Recent developments in the VC sector in general and in Israel in particular are not encouraging. The sector in Israel that once boasted its ability to raise funds and to have enough start-up companies in Israel to invest the funds in is suffering from difficulties in both areas.
The slow-down and other factors have contributed to reducing IPOs and mergers, or otherwise capitalizing on the investments for VCs, and in most cases required longer to reach the capitalizing moment. That in time reduce the rate of return on investment for the VC investors.
The lack of success in showing high enough returns on investments combined with reduced numbers of start-ups, and at the same time, global slowdown in economy, reducing available funds, have hurt the VC sector in the US some and in Israel much more. And Israel is the focus here in this blog.
The open questions is: What will happen to start-ups next?
Some funds will probably survive and continue to invest and raise funds. These will probably be the more successful funds with an impressive track record. For the most start-ups the options will probably be one of the following two:
1- Start-ups requiring small investments to reach the market would continue to find such investments locally, and would probably find the government aid tools very supportive.
2 - Start-ups requiring large investments would face greater problems. Angels would find it difficult to invest in such firms knowing they would be ousted and could probably show very little for their investment. It is probable that ideas requiring large investments would emigrate to places where they could find such investment, resulting in lost employment opportunities for the Israeli market, as well as brain drain to such places.
Another potential solution would be the re-occurrence or raise in fame of the Bootstrap. That option, of a new firm living of its revenues and growing slower than start-ups, but better fitted for the market, would probably become more popular. These firms could probably raise funds for growth based on debt and market performance and show good return on investment. They would be able to substantiate their presence in the local market and increase employment possibilities locally.
When will all that happen? As we say here, after the holidays.. but which holidays?
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