VC

There is an old saying, many variations of which have appeared at various times, that goes, “One time is happenstance, twice is coincidence, three times is a pattern.” Based on this logic, I hereby declare the hot trend in the Israeli high-tech investment community to be organized very early-stage financing.  

Exhibit number one: a fascinating piece written by Bill Burnham called “The Great Abdication” in which he writes about the current challenge that Internet/Media/mobile apps startups face when trying to raise money these days.

“Anyone who has recently spent anytime fundraising for a consumer internet start-up in Silicon Valley quickly comes to an inescapable conclusion: there is effectively no Venture Capital available to Consumer Internet startups.”

To summarize his main points: There is a mismatch between the ever-shrinking cost of starting up a Web startup and the ever-growing size of VC funds who are looking to deploy larger – rather than smaller – investment sums   Many VCs don’t get the Internet/Media space and see success and failure as almost entirely random. (Not a joke – the number of times I’ve heard older VCs compare Internet investing to investing in movies)

Exhibit number two: IVC’s recent survey of investment activity in Israel (noted, among other places, here)  which shows a sharp drop in first-time investments by Israeli VCs from 2008 to 2009, albeit a slight increase in the number of seed-stage investments.  

The picture therefore is not necessarily a happy one if you are a very early-stage Israeli Internet startup, especially a B2C oriented one. Whether or not this is due to Israelis’ inability to create Internet success stories is a subject for a different blog post.  

So, what are the options for your average very-early stage Internet company? The obvious answer is angel investors, whether solo or as groups. This is your best bet to get enough money to develop your product/technology and get it to the proof of concept stage. The main drawback is that angels tend to make smaller investments, usually sub-$500K and may or may not bring any added value to your venture.  

Which brings us to Exhibit number 3: Robert Scoble has also noticed this trend and also notes the rise of organized groups such as Y Combinator and others which provide both investment, centralized services, and advice to puppy startups in order to get them to a point where they can raise a more substantial financing round.  

As of yet, Israel lags behind our friends in the States, lacking both an established Y Combinator and dedicated early stage funds such as Union Square Ventures or First Round Capital.  

The good news is that we are beginning to see a little bit of movement in this direction. In recent weeks we have heard of three different types of fund, all of which are geared towards helping out very early stage companies:

• Platonix Joint Ventures - Platonix offers business and technological development for entrepreneurs with interesting ideas in the world of software. Platonix works on the “sweat equity” model, offering their services in return for equity rather than directly making investments
• Yatir VC - Set up by Avi Domoshevizki (late of Battery Ventures) and Sani Sanilevich they offer technological and business mentoring as well as early stage financing
• Kima Ventures - Set up by Jeremie Berrebi and others, Kima is a Y Combinator-type micro fund looking to invest small amounts of capital in many early stage startups in Israel and Europe

I should take the opportunity here to mention Giza’s Ofek Program as well. Although we are looking for more developed companies than early-early stage, Giza is looking to invest sums in the $500K range as well as looking to syndicate with other investors for larger rounds in early stage companies.

Other funds have their own takes on early stage investing. We shall see where things develop.

[This blog post is by Ben Horowitz, the Horowitz of Andreessen Horowitz.] At our new venture fund, we’ve been spending time looking into new ways that will make the lives of entrepreneurs seeking funding easier. To that end, we've linked... Ben Horowitz

[This blog post is by Ben Horowitz, the Horowitz of Andreessen Horowitz.]

At our new venture fund, we’ve been spending time looking into new ways that will make the lives of entrepreneurs seeking funding easier. To that end, we've linked up with Ted Wang who has been working on an open source legal project called the Series Seed documents. We’re impressed with his work and are going to use these standard funding documents as part of our seed stage investments wherever appropriate. 

We have to give a big shout out to Ted: he nailed this. It’s exactly in step with our intention of letting entrepreneurs focus on building businesses in today’s environment, without having to follow old VC rules.

In a nutshell, entrepreneurs and the businesses they are starting have evolved. Start ups today don’t need to build a manufacturing plant (as DEC, the very first high-tech VC investment, did in 1957) to start a business. They need less money to build a product and prove that it works before scaling the business. Yet, the paperwork involved in funding entrepreneurs hasn’t changed to meet these needs. Series Seed is the first to establish this new way of supporting funding suited for today’s entrepreneurs – and we’re big fans. 

Let us know what you think: check out the Series Seed documents, and share your thoughts. 

