In February 2006, Israel’s Gemini Israel Funds and Lightspeed Venture Partners announced the establishment of a joint venture, Lightspeed-Gemini Internet Lab. The joint venture is due to invest in ten seed-stage Internet start-ups, investing up to a maximum of $1 million in each company. The two funds have allocated an initial $10 million for the venture.
Last week, former Shopping.com chairman and CEO Dan Ciporin was appointed chairman of Lightspeed-Gemini Internet Lab, and Ouriel Ohayon was appointed general manager. They will manage investments and assist portfolio companies. Two partners from each fund will work at Internet Lab, assisting Ciporin and Ohayon, and working with the portfolio companies: Lightspeed general partners Jake Seid and Ravi Mhatre and Gemini general partner Tali Aben and partner Daniel Cohen.
Lightspeed-Gemini Internet Lab’s stated mission is to invest in Internet companies, expand Internet activities in Israel, and increase the number of companies able to break into the global market. Investments will therefore focus on ventures developing Web 2.0 ideas, content, e-commerce, and applications for mobile devices.
Israeli venture capitalists raised eyebrows in response to the establishment of Lightspeed-Gemini Internet Lab. Except for a few companies such as ICQ and Shopping.com, Israel has never been an Internet powerhouse.
Ciporin could well be the best choice for the job. 47 years old, he was chairman and CEO of Shopping.com between 1997 and 2005. Shopping.com, originally called Dealtime, was a price comparison website. The company successfully went public on Nasdaq 18 months ago, and was acquired by eBay Inc. (Nasdaq:EBAY) for $634 million a year ago. Ciporin resigned from the company shortly before it was sold. Before joining Shopping.com, he was an executive VP at MasterCard.
In an exclusive interview with “Globes”, Ciporin said he was pleased to accept the job. “From a personal viewpoint, the idea is special. Israel is known as a place of innovation and creativity in high-tech. As a result of my involvement with Shopping.com, I know Israel’s entrepreneurship culture well, as well as local technological innovation. Israel is the place. The idea of a lab is attractive, because we’re talking about one of Israel’s top venture capital funds with a leading Silicon Valley fund joining together to set up Internet companies. It seems to be to be right and effective and suitable for entrepreneurs. The idea of a venture that can gamble on very early-stage companies solves quite a few problems of venture capital funds that often cannot invest in companies at these early stages. I believe that the next generation of Internet companies will come from Israel.”
“Globes”: Haven’t you had enough of Israel?
Ciporin: “Certainly not. I liked the idea for the Lab because it will enable me to stay in contact with Israel’s high-tech business community and to do what I love doing: advising companies from the earliest stages. I like doing business in Israel, and I like the mentality”
But Internet companies? There are few successful Israeli Internet companies.
“Israel has had two fine successes: ICQ and Shopping.com. I believe that the time is ripe for change. Israel has a new infrastructure that will enable the growth of new Internet companies. As I see it, Israel’s high-tech industry started out in hardware, moved to software, and is now ready to turn to services.”
Cohen is quick to add, “Skype didn’t emerge from the US, but Europe. I think that it’s now possible to establish an Internet service company almost anywhere in the world. There are opportunities in the Far East and Europe, and we believe in Israel, too. The Lab is our way of changing the concept in Israel and driving the sector forward.”
This isn’t just another fad? Just when Israeli venture capital funds are avoiding investing in software companies, you’re looking at the Internet?
Cohen: “We believe that the local market has good opportunities in the Internet, as well opportunities in enterprise software. One is not linked to the other.”
How will you make your investments?
Ciporin: “Investment will be on the basis of ideas, regardless of valuations, which is the normal practice of venture capital funds when they consider investing in a new company. We’ll invest and gamble, and we can defer dealing with valuations to a later stage, the first financing round stage. I believe that this will be very attractive for entrepreneurs who are at the initial concept stage. We’ll cooperate with them in the preliminary stages of feasibility and research of the market for which the idea is intended. Entrepreneurs will benefit from all the advantages of the assistance a venture capital fund can provide, without having to deal with the less pleasant aspects.”
Companies developing Internet concepts is a very broad field. Which fields will you focus on?
