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?
Showing posts with label Technology. Show all posts
Showing posts with label Technology. Show all posts
Saturday, August 28, 2010
Friday, July 30, 2010
Which came first Technology or market demand?
Before you rush forward with the answer, or get annoyed, this is more than just a philosophical question. When you start learning marketing or economics you learn about demand and supply, you learn to draw the curves and to fix a price. Of course for marketing, once there is a demand in the market, the rest is a long solved problem on how to respond. So if your answer if that the demand came before the supply, than at least in the classical world of marketing, you know how to proceed.
But, I can hear some of you asking, about those few cases in which the technology preceded the demand, the internet and its environment are such cases, there were many services / products that did not exist before and demand did not exist.
So it would seem that the right answer to the question above would be "YES". While you think about that I would like to mention a small joke that anyone learning marketing in Israel must have heard at one point at least (could be just an Urban legend): in the 1950's a shoe factory in a kibbutz sent two salesmen to Africa one to east Africa and one to the western parts, to assess the marketing potential of the factory. The first evening the first salesman calls the factory and says:"There is nothing here for us, everybody is walking barefoot, I return tomorrow". Before they can get their balance back, the other one calls and says:" start working in three shifts, the market is enormous, everyone here is barefoot". The story as I know it stops here.
The first salesman is the case of missing demand, even if the technology / product exists. It requires educating the market into creating the demand. This can often be lengthy and expensive, and as a result of that - risky.
While the risk may be acceptable to a large firm, for an SME, or a start-up it could be dangerous. The firm may spend its limited resources and die before the market is created, or may create the market just to have a larger firm exploit it.
In Israel where many of the start-ups are technology based, this is a very risky point. There are many firms starting with a wonderful technology, but with little market demand, and what is "obviously a great idea" to the technology people is often not so clear to the customers in the market. These are the great technologies that fail, not due to lack of ideas, or capabilities, but due to better understanding the technology than the market.
If one recalls the High-Tech crisis that occurred when the 3rd generation of communication failed to be accepted by customers, not because it was not good, or not impressive, it was just that the market was not used to such rapid technology changes. It was necessary to make people understand that they wanted / needed the new capabilities before they were ready to make the change.
Great technology is not all - a great market can be.
But, I can hear some of you asking, about those few cases in which the technology preceded the demand, the internet and its environment are such cases, there were many services / products that did not exist before and demand did not exist.
So it would seem that the right answer to the question above would be "YES". While you think about that I would like to mention a small joke that anyone learning marketing in Israel must have heard at one point at least (could be just an Urban legend): in the 1950's a shoe factory in a kibbutz sent two salesmen to Africa one to east Africa and one to the western parts, to assess the marketing potential of the factory. The first evening the first salesman calls the factory and says:"There is nothing here for us, everybody is walking barefoot, I return tomorrow". Before they can get their balance back, the other one calls and says:" start working in three shifts, the market is enormous, everyone here is barefoot". The story as I know it stops here.
The first salesman is the case of missing demand, even if the technology / product exists. It requires educating the market into creating the demand. This can often be lengthy and expensive, and as a result of that - risky.
While the risk may be acceptable to a large firm, for an SME, or a start-up it could be dangerous. The firm may spend its limited resources and die before the market is created, or may create the market just to have a larger firm exploit it.
In Israel where many of the start-ups are technology based, this is a very risky point. There are many firms starting with a wonderful technology, but with little market demand, and what is "obviously a great idea" to the technology people is often not so clear to the customers in the market. These are the great technologies that fail, not due to lack of ideas, or capabilities, but due to better understanding the technology than the market.
If one recalls the High-Tech crisis that occurred when the 3rd generation of communication failed to be accepted by customers, not because it was not good, or not impressive, it was just that the market was not used to such rapid technology changes. It was necessary to make people understand that they wanted / needed the new capabilities before they were ready to make the change.
Great technology is not all - a great market can be.
Sunday, July 4, 2010
Technology Incubators - a Sad Story
The Israeli Technology Incubator program which started in the early 1990 (first one was owned by the Technion - started in 1989) as a program initially intended to assist in absorbing the new immigrants from the former USSR, is considered a raw model, worthy of study and copying attempts by different countries. As mentioned in an earlier post there was a Finnish delegation here last month which was interested in checking and adapting the model for their needs. Together with the development of the VC market here the two formed two of the founding stones of the myth of Israel the entrepreneurial state, the homeland of innovation.