Here’s more background on our thinking behind how entrepreneurship has changed, creating the need for these simplified funding documents. I'm speaking here from the point of view as both an angel investor and a venture capitalist, two very different kinds of investors. 

Angels vs. Venture Capitalists

Why do angel investors exist?

Before answering these questions, it’s useful to ask and answer a related question: why are there angels and why have they become more prominent in the last 10 years? After all, doesn’t the definition of venture capital include all of the activities that angels perform? 

The answer lies in the history of technology companies and the differences between how they were built 30 years ago and how they are built now. In the early days of technology venture capital, great firms like Arthur Rock and Kleiner Perkins funded companies like Digital Equipment Corporation (DEC) and Tandem. In those days, building the initial product required a great deal more than a high quality software team. Companies like Tandem had to manufacture their own products. As a result, getting into market with the first idea, meant, among other things, building a factory.  Beyond that, almost all technology products required a direct sales force, field engineers, and professional services. A startup might easily employ 50-100 people prior to signing their first customer. 

Based on these challenges, startups developed specific requirements for venture capital partners:

• Access to large amounts of money to fund the many complex activities
• Access to very senior executives such as an experienced head of manufacturing
• Access to early adopter customers
• Intense, hands-on expert help from the very beginning of the company to avoid serious mistakes

In order to both meet these requirements and build profitable businesses themselves, venture capitalists developed an operating model which is still broadly used today:

• Raise a large amount of capital from institutional investors
• Assemble a set of experienced partners who can provide hands-on expertise in building the product and then the company
• Evaluate each deal very carefully with extensive due diligence and broad partner consensus
• Employ strong governance to protect the large amount of capital deployed in each deal. This includes requisite board seats and complex deal terms including the ability to control subsequent financings
• Manage own resources effectively by calculating the amount of capital/number of partners/maximum number of board seats per partner to derive the minimum amount of capital that must be invested in each deal 

It turns out that building a company has changed quite a bit since the early days of venture-backed technology companies. Building a company like Twitter or Facebook is quite different from building Tandem. Specifically, the risk and cost of building the initial product is dramatically lower. I emphasize product to distinguish it from building the company. Building modern companies is not low risk or low cost: Facebook, for example, faced plenty of competitive and market risks and has raised hundreds of millions of dollars to build their business. But building the initial Facebook product cost well under $1M and did not entail hiring a head of manufacturing or building a factory. 

As a result, for a modern startup, funding the initial product can be incompatible with the traditional venture capital model in the following ways:

• Lengthy diligence process. Venture capitalists take too long to decide whether or not they want to invest because they are set up to take large risks and have complex processes to evaluate those risks. 
• Too much capital. Venture capitalists need to put too much capital to work – often a VC will want to invest a minimum of $3M. If you only need 4 people to build the product and get it into market, this likely won’t make sense for your business.
• Board seat. Venture capitalists often require a board seat and, for that matter, a board of directors be formed. If 100% of the company is building the product and the team knows how to do that, then a board of directors may be overkill. In addition, it may be too early to decide who you want to be on the board. 

As a result of the above, a venture capitalist usually requires a serious commitment from the entrepreneur to pursue an idea that is highly experimental. If the product doesn’t stick, it might make sense for the entrepreneur to pursue a totally different idea or drop the business altogether. This is much easier to do if you’ve raised $300,000 than if you’ve raised $3,000,000. 

As entrepreneurs needed someone to bridge the gap between building the initial product and building the company, angel investors stepped up. 

Angel investors are typically well-connected, wealthy individuals. They generally use their own money and come with none of the above VC constraints describe above: they don’t go on boards, they don’t need to put in lots of capital (in fact, they usually don’t want to), they prefer dead simple terms (as they often don’t have legal support), they understand the experimental nature of the idea, and they can sometimes decide in a single meeting whether or not to invest. 

On the other hand, angels do not manage huge pools of capital, so entrepreneurs need to find someone else to fund the building of the company (as opposed to the product) and most angels do not plan to spend a great deal of time helping entrepreneurs build the company. 

One more thing before answering the original question

Before getting back to the need for the Series Seed documents, it’s important to distinguish venture rounds and angel rounds from venture capitalists and angel investors. It’s possible for a venture capitalist to invest in an angel round and vice-versa. Sometimes this is a great idea and sometimes it’s tragic. We’ll first examine the rounds and then the investors. 

When should you raise an angel round and when should you raise a VC round?

