to adapt, but we need to start moving, otherwise we will need to wait 10-15 years until the next major cycle...
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