Dear Reader

Business Development is a complex topic. In such case the questions raised are more important than potential answers. Therefore, this blog will focus on presenting questions. There will be answers, full or partial, to be supplamented by links presented when relevant. The answers from my experience will be clearer once the questions are clearer.

While this is not a discussion forum, readers are invited to comment, and the comments will help determine the topics and current issues to be explained in the future.


Sunday, February 26, 2012

The longer time to exit and its impact on VC

Recently a founding manager of one of the Leading VCs in Israelannounced he will not be part of the next round of funds, but will continue with his efforts in the existing funds. He mentions that the economic developments have made the time to exit longer than it used to be 10-12 years ago. That in time has made the investment in start-ups more problematic. The funds themselves are designed for 10-12 years duration, but the time for growing firms from small start-ups to companies that can be used for exit has lengthened and that made the VC try to capitalize either too early (less return on the investment) or invest in less risky firms.
In the second cycle, the institutional investors have moved towards investment in larger VCs due to managerial pressure – not related directly to risk management.
The investment in many small firms requires a managerial effort in tracking (board memberships and reports) many firms. If you want to keep the management load at a low enough level you would show a preference to a smaller number of investment of a larger size. That preference for larger VCs, is creating a push in the sector for larger VCs, - an artificial size advantage.
To sum, it would seem that the world economic crisis has created not only a reduction in available funds that has created a problem for the VCs. If that were the only problem it could have been remediated when the slow-down was over. The other effects such as the lengthened maturing process of Start-Ups, is more difficult to overcome and is creating a more complicated problem for the VC sector.

Sunday, February 19, 2012

A rose by any other name would smell as sweet

The title here is taken from the Shakespearian tragedy Romeo and Juliette. But is relates to a more obscure tragedy in the making. Recently, 15th December 2011 the Israeli government has decided to change the name of two ministries. The former ministry for national infrastructure would become the Water and Energy Ministry, and the former ministry of transportation would become the ministry for transportation, national infrastructure and road safety.
The second part of the change is intended to place all the design and executive organs regarding land water and air transportation, including safety and infrastructure investment in one place. But look at the following ironic scenario:
In order to save on land use (Israel is a small crowded country) a suggestion to place communication lines next to the train tracks, and to similarly provide a venue for electrical power conductance is presented. Such a suggestion would have to be approved by the ministry for transportation (blab la bla), the Public Utility Authority (energy) which is part of the Water and Energy ministry, the national planning committee (belongs to the ministry of the Interior), the Land Management Bureau belonging to the Housing ministry and the ministry of communications. All of which would fit, in a sane place under the heading of Infrastructure.
The reality is, that if such a suggestion would be tabled it would require the Finance ministry as well, but that would probably be the only one with a comprehensive look at the project. Sadly the list of agencies (perhaps justified) and ministries (probably not justified) is the reason so many projects are discarded mid-way in Israel. The different ministries, under ministers from different parties, with conflicting social agendas, would find it hard to cooperate. Further to that, in the lack of valid policy, every such project suggestion would require each ministry /agency to make a separate decision approving the project. It is enough for one to disapprove for the project to be rejected.
Unfortunately our lives are not mono-disciplinary or mono-ministerial, but moe complex than that.
Instead of changing the name, how about merging the ministries and agencies, into a real national infrastructure ministry and placing the responsibility for the management of national infrastructure there?
At least create a body to coordinate the decision making of all the infrastructure bodies.

Sunday, February 5, 2012

Increasing Government Investment in Economic Development

It would seem that Israel is attempting to increase its economic growth in the current difficult world-wide economic situation.
In a recent publication it was announced that the ministry of industry trade and labor received an increase in budget (even that can happen) for 2012 of 1.5 billion NIS (about 300 million euros). That funding will go towards more R&D financing, training and other supportive measures for the local industry- to increase the competitive advantage of Israeli firms, and create / preserve jobs. This comes after an increase in funding from 2010 to 2011.
It seems that the money will not be left un-used as the Israeli high-tech industry is used to identifying such support opportunities and sizing them up. It comes also on top of the activities of the three years old agency for SME support operating under the funding and directions of the ministry.
It would seem that these attempts to shore up the economic development in 2012 come after the bleak announcement by the governor of the Israeli central bank, that 2012 will be a difficult year economically. Although we are entering an election period such steps seem real enough as they escape the notice of the general population, and will bear at best noticeable fruits after the 2013 elections.