For more than two years, we have been warning about the disappearance of venture capital funds. Now that everyone knows that it is a fait accompli, the industry has split into two factions. The first faction is made up of funds we can call "Zombie funds." These are funds that have run out of capital and whose investors are performing artificial resuscitation. Their offices have been closed, and their partners are searching for a new business model. The second faction is made up of the survivors - those who got lucky, or that still have another million dollars in the bank, which will enable them to survive another two years or so, until they raise the next fund.
It turns out that even the survivors are far from happy with the situation. A partner in such a fund who attended the "Globes" Israel Business Conference last week told us, "It's not pleasant to be alone. In the past, there was a community - there was always somebody to talk with. It was always possible to make deals together, to consult and reassure each other. This has almost completely disappeared. Now, when we need partners for new investments, we only search overseas. It's much less convenient to fly to California instead of getting together for half an hour over coffee."
The partner said that even US investors who have been coming to Israel for years and investing in domestic companies don't really understand the nature and culture of the Israeli market like local players do.
Another troubling factor is the number of entrepreneurs, which is climbing exponentially. "We have seen an increase of tens of percent in the number of applications. Both the experienced and the young entrepreneurs know how to read the situation, and who has money. We are saying 'no' more than ever. There is a limit to how many investments we can become involved in," the partner said.
The survivors' troubles are the troubles of the rich, but the disintegration of the venture capital community will affect all of us in the long-term.
2. While venture capital is in the twilight zone, efforts to create models and tools to connect entrepreneurs with money have not stopped. A new website brought entrepreneurs together with investors this week live on the Internet. Face-Them launched a website whose goal is to provide a forum for entrepreneurs who wish to present their wares, and for investors who would rather watch entrepreneurs making their pitch than watch football.
The English language program has already been broadcasted twice. Each entrepreneur has 20 minutes to talk about his or her business and technological vision, and to state what kind of investment he or she is interested in. The idea is to save entrepreneurs and company managers from having to make the rounds to all the funds and investors overseas, and also to save investors from having to meet with far too many entrepreneurs.
Published by Globes [online], Israel business news - www.globes-online.com - on December 19, 2011
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