Digital World: 'Freebie index' indicates local hi-tech in major funk
Venture-capital funds have become much more conservative in disbursing their largesse on startups.
By DAVID SHAMAH
After a "Winter of Discontent," it seems that some Israeli hi-tech companies may begin blooming during the spring and summer. While not as high-flying as in years past, this year's Israel Venture Association annual conference shows that there are still plenty of great ideas out there. And, if past experience is any indicator, great ideas eventually attract the money they need to take their rightful place in the marketplace.
Unfortunately, this year's "freebie index" was way down compared to previous years. But the IVA conference indicated that there is hope for a better tomorrow.
Trade shows aren't always the best place to get detailed information about the specifics of a company or a technology, but they're a great place to get an overall impression of an industry. So it was with this year's mid-May IVA show, coming after the traumatic financial events that have rocked the world in recent months. No doubt about it: Israeli hi-tech is limping as a result of those events, which have resulted in layoffs and company closures.
The startups' dilemma
Venture-capital funds, meanwhile, have become much more conservative in disbursing their largesse on startups. The performance bar has been set higher, so only ideas with the most merit - as in moneymaking potential - are going to get funded. It makes sense.
In the past, trade shows have been great places to score fun fanfare: T-shirts, hats, key chains, etc. - all those little "status symbols" that indicate you "know someone" in the business. (Don't try to deny you think those trinkets are cool!)
But as usually happens in a downturn, the giveaways are the first to go. I was lucky to get business cards out of some people! Clearly, if we are to judge by the "freebie index," Israeli hi-tech is in a major funk.
Without freebies to pursue at the show, I was forced to pay attention to the presentations and the technology of the companies attending. For balance, I sought out some investors (they were far more reluctant to speak than the tech people, of course, and demanded absolute anonymity). Thus I was able to gage the opinions of several people on the investing side of things, including one (very) heavy hitter.
To tie these diverse observations together: It's possible that next year's freebie index will be somewhat improved, as investors are itching (at least one told me) to get back in the game. And if the recent good news on the stock markets continues, investors will feel more confident to invest in some of the technologies that clearly are going to have a major impact on the way we live, when they finally come to market. And those technologies are definitely worth investing in!
First, the technologies: At the show, I spent a lot of time in the area called the "Startup Pavilion," where the real bootstrap companies hang out (as opposed to the more established startups that were presenting in the show's sessions). Among the very cool companies I came across were: InphoDrive (inphodrive.com), which is developing a voice-driven "infotainment" system for vehicles that will make driving safer; MobileRL (mobilerl.com), which has a product that lets advertisers and media researchers determine with much greater accuracy the effectiveness of their campaigns; Leviathan Energy (leviathanenergyinc.com), which believes that wind is a much better bet for alternative energy production than are solar photovoltaic systems; and BioSpiral (biospiral.com), with a technology that uses cooling and heating technologies to destroy prostate cancer, without need to resort to a knife.
I may have summed up their ideas in a line (because of space considerations), but rest assured that all four of these companies - plus numerous others - are doing unique stuff. VCs would already have pumped millions into these and other technologies if this were 2007 (I intend to profile many of these companies in future articles). But 2009 isn't 2007, as so many of us have found out in recent months (it should be noted that a number of these companies have products and services that are ready for market, and some are even working on "big deals").
The investors' dilemma
Trying to secure funding for a great technology nowadays is perhaps harder than it's ever been, but being an investor in times like these is no picnic either. VCs are in business to make money, not lose it; hence their conservatism in matters fiduciary at this juncture. The investors just aren't handing over the money the way they used to.
But what are their alternatives? Sticking the money in the bank for a grand 1 percent return? It works for awhile, several investors have told me, but banking investment money is not a long-term strategy: They didn't get where they are today by avoiding risk; just the opposite.
This is where the strategy being pursued by many governments around the world, which are pumping money into the local economies, comes in handy, one major investor told me. "A trillion dollars is big money," he said, referring to the potential deficit in this year's US budget, "and there's certainly a risk of inflation. But it's helping to build confidence, without which investors are just going to be too scared to invest in hi-tech. And we do want to invest in hi-tech, especially Israeli hi-tech, because Israel has traditionally had some of the most important startup technologies anywhere."
Among the people I spoke with were representatives of the New York Stock Exchange/EuroNext, who told me there were four IPOs so far this year on their global exchange. Considering where we were last October, it's a good sign - and hopefully augurs a change for the better.
When things turn sour, it's customary for pundits to push the "grim slide" theory: that things are bound to get worse. But keep in mind that some of the greatest innovations were actually first sold or marketed during recessions and depressions (tinyurl.com/cuwt8m).
Sooner or later things bounce back - and no doubt some of the technologies that are going to be poised to help turn things around were right there at the IVA show. And I expect some cool freebies when those companies do start making it big.
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