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Monday, May 30, 2011

Israel's VC and startup industry headed for collapse?

Is Israel's venture capital and start-up industry headed for collapse? So says Zeev Holzman of Giza Ventures, but others disagree (Hat Tip: Gary P).
Famously and strikingly, last year zero dollars in new venture funds were raised. This year things are looking up, with another big Israeli VC, Pitango, raising $350 million. But the picture is still dire.

Why is Israel, the "Startup Nation" with more Nasdaq-listed companies per capita than any other country, in such a funk?

One reason is that Israeli startups have often been specialized in sectors like security, semiconductors and networking equipment, which can be capital-intensive and that many feel are "played out" for startups.

Another reason is that, like everywhere else, venture firms got too big too fast with the dotcom bubble and so have been delivering poor returns for the past decade. When the lousy VC firms wind down it's going to be felt more in tiny Israel than in Europe or the US.

There's a bright light however: Israel seems to start to "get" the consumer internet. Facebook just bought a local startup for $70 million. Famously, MyAncestry is the fastest-growing genealogy site, crushing Silicon Valley and PayPal Mafia darling Geni. (Believe it or not, genealogy is a huge market online, so this is a big deal.)

The appeal of the consumer internet isn't just that it's sexy, it's that it's much more capital efficient than other sectors, and also seems to be where all the innovation is.
I also note that they don't mention the medical sector, another sector in which we seem to be doing quite well.

I wouldn't count out Israeli venture capital yet, although some sectors might see (and are seeing) a retrenchment.



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