Globes, November 30, 2003
What high-tech crisis?
| Israel Seed's Jon Medved says local high-tech is actually in excellent shape.
|"Everyone looks at me as if I were crazy when I say that Israeli high-tech is in excellent shape," says Israel Seed Partners general partner Jonathan Medved. "I see the attitude toward us at conferences, the paralyzing figures from international surveys, but despite Israel's political and economic situation, Israeli high-tech increased its market share in the past three years."
Medved mostly bases his optimism on what he perceives to be an increase in foreign investment in Israeli companies. He says, "We've seen more foreign capital entering Israel in the past 18 months. International investors, especially in the US, have increased their budgets for Israel. Inexplicably, Israeli high-tech survived the global and domestic crises almost unscathed."
"Globes": Excuse me, but what are you talking about?
Medved: "It's true that it's possible to see a contraction in volume in the past three years, but that happened in the US and across the world. It is a fact that Israeli high-tech is pulling out of the crisis much sooner than other places, and is expanding."
Do you have something more than a gut feeling to base this on?
"Look at the fourth quarter report by Ernst & Young. Seed and early-stage investment in Israel was greater in Israel in the third quarter of 2003 than in all of Europe."
That's because Europe was taking its summer holiday.
"Then how can you explain the fact that during the second quarter, too, investment in Israel was greater than in French and German companies combined? Investment in Israeli companies was greater than in all the companies of Europe. I consider this to be an awesome figure that reinforces my claim that Israeli high-tech is in great shape. I saw similar figures in the Ernst & Young report."
Medved also claims that other reports he has read show that the decline in investment in Israeli companies was less than anywhere else in the world. "$3 billion was invested in Israeli companies at the height of the bubble, and I estimate investment will total $1 billion this year, half of which will come from overseas. Statistically, this is a smaller decline in activity than in the US, for instance."
Medved mentions other signs: " Accel Partners recently announced that 30% of its international investments would be designated for Israeli companies. 50% of its European funds are allocated for Israel. This clearly shows the importance of the Israeli market in the eyes of one of the largest venture capital firms. Everyone takes the activities of large international firms in Israel for granted, but it's not so. Furthermore, these firms have been increasing their allocations for Israeli companies in the past three years. Firms such as Sequoia Capital and Benchmark Capital have been substantially expanding their Israeli activities. There are also US firms such as Greylock and Lightspeed Venture Partners, which weren’t here in 2000.
How do you explain it?
"Somehow, Israeli technology is disassociated with the political situation. High-tech was much hurt less than other economic sectors. Despite the situation, there are good deals to be made in Israel, and we have an excellent reputation. Israel's has managed to preserve its reputation. Just look at the cases of [TopTier Software founder] Shai Agassi and [Mercury Interactive Corporation (Nasdaq: MERQ)] president and Amnon Landan. This has been a great service to us."
Maybe this has more to do with your wishful thinking at a time when most Israeli firms are starting to try to raise capital for new funds?
"Obviously, I hope that the funds will be able to raise capital, but I'm optimistic because I know that in the past three years, 50% of investment in Israel was foreign investment. I believe that the firms will succeed in raising capital, though I'm happy that we won't have to raise capital until next year."
Medved says the good condition of Israeli high-tech is also seen in the dealflow by Israel's start-up industry. "There are many deals of all kinds. For instance, we are now examining scores of excellent deals. There are a lot of opportunities and companies are already doing it with customers and sales, and, above all, other funds are competing in every deal. The only thing I'm afraid of is that the competition will drive up company values. At the moment, company values are still low. That will change when the stock market develops. We're seeing large corporations returning to the market, and it's great. In recent months, people have wanted to get moving. There is a change, and if you look at the statistics, you'll see that everything is looking better. There are also more mergers and acquisitions, and many companies around the world have launched hunting expeditions. This is good news for everybody."