This question really comes down to the company’s development. If you are a small team building a product with the hope of “seeing if it takes” (with the implication being that you’ll try something else if it doesn’t), then you don’t need a board or a lot of money and an angel round is likely the best option. On the other hand, if you’ve developed a strong belief in your product or your product idea and you are in a race against time to take the market, then a venture round is more appropriate. You will benefit from both the extra capital and extra support that comes with a serious and large commitment from your investors. 

So who is qualified to invest in each?

Obviously angels can invest in angel rounds, but what about VCs? Is it safe to have them participate? The answer turns out to be “if and only if they behave like angels.” What does it mean for a VC to behave like an angel? Well, they must:

• Be comfortable investing a small amount of money, e.g. $50,000. 
• Be able to make an investment decision quickly, e.g. in one or two meetings
• Be able to invest without taking a board seat
• Not require control of subsequent funding rounds
• Not impose complex terms

If the VC wants to be in the angel round, but refuses to behave like an angel, then entrepreneur beware. Having a VC who behaves like a VC in the angel round can jeopardize subsequent financings. 

Angels can be great participants in venture rounds, but it’s generally better to have a VC lead those deals as they have more financial and other resources required to build the company.

What does this mean about Andreessen Horowitz and the types of investments we'll do?

As I stated above, at Andreessen Horowitz, we invest in both venture rounds and angel rounds. When we invest in angel rounds, we behave like an angel. As angel investors, we can invest as little as $50,000, we do not take board seats, and we do not require control. 

Rooted in this desire to help germinate quality ideas, our support for Seed Source legal docs will allow both us as investors and the entrepreneurs we fund to focus on building a winning product rather than scrutinizing legal docs. 

Another Cellcom (Israeli cell operator) wonder! I just acquired an unlimited data package so i can surf with my iPhone and use it as a modem for tethering. I insist my iPhone is 100% legit, acquired in France and paid... Ouriel Ohayon

Another Cellcom (Israeli cell operator) wonder!

I just acquired an unlimited data package so i can surf with my iPhone and use it as a modem for tethering. I insist my iPhone is 100% legit, acquired in France and paid the extra to get it unlocked and usable anywhere.

Today i discovered that the tethering, is not properly working although i was garantied when i acquired it, that everything would be fine. It is working when you are connecting your iPhone to your Mac via USB. But not over bluetooth, which is the whole point of that option

I do not want to Jailbreak my phone (by doing so, it is quite easy to make it work). I want to keep it clean. So i called the Cellcom customer support to find out the issue. And i have no answer

Today Cellcom explained me that they do not provide customer support to Mac owners, because the company decided not to. Meaning that if you have any sort of issue with your iPhone which is related to your Mac (connectivity, iTunes,...) no support is provided. 

Rewind. I spend 30 min on the Phone with a sale representative. No mention of that. I was in their shop today for 30 min. No mention of that. There is something wrong in their sales process. Or they assume PC market share in Israel is 100%. 

The only way i had to find out was to get stuck with a bug and call the customer support. FAIL, FAIL, FAIL!

We are in 2010, Mac has been sold in Israel for more than a year and Cellcom decides not to provide support to Mac owners in Israel. What a wonderful news!

Cellcom simply offered to cancel my data package, but i don't want to because the alternative is just to move to another operator and it is a real nightmare to do it. So i am stuck

until i find a solution. Or some reader from this blog can help me to.

Cellcom in the meantime acknowledges there is no need to provide support to Mac customers. I know a few people that are going to be upset about that!

btw i assume the same answer will be provided by Cellcom to Android customers

note: written from a nexus one mostly.

I have dragged myself to abandon my iPhone and use the Nexus One, freshly acquired (yes, acquired, not provided by Google). I am now absolutely certain of one thing, the iPhone will continue to rule for some time. Although the Nexus one has some brilliant features it does not make a single shadow on the iPhone and those who claim the opposite have not tried enough both phones

Google, if you will go one making phones like those, please just keep doing what you know to do best: Awesome search, Awesome cloud services like Gmail. Stop hardware.

