Digital World: Don't count Israeli hi-tech out just yet, says top VC chief
"The consensus seems to be that by the beginning of 2010, companies will begin to see significant growth in revenues."
By DAVID SHAMAH
Israeli hi-tech may be down, but it certainly isn't out, and the coming months could see local technology development roaring back stronger than ever. So says Yoram Oron, founder and managing partner of Vertex (www.VertexVC.com), one of Israel's largest venture-capital organizations. And if anyone is in a position to know what the future of hi-tech holds, it's Oron, whose company manages $600 million in VC money and funds mostly Israeli or Israel-related early-stage companies.
In an exclusive Yom Ha'atzma'ut interview with The Jerusalem Post, Oron says he is decidedly optimistic about Israel's hi-tech future. In fact, he says, "the consensus seems to be that by the beginning of 2010, companies will begin to see significant growth in revenues, which will be translated into financial performance several quarters later."
That growth, says Oron, will be strong enough to "raise the boats," fueling development in all facets of Israeli hi-tech - not just in the hot areas of cell communication or Web 2.0 applications, but also in "traditional" areas of IT development - bringing back the hi-tech jobs that were lost during the current downturn, and then some.
Oron has been working with Israeli hi-tech companies for decades. He was, among other things: president and CEO of Aryt Industries; co-founder, president and CEO of Reshef Technologies; co-founder and chairman of Telegate Ltd; and former chairman of the Israel Venture Association (www.iva.co.il).
Among his fund's recent successes was the acquisition of antifraud solutions provider Actimize (www.actimize.com), since acquired by Nice; semiconductor maker Siliquent, acquired in 2005 by Broadcom (bit.ly/195gPF); and optical-measurement solution provider Cognitens (www.cognitens.com), acquired in 2007 by Hexagon. Plus, he's brought many companies to market with successful IPOs.
Oron has seen companies come and go, and helped businesses thrive through good times and bad. While there is what to worry about, the overall picture is better than most people realize, he says, adding, "One needs to differentiate between the market for tech products and services, and the funding sources available to hi-tech developers."
Echoing the sentiments of many economists and experts, Oron says the problem is more one of Wall Street than Main Street. "The large US tech companies, like Apple, Microsoft and the cellphone producers and service providers, are doing OK, with sales down at most 5 percent or 6% overall," he says. "Lower sales in the US and Europe are being compensated for by steady demand in Asia. We have a similar situation in Israel; it's not that demand for products has evaporated, it's the financing for fledgling companies that is hard to come by."
While most of us are familiar with the credit crisis at the banks, VC and angel funding is extremely weak as well, Oron says, and the investment markets is basically treading water. "The financing food chain for start-ups is on the verge of collapse," he says. "One hopeful sign is that we have seen some activity in the mergers-and-acquisitions area recently. But overall, tech companies that have only their ideas and patents as assets are suffering."
Oron says he has become much more hopeful in recent weeks after speaking to high officials in the Finance Ministry regarding the government's business-bailout plan, announced last week. "The message is very clear that the people currently running the Treasury 'get it,' and their plan should help ease access to money for many start-ups," he says. "In addition, the government plans to significantly increase - perhaps double - the Chief Scientist's development budget, meaning that many more companies will have access to development funds."
It's the first comprehensive government response to the crisis, and it's a good one, Oren says, adding, "It's a serious plan that should accomplish what it is setting out to do."
And what projects, in his opinion, should the Chief Scientist be funding? Where are the strong growth areas going to be when things do bounce back?
"Everything," says Oron. "There is going to be huge demand for everything Israel specializes in, from broadband backbone to audio technology to last mile wired to wireless. Those who say that there is no need for many of the traditional technologies Israel has specialized in are just not aware of what is going on out there.
"Already there is a huge demand for technologies that can handle the heavy bandwidth necessary for the heavy Internet traffic generated by on-line video. This market, along with many others, will continue to show strong growth, and it is in these traditional IT areas that Israel has a strong presence."
Israel's medical-technology providers will also see strong growth, Oron says, while cleantech/greentech is likely to have less of an impact on local growth than many expect. "Much of the IT work being done by private companies trickles down from research and work being done for the IDF," he says, "so we have a built-in market to produce for - something that doesn't necessarily exist for cleantech applications."
That's not to say there won't be growth in that area as well, says Oron, but the areas that Israel has excelled in for years will continue to be just as important, if not more so, for local companies.
And despite rumors to the contrary, Israel's technology base and innovative drive is as strong as ever, he says. Commenting on the latest doom-and-gloom rumor - that China is somehow supplanting Israel as a world center of innovation - Oron says nothing could be further from the truth.
"I have been in this business for many years, and every little while someone comes up with a similar idea, that Israel is losing its edge," he says. "Everyone we speak to - world-class investors, people from Silicon Valley, the elite of IT - who looks at the business plans, technologies and business models of Israeli companies comes away highly impressed. I won't say we don't have some weaknesses when compared to China or India, but losing our innovative edge is definitely not one of them."
With all that expected growth, says Oron, those who were laid off this year have a good chance of getting a job - perhaps even their old job - next year. "The layoffs have not been uniform; we've been seeing two kinds of layoffs in recent months," he says. "While everyone is cutting back, those working for local branches of multinationals are being more badly affected, since the multinational tends to protect workers in their home country, preferring to sacrifice their foreign satellites. But that's this year; soon, hopefully by next year, the tech sector will be perhaps the world's fastest growing sector.
"Based on the amount of data being generated and the services currently available to fulfill those needs, it's quite clear that the market demand will be strong. And when the financial markets come back and funding is available, growth will be as strong - and probably stronger - than it has been in recent years."
It's an optimistic forecast, but as someone in a position to know, Oron's optimism can give all of us hope that next Yom Ha'atzma'ut will be a lot happier for many more Israelis!
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