“We’re looking for innovation. Entrepreneurs who will take ideas from various fields and reapply them to the Internet, such as linking enterprise networks with e-commerce, advertising, and in general, a new approach. We’re not looking for something that can already be found,” Ciporin adds with a smile.
Ohayon will be responsible for locating deals and offering operational support to companies in the Lab. He has experience from international Internet and consumer and retail marketing, companies. He was director of sales and partnership at AOL subsidiary ICQ, where was he was promoted to regional business director for Europe and Asia. He has also served as a manager at Reckitt Benckiser plc (LSE:RB) and Groupe Danone (NYSE: DA; XETRA; Paris: DANO). He is an active Internet/Web 2.0 opinion leader, serving as one of the main contributors of TechCrunch.com and editor of its French version, two of the leading blogs on new Internet startups.
Ohayon will manage the Internet Lab’s day-to-day affairs. He will filter the deal flow, hold initial meetings with entrepreneurs, and coordinate activities in Israel and Silicon Valley. He says the Lab will be the first station in a company’s life. “The Lab will provide the earliest financing and more. The idea is to guide the company, and support it through different stages of growth. The funds’ resources are available to them. Dan understands the industry and has the connections, which can help companies at the concept and market research stages.”
An opportunity for funds
Cohen adds that the Lab is definitely supposed to expand Gemini and Lightspeed’s deal flow. “We want to build companies. It’s always hard to predict what will happen, but the idea is to put money at the seed stage, work with the company in order to make entrepreneurs’ concept capable of implementation. This is good for us as a venture capital fund, and it’s also good for entrepreneurs. No one knows at these early stages whether an idea has a chance of turning into a successful company or not.”
Ciporin says, “Expanding the deal flow at lower risk. Instead of the funds gambling $3-5 million on an idea, they’ll have an opportunity to do this at an earlier stage. Before venture capital funds invest in a company in the first financing round, they want to a product prototype. The Lab will make possible it possible to invest in companies even before the prototype stage, and they’ll be better prepared when they reach the first financing round.”
Ohayon says, “This naturally depends on the company. Until a company can hold its first financing round, in other words, when it has a product prototype or market trials. We won’t set the time in advance, but a company will have to reach a certain milestone. Of course, if a company doesn’t reach this stage, when it’s clear that the concept won’t work, we’ll let it go.”
Ciporin will devote one day a week to the Lab. “I’ll help pick the companies, I’ll advise them, and I’ll help them with connections, and in formulating strategy,” he says.
The two representatives of Gemini and Lightspeed will be involved in the companies’ boards. Cohen says that for Gemini, the Lab is a tool for building an investment infrastructure in the field. “This is a tool for understanding the market with fairly limited means, compared with the amount of financing for semiconductor companies. We feel that it’s possible to grow in the field, and we believe that this is the way, with experienced people from the US. It looks like an equation with pluses on both sides.”
Why hasn’t the services sector succeeded in Israel?
Ciporin: “In general, Israel didn’t benefit from the bubble. US venture capital funds benefited, which created for them an appetite to make more investments. This cycle gives rise to more companies and more entrepreneurs. I believe that we’ll see this happen in Israel, too. I believe that we’re already seeing the first signs of this, in the form of Israeli executives in leading Internet companies such as Yahoo! and eBay. Shopping.com was Israeli, and I think that the stereotype is about Israelis’ limited ability in marketing. It’s possible to do what we did at Shopping.com, until the skills in the sector are developed here, bringing professionals who succeeded elsewhere.”
They add that Lightspeed’s partners have already generated a number of Internet successes, including DoubleClick Inc., Blue Nile Inc. (Nasdaq:NILE) and Phone.com (now OpenWave Systems Inc. (Nasdaq:OPWV). Lightspeed manages $1.3 billion, and invests in early-stage companies in the US, Asia, and Israel. Prior investments in Israeli companies include OpTier Ltd., Personeta Inc., MonoSphere Inc., and Contigo Ltd.
The enthusiasm is mutual. Last week, Seid said, “Lightspeed’s partners have been investing in Israel for a decade. This is a wonderful opportunity for us to work with Gemini to promote an Israeli Internet industry. We’re very impressed by Israel’s entrepreneurial and business activity in the Internet sector, and we see many possibilities for investment in this area.”
Published by Globes [online], Israel business news - www.globes.co.il - on May 31, 2006
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