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Their Eyeballs Hurt "I can't look at another idea" complained Jon Medved. "There are so many good start-ups. My eyeballs hurt."
If you want to measure the power of the chase after "eyeballs" in Israel - or the Israel Entrepreneur Internet Hysteria Coefficient - this is the place for it. In the small office of Israel Seed Partners (hereafter - ISP) on Emek Refaim Street in Jerusalem they don't rest for a minute. Try catching Eisenberg for a two-minute conversation in the middle of the day; you'd better be able to talk at the "Valley" business pace, i.e. say what you have to say in 30 seconds, starting now.
Eisenberg, 28, is known as one of the most energetic people in the industry. He looks like one of Shlomo Kalish's products at Jerusalem Global: he's young, religiously observant, a native English speaker, a Jerusalem resident, in his twenties, and acts as if he was fed Start-up and Internet with his mother's milk. He, by the way, really did come from Jerusalem Global, in 1997, and joined Medved and Neil Cohen as a third partner. Medved, 44, grew up in California and came from an entrepreneurial background: he founded a company, Meret, which he sold to giant Amoco in 1990, and was involved in Accent. Cohen, 36, from the UK, worked in NM Rothschild's Biotech Fund.
"We were the first to speak of the seed stage as something that a fund had to be built around" Medved says. "When we began, there was a vacuum, and we thought it would be clever to establish a fund to concentrate on companies' earliest development stage." Eisenberg and Medved say that seed investment has matured in Israel only in the last year. "But you have to know how to invest in seed, which not many people do."
Medved and Cohen began with only $2 million. "We decided on seed for lack of money and because of what we naturally enjoy doing. We rapidly came to concentrate on communications and Internet" Medved states. The fund had another capital raising round at the end of 1996, around a large series of investment in one of the most promising companies in the fund's portfolio, Compugen. The fund was closed on $7 million. The next fund (II) closed on $11 million and the third closed in March of this year with $40 million and an amazing, even provoking, list of investors, including names like Yahoo! founder Jerry Yang, Novell chairman Eric Schmidt, eBay founder Pierre Omidyar and Netscape founder Mark Andreessen (plus Bankers Trust, Wellcome, Clal, Deutsche Bank, Invesco and Nomura).
Globes: Are the people investing in the fund giving you strategic assistance?
Medved: "It's more a matter of cardability than involvement. We are, however, speaking to Schmidt, and he is helping us. I would appreciate more attention from them. We are receiving fund to fund assistance from the Flag Fund (a fund that invests in other funds). They have put us in contact with US funds who have invested in their fund. We arrive there as cousins."
Eisenberg: "Our problem is managing our network of global connections. We travel a lot to make these connections meaningful, among other reasons. E-mail isn't enough".
What brings these people to invest in a fund that so far has one minor exit to its name (PhoNet was sold for $5 million in a share transfer transaction)? How has the fund managed to bring so many trade entrepreneurs to its doorstep? The answer is apparently the professionalism radiated by the this trio. Eisenberg: "None of us is Israeli. We see ourselves as Silicon Valley representatives, not as a venture capital fund running after Silicon Valley. I sit on five boards of directors in California, and our portfolio resembles that of a corresponding fund in the Valley".
Can we conclude from the fact that you see yourselves as a branch of Silicon Valley, that which you transfer all your portfolio companies there?
Eisenberg: "The management of our companies are mostly in the US. That's our model. Compugen is an exception; it is a company in a different field, which emphasizes research. We do transfer Internet companies. They don't have the time. I don't think entrepreneurs can spend their time on airplanes and still be effective."
Medved: "The paradox is that, in spite of the Internet turning the world into a global village, if you aren't on the global village's main street, you're out of it. We don't have a fixed formula, though. We're not dogmatic about it."
How is it to be a religiously observant Jew on the global village's main street?
Eisenberg: "Look how thin Michael is. It usually means that you sit in a restaurant and drink water. It draws a lot of respect, by the way, from Americans, who are mostly quite religious people."
Has the speed at which transactions are closed changed in the last year?
Eisenberg: "A year ago, it took us 3 months to close a transaction. Now it takes us 2-3 weeks to decide on an investment. We are quick, but sometimes it doesn't depend on us. Sometimes the company isn't ready."
Medved: "We average more than one transaction per month. We have limited capacity, though. When you see so many companies, you miss some."
Which deals have you missed?
Eisenberg: "Sometimes people argue with us, so we get rid of them lightly. When you're so busy, you look for reasons to say no. Sometimes it's love at first sight. For example, we missed GuruNet twice. Let it be said in Jon's behalf that he was for it from the start, but, in the end, we entered only on the third round. When the business model was right, we wrote a check (E.J. - for $2 million.)".
"Not everyone has 20:20 future vision. It doesn't matter how smart you are, you don't always hit the target. We invest at such an early stage - it's like a foetus: you need a lot of imagination to see the child".
What's going on now in the Internet?
Medved: "Business to business. There are more opportunities than people imagine. People think that anyone who didn't invest in Amazon, or Yahoo!, or Mirabilis, missed out, but that's not true. The first generation of Internet in Israel was with companies like Check Point. The second generation was a turn to the consumer: Mirabilis, HyperBanner, CommTouch. The third generation had more technical depth and included companies like NewChannel, Mercado, and RUSure. The fourth generation is the largest. And it's business to business. There we have Tradeum (which provides infrastructure for creating large exchange sites) and iScraper (which facilitates management of construction sites by Internet). "
With all Medved's complaints about his painful eyeballs from start-ups, he and Eisenberg look just like two kids in a candy store. It's not nice to say, but they are a walking advertisement for a venture capital fund. "We find it terribly enjoyable" says Eisenberg with a big smile. We're friends out of the office as well, our families meet, and we see each other on Saturdays. It's that way with the entrepreneurs, too."
Business Card
Name: Israel Seed Partners (ISP)
Founded: 1995
Investment Stage: Seed
Investment areas: Internet, wide band communications
Volume: $58 million
Exits: sale of PhoNet to Vcon for $5 million
Investors in fund: Deutsche Bank, Clal, Nomura, Flag Fund, Invesco, Yahoo! founder Jerry Yang, Novell chairman Eric Schmidt, eBay founder Pierre Omidyar, Netscape founder Mark Andreessen, Bankers Trust, Wellcome Trust
Portfolio companies: Compugen, Dealtime, GuruNet, EarthNoise, Business Layers, iScraper, Tradeum, Mercado, Csafe and more
Partners: Jonathan Medved, Neil Cohen, Michael Eisenberg
Published by Israel's Business Arena on 12 October, 1999
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