Guy Grimland wrote a piece (Hebrew link) in The Marker the other day about highly promising Israeli startups not backed by Israeli VCs. The piece came after reports that targeted ad serving company Quigo has been bought by AOL for around $300M. (Quigo founder Yaron Galai, it should be mentioned, strongly emphasizes that this is still a rumor).
Alongside Quigo, the piece looks at a couple of other high-flying Israeli startups like Oberon Media, Mobileye Vision Technologies, and SuperDerivatives. These have variously raised extremely large financing rounds and/or have significant revenues. And, like Quigo, each managed to make something of itself initially without VC financing.
The question is whether there we can learn a lesson about the structure of the Israeli high-tech market -- and specifically about the way VCs work within this market -- from the success of these companies. I'm not entirely sure.
First off, I think Ori Kirshner (my boss) gave the best answer in the article by pointing out that while Israeli VCs did miss the ball on Quigo, there have been quite a few other success stories recently that were VC backed.
Beyond that, to say that VCs dropped the ball on Quigo, Oberon, et al. is oversimplifying the case. VCs look at many hundreds of companies a year. Each rejection is its own story. Sometimes, the companies themselves reject VCs, because they find they get what they need from angels or they have chosen to bootstrap it.
If there is a lesson to be learned here it might be one of broadening our horizons. Each of the companies mentioned above operates outside the "traditional" realms like communications technology or enterprise software that Israeli VCs historically invested in. Quigo and Oberon are Internet/gaming plays; Mobileye does technology for the auto industry; and SuperDerivatives provides a software solution for the financial world. The fact that most of them were set up in the post-bubble period (during which a lot of VCs became more conservative in their decision-making process, especially with regards to Internet companies) probably contributed as well.
At any rate, I hope the rumors surrounding Quigo are true. Not only because I wish the founders well (which I do), but also because it will help further establish new sectors in Israeli high tech as "interesting" from the financial perspective.
Shai - thanks for the thoughtful post. Without commenting on the speculations part, I thought I'd just add a few thoughts about Israeli VC's re missed opportunities:
1) When we were doing our VC rounds (2000-2003), my feeling was that most VC's were looking hard for reasons why NOT to invest, rather than looking for reasons why they should invest.
When looking at deals that way, especially early stage companies, it's always easy to find reasons to avoid an investment. And with Quigo in particular it was probably very easy to find such reasons - we were in a terrible category (online advertising and search), we weren't 8200's, etc, etc.
When we started talking to VC's in the US, that difference became very noticeable - we met quite a few VC's who are looking for every reason they could dig up to make a deal happen.
I think that is something most VC's in Israel can definitely get better at.
2) While the companies you mention might have been a miss for the Israeli VC's, I agree with you and Ori that it's a relatively insignificant number compared to the # of successes backed by Israeli VC's. It's just one of those stories that journalists crave for (sells more newspapers, I guess), so it'll probably be amplified way beyond the exposure it really deserves.
3) Lastly - before everyone dismisses Quigo as a miss for Israeli investors - it's important to remember that the wonderful folks at GlenRock (www.grg.co.il) were early believers and backed us in the very early days.
Posted by: Yaron Galai | November 06, 2007 at 08:40 PM
"If there is a lesson to be learned here it might be one of broadening our horizons"
amen for that.
People tend to forget that VC are investing in areas that are high risk - meaning, no one KNOWS what will work and what not (only the guys who own the startup BELIEVE that they have something grand in their hands). I hope that VCs will invest in new kinds of companies (media companies without technologies anyone?), but I agree that there are many failed and successful cases that shows the opposite of Guy's opinion.
Posted by: Kfir Pravda | November 07, 2007 at 12:04 AM