The Marker approached me a little while back and asked to republish the series on Explaining VCs for The Marker online in Hebrew.
The first installment is up and can be found here:
http://hitech.themarker.com/tmc/article.jhtml?ElementId=skita20080901_51984
The others will follow soon, as will the next installment of the series here.
As promised last week, we here at the BloGiza labs have been toiling on a new, fun feature. Over the past year, we have been running a feature called "The List", which collects interesting articles on the high-tech/VC world and presents them in a hand list format.
Having recently discovered Tumblr (which inhabits the space between blogging and Twittering), I've decided to spin off The List as a standalone property.
The new The List can be found at: http://blogiza.tumblr.com
It will be updated on a regular, ongoing basis instead of once a week like the old The List. You can also choose to get the new List by RSS using this feed.
Check it out and let me know what y'all think
A recent blog post by Y Combinator’s Paul Graham has caused a fair deal of buzz around the VC end of the blogosphere. In his essay, Graham points to a number of trends that he sees in the software/internet startup world and makes a number of predictions as to where the industry is headed.
In Graham’s view, we can expect to see a lot more startups founded by younger entrepreneurs needing a lot less funding; a standardized process on the part of investors to streamline the investment process; a more sophisticated attitude towards acquisition by major players; as well as a decrease in the importance of a college degree compared to technical skills and experience.
On the heels of the piece, we’ve seen numerous blog posts analyzing Graham’s points, focusing on the changing landscape (when it comes to Internet companies), and openly suggesting that the traditional VC model is broken and that we need to adapt ourselves to the new world order.
Graham, I believe, is spot-on with a lot of his analysis even though I don’t fully accept his conclusions. Here at Giza we’ve seen the local Internet scene develop greatly over the last couple of years. Our deal flow is filled with the types of companies Graham describes: young guys (and gals) with great ideas who don’t need a lot of funding to get started.
Our Ofek seed-stage program is designed for this environment: provide the relatively small initial sums for a company to reach pre-defined milestones and then decide whether to continue on to a major Round A. So far, we have made four investments this year under the auspices of the program, with Koolanoo Group having already graduated into a full portfolio company.
Like I said, I have a couple of caveats about Graham’s piece and the Y Combinator approach in general. A big part of it is the model and the potential scale. Y Combinator’s business model (also shared by investors such as First Round Capital) is predicated on making small investments in each particular company, then enjoying potentially good returns even on small-scale exits.
In theory, this should work fine. In practice, it runs up against issues of scale. Again in theory if you fund enough startups like this, one or two of them might be classic VC-grade home runs (say $100M plus exits). The question is how many you have to fund.
Graham talks about what happens when Y Combinator has to deal with 10,000 companies. Obviously, they’ll never be able to deal with 10,000 companies, let alone 1,000. Unless you’re planning on being a source of capital c’est tout, you need to provide some management attention to each of your portfolio companies. This is feasible for 20 or 30 companies at a time, depending on your staff size and the amount of streamlining you are able to do. It becomes increasingly hairy after that.
So you have to then wonder what types of returns – not multiples, but actual objective money – you can get from a strategy based on a few dozen companies with relatively small exit avenues.
And then there is the matter of follow-on funding: few are the companies that grow into significant Web properties without some degree of marketing. Which means that you go from investing a few hundreds of thousands of dollars to investing two or three million.
In short, big questions indeed. As a rule, I think that seed-stage investment approaches like Ofek are the right way to go for many of the Internet companies that we see. (And even then, I should point out that since the model is relatively new we have little data on the actual outcomes). Whether it will completely take over the VC biz, count me skeptical.
I had the pleasure of attending the second day of Geekcon 2007 this weekend at the Wingate Institute. As it was last year, Geekcon brought together several dozen extremely talented people who came up with a variety of weird and interesting projects to put together.
Among the ones I really liked were an attempt to do IP over semaphone, a very cool recreation of the Enigma encryption device put together using mechanical and electrical components only, and -- for sheer esoteric silliness -- Oren Tirosh and Kobi Sambrano's daytrading program which took its buy/sell cues from the movement of a lava lamp.
Geekcon -- like the Geek Garage which it spawned -- has an incredible and unique atmosphere about it. There's something about getting some of Israel's smartest and most creative technology people to work on amusing projects just for the hell of it that brings a flutter to my little heart.
I'm glad that Giza (which co-sponsors both the Garage and Geekcon along with Carmel) helps enable this unique forum.
