The hype and statistics about Israeli high technology
companies and the burgeoning Israeli venture capital community are well
known. At least $430 million of venture capital was invested in Israel
in 1997, ranking it in the top five US States (not bad for a country with
a mere 5 million citizens). In addition, $700 million of newly committed
capital was raised by Israeli venture capital funds. A bit less known,
though, is the interest that blue-chip US Venture Funds have taken directly
in Israeli companies. In addition to investing in “funds for funds” programs
where they invest as partners in local venture funds, sever-al of these
funds have made direct investments in Israeli companies. Firms such as
Weiss Peck & Greer, Sequoia, Bessemer Venture Partners, and Battery
Ventures have been willingly suffering the 12 hour transatlantic flight
to search out deals in Israel. The HBS-Israel Alumni Journal interviewed
some of these investors – many are HBS alumni – to discover what motivates
them to make the journey. Our questions focused on two general questions:
first, what special criteria do you use for an investment in Israeli companies?
And second, what suggestions do you have for MBAs who hope to get involved
in Israeli technology companies or venture capital?
Andrew Goldfarb (MBA ’93)
JAFCO America Ventures
JAFCO America Ventures is a venture fund related
to the giant Japanese financial services firm JAFCO. The US fund currently
manages $270 million dedicated to investments in communications, software,
IT, and semiconductors. The company made its first investment in Israel
in June 1998. Andrew Goldfarb, a partner at the fund, explained that despite
higher legal fees and travelling costs as well as more complicated tax
and deal structures, JAFCO will continue pursuing investments in Israel.
“We intend to be involved in the most exciting companies – worldwide
Many of those companies are currently coming from
Israel,” he explained. Goldfarb sees US Funds playing a complementary role
to Israeli-based venture funds. “A venture capitalist’s goal is to be able
to spend time with management and add value to his portfolio companies,”
he said. Since many Israeli high technology companies have significant
operations in the US, a consortium comprised of both US and Israeli VCs
is able to provide better coverage. US venture firms also provide additional
validation for the company’s business model, making it easier to ultimately
go public on NASDAQ. His advice for MBAs who hope to be in management positions
at high technology companies: get as much experience as possible, both
technical and managerial in the high technology environment. For anyone
considering getting involved in Israeli high technology, he suggests spending
a few years working in Silicon Valley, where one can acquire the requisite
“perspective, connections, and wisdom” to really contribute to Israeli
companies. “Ultimately, these companies are global companies and they need
people who have experience at the center of the technology universe.”
Charlie Lax, SOFTBANK
Technology Ventures
Softbank Venture Capital recently closed a $320
million fund dedicated solely to Internet companies and has made three
investments in Israeli companies to date. Charlie Lax and his three partners
do not specifically search for Israeli companies, but any firm dedicated
to investing in Internet companies can not help but spending time in the
country. “I go where the deal flow is,” remarked Lax when asked why he
makes the flight 3-4 times per year. Softbank does place special requirements
on Israeli portfolio companies, including the requirement that its senior
management relocate to the United States. “I jokingly say that we
put Samsonite Luggage in our term sheet. The CEO must be in the US – not
just a sales and marketing office. The sales support has to be here, and
a good portion of the engineering should be [here] in the company’s central
market. In order to succeed in any of these businesses, you have to be
close to your customer.” All three of Softbank’s Israeli portfolio
companies maintain headquarters in the United States. When asked about
the type of skills required by potential managers of high technology ventures,
he remarked that while an HBS education might be good for connections it
doesn’t impress many venture capitalists. “We look for people with experience.
Management talent comes from the school of hard knocks.” He suggested aspiring
managers acquire skills
in the product development role of a well funded
start-up or an established company.
David Aronoff (MBA ’95)
Greylock
Greylock has yet to make an investment in an Israeli
company, but they have been looking closely at several possible transactions.
They too would require the company to have a split operation with R&D
in Israel and headquarters in the US. The rea-son for this is simple: Greylock’s
investment philosophy includes spending a considerable amount of time with
their portfolio companies. David Aronoff believes that US venture funds
help their companies most by providing a network of connections in the
US, including access to management talent and major customers. For most
high technology companies worldwide, the US is the largest market and having
access to this network can be crucial for early success. Aranoff ’s advice
for aspiring venture capitalists or entrepreneurs alike is to spend time
(not a summer, but 3- 5 years) at a world class high technology company
in the US. “These firms offer fertile ground for training that
you just can’t get at a start-up,” he said.
Ofer Nemirovsky (MBA ‘86)
Harbourvest Partners
Harbourvest Partners is the successor firm of
Hancock Venture Capital, one of the largest funds-to-funds and venture
capital firms in the world. Harbourvest’s Israeli investments include Paradigm
Geophysical (PARDF), an oil exploration software company which went public
on NAS-DAQ earlier this year. Harbourvest has offices in Boston, London
and Singapore, and views its Israeli investments as a key component of
its port-folio. “Travelling is part of this job, and fortunately I am able
to make one trip to visit both our Israeli portfolio companies and our
investments in Europe,” remarked Ofer Nemirovsky, a partner at Harbourvest.
Regarding the need for Israeli companies to locate HQ in the US,
Nemirovsky is more flexible than some of his fellow venture capitalists.
“There are several models of Israeli companies that have been successfully
run from Israel – particularly if their target market is in Europe. We
don’t make moving a pre-condition,