Recent set-backs to the VC market in Israel have exposed that founding stone of the myth, as a myth by itself. The fact that the VC in Israel could find investment was true enough, that they could make these investments pay-back enough to sustain the industry was not. More than that, it would seem that the damage the VC's and their strategy have done to the Israel economy could be fully understood only at a much later date. Their policy of sale to large multi-nationals that moved the core out side the country and negated the formation of an employment center has had a negative impact on the employment rate and growth, that only with time could be accurately estimated. The damage from VC and their capitalization or return on investment strategy can be seen in Prof. Maital's Lecture.
Recent publication regarding the Technology Incubators and their loan from the Ministry of Finance in 2003, seem to start peeling the myth from that founding stone as well.
In 2003, as it was decided that the incubators should be set to be financially independent. New agreements were made, the incubators' ownership changed hands in many cases and a new era began. Based on the change and a part of the agreement, was that Ministry of Finance fronted as a loan to the incubators over 80 million NIS. They were supposed to return the loan from the proceeds on the sales of their shares in the firms. These shares were the collateral for the loans. Now as according to publication less than 15 Million NIS have been returned so far, MoF which according to the agreement owns the shares, is considering its next move.
The original concept was, that in the post high-tech crisis the incubators would be set on a footing similar to that of VC's and that they could sustain their own operations based on the sale of their holdings. The market was estimated to be ready for such action. If the program worked, the government would be free from supporting the incubators, and could focus on supporting just the firms, and later on release more funds due to their income for investment in firms and projects.
While some may say that the market is at fault as it could not allow the sale of the firms held by the incubators generate enough income to sustain the incubators and more than that make them profitable enough to return the loans and become independent. My personal view is that the model is at fault. If the government is no longer looking at Technology Incubators as a means for absorbing technologically enhance immigration, but as a growth engine than the out look should change completely.
When I was CEO of a company in a Technology Incubator in the 1990's we managed to complete the development of a first generation of products and do some sample sales. While the sales were commencing only, we received from the Incubator's authority in the Chief Scientist a caution that if we start sales they would reduce our loan by the amount we raise by sales. So we labeled the sales we did as experimental sales and stopped, moving instead to the development of the second generation of products.
In the current state of affairs I think that firms in incubators should be encouraged to become economically independent asap, this should differentiate them from firms outside the incubator. It would allow them to generate income for the incubator, and perhaps also if sales are expected allow them to get better prices. It would also increase the chances of sustaining here the employment center.
While is seems that other countries envy us for our "achievements" in innovation, which seem to vanish with time, we could learn from our experience and try and make the legend come true.
Recent set-backs to the VC market in Israel have exposed that founding stone of the myth, as a myth by itself. The fact that the VC in Israel could find investment was true enough, that they could make these investments pay-back enough to sustain the industry was not. More than that, it would seem that the damage the VC's and their strategy have done to the Israel economy could be fully understood only at a much later date. Their policy of sale to large multi-nationals that moved the core out side the country and negated the formation of an employment center has had a negative impact on the employment rate and growth, that only with time could be accurately estimated. The damage from VC and their capitalization or return on investment strategy can be seen in Prof. Maital's Lecture.
Recent publication regarding the Technology Incubators and their loan from the Ministry of Finance in 2003, seem to start peeling the myth from that founding stone as well.
In 2003, as it was decided that the incubators should be set to be financially independent. New agreements were made, the incubators' ownership changed hands in many cases and a new era began. Based on the change and a part of the agreement, was that Ministry of Finance fronted as a loan to the incubators over 80 million NIS. They were supposed to return the loan from the proceeds on the sales of their shares in the firms. These shares were the collateral for the loans. Now as according to publication less than 15 Million NIS have been returned so far, MoF which according to the agreement owns the shares, is considering its next move.
The original concept was, that in the post high-tech crisis the incubators would be set on a footing similar to that of VC's and that they could sustain their own operations based on the sale of their holdings. The market was estimated to be ready for such action. If the program worked, the government would be free from supporting the incubators, and could focus on supporting just the firms, and later on release more funds due to their income for investment in firms and projects.