I wasn't able to put together a project this year, but I've already started working on one for next year. In the meantime, I've posted some more photos on Flickr for your enjoyment.
I've been having quite a lot of face time with entrepreneurs at various networking events recently. While talking to people in the biz, a number of questions about Giza seem to pop up repeatedly. One is "you guys do Internet?" and the other is "you guys do seed investing?"
The fact that people are surprised that the answer to both questions is "yes" means that we're not getting our message out strongly enough.
Which brings me to the Ofek Program.
Giza has a special program which we call Ofek devoted to very early stage investments. Giza makes relatively small investments (generally up to $500K in the form of a convertible loan) in startups at the seed or even pre-seed stage. The initial investment is usually milestone-based and is intended to bring the company to a significant stage of development.
Assuming that the milestone goals have been met and the company still seems like a good investment, Giza will then look to lead the first institutional round.
We generally look at companies in the Internet/New Media/Gaming space as the best candidates for Ofek investments, given that their initial funding needs tend to be lower than those in other sectors of high tech. In the last 18 months, Giza has made 6 such investments. Two of these Ofek projects -- YaData and Koolanoo have already graduated to the status of portfolio companies.
With Ofek investments, we try to move as quickly as possible in order to make the decision-making process as simple as possible. In short, Ofek is our way of acting like Angel investors.
So spread the word: Giza does pre-seed and seed investing, and Giza does Internet investments. We'll be delighted to hear your ideas.
I know, the headline is obvious but I couldn't resist.
Glad tidings around the Giza office this week with the official announcement that Actimize, one of Giza's portfolio companies, is being acquired by NICE Systems. Actimize provides enterprise-wide solutions for brokerage compliance, anti-money laundering, and fraud prevention.
The deal is worth around $280M, which is a nice-sized exit by anybody's book.
Not that anybody is surprised. Actimize is a great company with great products working in a great market. You combine the three and you generally get some success. At any rate mazal tov all around!
Note: earlier this year, Giza invested in Koolanoo Group, a Web startup which creates vertical social networks. The company maintains two sites: Koolanoo.com – the first social network for young Jewish professionals; and 360Quan – a Chinese-language site which offers Chinese Internet users a wide range of social and entertainment-related features (e.g. blogging, video sharing, music downloads, and many more).
In the few months since it launched, 360Quan has become one of the fastest-growing Internet properties in China. I asked O.D. Kobo, co-founder, Chairman and CEO of Koolanoo, to write his impressions of the Chinese Internet scene. O.D. grew up in Asia, and currently oversees the company’s operations from its Beijing office.
I am completely fascinated by China’s Internet scene.
The melding of the economic magnitude of China and the powerhouse that is the Internet, what a combination! I greatly believe in the Internet industry in China and how important it is to be there.
Einstein said, “Logic will get you from A to B, but imagination will get you everywhere”. Well, if he were alive today, he would re-phrase the ending with, “imagination will take you to China”.
China has approximately 150 million surfers online and by 2009 it will be the largest online community in the world. But here is the rub: CNNIC reports 142 million online as of January 2007, Morgan Stanley reported 152 million in their assessment, and Deutsche Bank analysts have said 160 million.
Why the confusion? Internet cafes and multiple IP’s. There are over 135,000 Internet cafes in China, and as a result around 40% of the traffic comes from multiple users using a single reported IP (i.e., 1 Internet cafe has multiple users but one IP for all of them). During public holidays when Internet cafes are closed the online traffic drops by 35%. Even reputable Web statistical companies such as ComScore do not have good enough monitoring mechanisms for China yet. However, with a 26% annual computer growth rate compared to USA’s 2.2%, things will definitely change in the coming years. It is very difficult to assess the traffic and the usage of users from foreign companies with outposts in China, I prefer the local companies and my experience comes from “being local”.
The Internet will change with the awakening of China’s Internet industry. Online advertising will never be the same. Traffic will be referred to differently when discussing China. It is the last online frontier and the greatest place in the world to run an Internet start-up.
The industry in China is still very much at its infancy though. Think 1996 all over again, but with bigger numbers. There are a few giants like QQ, Baidu, Sohu, Sina, and 163, but even they have not reached their maturity yet. Netease’s 163, a leader in Web mail, only adapted a full blown marketing team this year. Baidu is constantly expanding. Sohu are doing some really interesting things with news broadcasting. And QQ, wow QQ, I love QQ, my favorite site on the Web. It’s China’s largest messaging service, and boy do they know how to operate a website.
I have had meetings with many of the senior level executives of the large Internet companies, some I call close friends. I am a big fan of the websites in China and the way they conduct business conduct. China operates Internet the way it should be run: strong, passionate and aggressive. Any other method is simply incorrect.
The users/surfers are the most fun. In the West, Internet users are spoiled with the vast variety of features and applications, everyone fighting over everything like advertising costs to bring traffic and sell space.
In China the issue is different. Sustainability is key -- staying in the game, because as the users grow so will you. If you operate a website in China and do not have heavy traffic within one year, you might as well go home. As most of the users online are between the ages of 18-25 (82%) most of the online activities entertainment-related as opposed to the West, which is information-related (Google, Wikipedia).
Viral marketing is still very fresh here, and the big sites do not make it easy for new ones to enter. But one of the biggest motivations for working so hard is to make a good product that you would want to use yourself. We thought we could contribute to the market. We at Koolanoo Group love great products, at our core we’re just a bunch of Internet junkies who want to create the best Social Network and offer it to our users.
360Quan recently became the official partner and sole Internet broadcaster of FTV (Fashion TV) for China. We believe it to be a landmark deal and a cool entertainment feature for our platform. This is a big thing, since cable TV is scarce in China. We are also implementing the mobile mapping feature this coming month. We are always looking to improve and add to our user experience. We’re a product company. We love great products, that’s what we hope to do.
As for the industry, well, it speaks for itself doesn’t it? China Internet, the sexiest two words in tech today.
And so, the big event was a success, I would say.
More than 500 people showed up at Gan Oranim Tuesday night, including just about everyone who is everyone in Israel's Internet industry. Ten companies showed off their wares, generally quite well. Shimon Peres made a slightly controversial (and in my opinion slightly rambling) speech about how the Internet means we shouldn't have to study history. And Yossi Vardi did his patented Vardi schtick. (Pictures from the event can be found here).
In all, an auspicious start to what hopefully will evolve into an institution.
I won't give my opinions of the individual companies (especially since I already did so). From reading other people's blogs, it seems that ClickTale, G.ho.st, and Double Trump made strong impressions. I would, however, like to address two issues.
A lot of the commentary notes that the companies didn't dwell on things like their revenue model, competition, or market analysis in their presentation. This is true and it was done on purpose. The companies each had seven minutes for their presentations, and we instructed them to focus on presenting their product and their vision. The rest of the pitch they could then save for potential investors.
Also, I heard a bit of grumbling about the quality of the finalists. Which I think is unfair and may stem from the wrong expectations about the event. If you came to the event looking to see the top 10 Web 2.0 hopefuls in Israel you might have come out disappointed. The finalists represented a broad spectrum of business possibilities available on the Internet, from classic Web 2.0/social networking sites to diagnostic services to B2B applications and technologies.
Also, while I think all 10 finalists have the potential to be viable businesses, not all of them (and perhaps not even the majority of them) are VC-grade investments. One or two have the potential to be significant exits. The rest may be successful on a scale that would make the founders and angels happy, but aren't large enough to interest heavier institutional investors.
Sadly, that's just how the game is played.
If you ask me the best thing about TWS is that it showed that there is a real internet industry here in Israel (or, as Deb Schultz put it, we've developed a scene like the one they had in Silicon Valley back in the good old days).
You suddenly see a lot of entrepreneurs trying out new ideas: very passionate Internet fanatics and kids who grew up on the Web. We're seeing second-generation Internet companies founded by people who worked at Hotbar, ICQ, and Incredimail. And you are increasingly seeing investors <shameless plug>who understand the potential of the Internet and who live it from the inside.</shameless plug>
As Martha Stewart would say, it's a good thing.
On Thursday I had the pleasure of sitting with Yaron and Yami from the co.ils and most of the 10 companies selected to present at Tuesday's TWS 2007 event. TWS has now grown into a major industry event, with several hundred entrepreneurs, investors, and other internet afficionados are expected to show up.
Thursday's meeting was a kind of prep session to see the presentations and to provide the companies with some constructive advice to make them better. So, who are the lucky companies? In no particular order:
In addition to the eight aforementioned, there are two other companies participating who did not participate the other day:
And so we go. Ten very different companies attacking different markets with different approaches. I'm not sure if the goal of TWS was to get a seriously wide variety of companies, but if it was then mission accomplished.
Hope to see you all Tuesday night in Gan Oranim.
This month's The Marker magazine features an interview with Oded Kobo and Guy Grinberg from Koolanoo Group. (Read the first couple of paragraphs here, afterwards you have to buy a copy of the mag).