While some may say that the market is at fault as it could not allow the sale of the firms held by the incubators generate enough income to sustain the incubators and more than that make them profitable enough to return the loans and become independent. My personal view is that the model is at fault. If the government is no longer looking at Technology Incubators as a means for absorbing technologically enhance immigration, but as a growth engine than the out look should change completely.
When I was CEO of a company in a Technology Incubator in the 1990's we managed to complete the development of a first generation of products and do some sample sales. While the sales were commencing only, we received from the Incubator's authority in the Chief Scientist a caution that if we start sales they would reduce our loan by the amount we raise by sales. So we labeled the sales we did as experimental sales and stopped, moving instead to the development of the second generation of products.
In the current state of affairs I think that firms in incubators should be encouraged to become economically independent asap, this should differentiate them from firms outside the incubator. It would allow them to generate income for the incubator, and perhaps also if sales are expected allow them to get better prices. It would also increase the chances of sustaining here the employment center.
While is seems that other countries envy us for our "achievements" in innovation, which seem to vanish with time, we could learn from our experience and try and make the legend come true.
Saturday, June 19, 2010
Business Development and Clean Tech
Business Development and Clean-Tech would at first look seem to be just as relevant As Business Development and Communications for example. But it seems that those dealing with Business Development, the Clean Tech sector holds a special interest.
The drive towards more and more awareness regarding environmental issues has increased the interest of firms in Clean-Technologies. Whether these are technologies for better energy management and decreased usage of energy sources, recycling, usage of less waste producing manufacturing, the production of renewable energies and more, firms in different sectors have been looking at these technologies.
In many cases firms, after being pushed into a first look due to market pressure, that is, in order to better sell their products, or maintain their market share, get acknowledged as "Green" etc., realize that the Clean-Tech they were looking into, could directy influence their cost structure and help theri profitability.
While we will not discuss here how exactly each firm may benefit from absrbing environmentaly friendly technologies, the search and increased interest has led to widespread activity in the field. From the point of view of the technology or knowledge providers, the issue of technology transfer and Business Development in that sector are important parameters.
While there is an article of mine soon to be published ( a link will be provided from my site at: www. amiramporath.co.il) on the topic, here I would like to present some points for your onsideration:
The drive towards more and more awareness regarding environmental issues has increased the interest of firms in Clean-Technologies. Whether these are technologies for better energy management and decreased usage of energy sources, recycling, usage of less waste producing manufacturing, the production of renewable energies and more, firms in different sectors have been looking at these technologies.
In many cases firms, after being pushed into a first look due to market pressure, that is, in order to better sell their products, or maintain their market share, get acknowledged as "Green" etc., realize that the Clean-Tech they were looking into, could directy influence their cost structure and help theri profitability.
While we will not discuss here how exactly each firm may benefit from absrbing environmentaly friendly technologies, the search and increased interest has led to widespread activity in the field. From the point of view of the technology or knowledge providers, the issue of technology transfer and Business Development in that sector are important parameters.
While there is an article of mine soon to be published ( a link will be provided from my site at: www. amiramporath.co.il) on the topic, here I would like to present some points for your onsideration:
- Is the Clean-Tech really one sector? Are the developers of water treatment infrastructure size plants in the same market, as the developers of home water filtration systems?
- If we are dealing with different secors, how would that influence the parameters of Business development and Technology Tranfer?
- Regarding the role of the IP managers in firms, and Technology Transfer officers in research organizations, how would these roles change as a result of the activity in the Clean-Tech sector?
- Which would be the best way for governments to encourage activities in Clean-Tech based on the above?
In order to demonstrate the level of importance that discussion has receeved and to give preliminary answers to the questions above please see the films in the links below, recently published on the web by the European Patent Office (EPO). some of the recent films were fillmed during an internal conference on the topic held recently.
Enjoy,
Amiram Porath
Links for this post:
- http://www.epo.org/topics/issues/clean-energy/films/renewable.html
- http://www.epo.org/topics/issues/clean-energy/films/films.html
- http://www.epo.org/topics/issues/clean-energy/films.html?update
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