The guys talk about 360Quan, which is now one of the fastest-growing Internet sites in China, and about the Internet scene in China in general. I think the interview gives a taste of why we decided to invest in Koolanoo and why we believe they have a real chance of making it big.
Linda Hufnagel, Giza's Director of Investor Relations, is also a very talented artist. She has just opened up an online presence to showcase her work.
Check it out here: http://www.lindahufnagel.com
Giza is proud to be one of the sponsors of the.co.ils Web Startup 2007, one of the more exciting upcoming events in the world of the Israeli Internet. TWS is a competition to find the best and brightest young Internet (or mobile Internet) companies and allow them to pitch their idea to a panel of leading VCs, angels, and Internet industry experts.
TWS comes to us courtesy of Yaron Orenstein and Yami Glick (our friendly neighborhood Internet gurus responsible for the.co.ils) and is based in part on startup competitions such as Demo.
The rules of the competition are fairly simple. Participant companies need to be involved in the Internet, need to have a great team, and need to have a product that is at least partially ready to demonstrate at the event. Anyone who fits these criteria is invited to register for the competition.
Companies will be screened by a panel of experts, who will pick the top 10 finalists. These finalists will present their ideas at the TWS event which will be held on April 10. Companies who did not make it to the top 10 are nonetheless invited to the event to benefit from the networking opportunities there. (Full contest rules can be found here).
Registration ends March 20, so hurry up and sign up.
I am very proud to announce Giza's latest investment in the Internet field: Koolanoo Group.
Koolanoo has developed a platform for creating and running vertical social networks. Founders Oded Kobo and Guy Grinberg believe that the future of the social networking space lies in finding new, more defined communities and exploring new geographical areas in which to launch new social networks.
Currently, the company maintains two sites:
Giza decided to invest in this project on the strength of entrepreneurs who are driven, energetic, and incredibly creative when it comes to new marketing efforts; as well as a vision which looks beyond just the usual US and English-speaking market.
Managing director Ori Israely led Giza's investment on this one, and I am proud to be a member of the team. Giza is also joined by a group of first-rate private investors.
Oded and Guy have a big vision for Koolanoo and it will be an interesting ride with them there.
Full disclosure: This post is about one of our portfolio companies. But it is a pretty cool company.
So at the risk of being accused of eating our own dog food, we invite everybody to try PlayOn Arcade.
PlayOn Arcade is a casual gaming site with a difference. Most casual games sites let you play free for an hour, after which you need to download the full version of the game and pay $20.
Here, you pay only for what you play. Instead of committing to any one game, you open up a PlayOn account which allows you to play all the games on the site for 1 cent a minute. The first hour of each game is still free, and if you play more than $20 worth of any one title, the game is yours to keep. No risk.
PlayOn is powered by Double Trump, one of Giza's portfolio companies, and a leader in the burgeoning field of micro-licensing. It's a new concept, but one which we feel has a lot of potential both for the gaming world and beyond.
In the meantime, they are helping turn me into a huge Diner Dash addict. But that's another story.
The Garage Geeks held its second meeting Thursday night. The occasion was the release of Guitar Hero II , which gave us all the opportunity to spend the evening drinking beer and rocking out.
(For those who haven't tried, it involves classic rock tracks, an obstacle course of sorts, and a customized game controller shaped like a miniature guitar. I wasn't quite able to get the hang of it)
The best part of Garage Geeks is that it gives us Suits on the finance side of Israeli high tech the opportunity to hang out with the entrepreneurs and other techies in a casual setting.
Props to Yossi Vardi who showed up to shmooze as well. A lot has been said about Vardi's commitment to Israel's internet entrepreneurs. But considering that the man probably has many things he could be doing on a Thursday night other than hanging out in an abandoned garage in Holon, it speaks volumes that he made the effort.
Some more pictures from the event:
Welcome to the Giza Internet Team's tech blog.
This blog is designed with a few purposes in mind. First and foremost, we hope it will serve as a tool to connect with entrepreneurs and techies, a way to share our personal views about the rapidly changing (and converging) Internet/mobile/IPTV world.
We hope we have something to contribute to the big discussion out there; we know we have a lot to learn. As such, the blog will help us focus and clarify our own thoughts, filter the signal from the noise, and help drive our decision processes better.
In time, we hope that people will comment and start a real discussion, so that we can gain insight from the blog as well as present our own ideas.
The blog will focus on a number of related issues:
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