I am listing below some observations i had

• The trackball is a stupid, useless feature, it does not serve to a single thing. The touch screen if it was accurate enough would call the termination of this extra-redondant piece of hardware
• At least they could have used the trackball to activate the home screen, like on the iPhone. No,...you have to each time, press the top button to get access to the unlock screen feature. STUPID
• The screen is gorgeous, but unreadable in daylight. iPhone wins big
• Gmail. Believe it or not, this is the worst part of the Nexus one. Whoever created that app is not using Gmail. One example: the reply button. you have to go down the email (good luck if long) to find it. It should have been made a key short cut.
• Keyboard: not accurate at all. I tried several substitute (swype and anykeyboardsoft) but nothing comes as close as the precision of the Iphone. The most terrible part of the keyboard: they space key is right above the home button of the Nexus One. with a normal finger 9/10 chances that you will espace your message being written in the middle without even noticing. Even by being carefull you won't get used to it. TOTALLY STUPID
• Calendar: pretty nice, but again total navigation nonsense, To move to a day to another you swipe sideways. But to move to one month to another in months view, you have to move up and down. WHY???/??
• Voice search: big fail/ does not work
• Multi touch: big fail. the iPhone is so ahead in terms of precision and responsiveness. With the left hand swiping simply does not work
• Camera: big win. Awesome
• Connection to a computer: What a nightmare, it took me 3 google search and 4 forums to find out how to access files from my computer.
• Apps: big fail. A minority are good. The rest has to be simply killed
• Phone: sound is good, but the speaker is placed in such a way you need to find the right position to hear what the other person says
• Multi Tasking: Elegant, big win. THE ONE thing i miss from the iPhone. I am sure it will come to the iPhone soon in some way. 

Android will eventually get there, But it is not there yet. The Nexus one is a tiring device. the integration soft/hard is not good (enough). The iPhone with all its limitations is easy, fast and elegant. i prefer the 20% iPhone limitations to the 80% Google phone openness 

So i am going back to my iPhone. Gladly.

note: written from a nexus one mostly. I have dragged myself to abandon my iPhone and use the Nexus One, freshly acquired (yes, acquired, not provided by Google). I am now absolutely certain of one thing, the iPhone will continue... Ouriel Ohayon

Read in the NY Times

Israel, with seven million people, attracts as much venture capital as France and Germany combined

the funny thing is that i live in israel but got funded in France :)

Read in the NY Times Israel, with seven million people, attracts as much venture capital as France and Germany combined the funny thing is that i live in israel but got funded in France :) Ouriel Ohayon

Since we announced our round table with AppsFire with French investors, and leaked a few pictures of our new office in Paris, many reached out thinking i was leaving Israel. I am NOT leaving israel. There, i said it. AppsFire... Ouriel Ohayon

Since we announced our round table with AppsFire with French investors, and leaked a few pictures of our new office in Paris, many reached out thinking i was leaving Israel. 

I am NOT leaving israel. There, i said it.

AppsFire is a french company, and Yann, my co-founder lives in Paris. Our office is indeed in France, but i am working from Israel. As a matter of fact we already hired someone to work with us also in Israel. The operation is split between France and Israel. Most of the people we ll hire we ll be based in Paris for now. Actually we already hired a great talent there.

I believe, any business on the internet can be started from anywhere. Most of our traffic is split between the US, Europe and Japan. So it only reinforces the argument that it does not really matter where you are at the beginning. The company could have been registered in Israel equally. But for many reasons we preferred to do it in France (mostly because France is a strategic market for apps, the #2 iPhone market in the world also)

At some point of scale we ll have to evaluate that again. I created TechCrunch France from Israel. I see many Israeli or europeans startups succeeding in the US without having the need to relocate from day 1.

Israel, is my second first country (france is #1). I will travel a lot. 

that s all.

note: written in plane. so apologies for typos and lack of editing Today i understood what it really costs to pay cheap. Easyjet is a perfect example of what happens when you go to cheap and cut any key aspect... Ouriel Ohayon

note: written in plane. so apologies for typos and lack of editing

Today i understood what it really costs to pay cheap. Easyjet is a perfect example of what happens when you go to cheap and cut any key aspect of the user experience when you mostly need it: in case of problem

Easyjet yesterday cancelled a flight. Lastminute. I discovered that on site. No notification although the knew it 2h before and had my email

>> The worst part is coming.

There was 2 personns to handle 100+ travellers at a rate of 1 per 10 min. No explanations. No dilligence. Silence until you get to the counter

Once you get there you are told that the next available flight is in 4 days. And that they are not arranging any accomodation or new flight with other companies

Meaning you are in deep shit and they know it (and they don' care)

They then explain they may refund your ticket if you want (really? *if* ?). But you have to go through a process online

I checked this site this am. Except the fact it s hard to find it is full of bugs and long to fill in addition to the stupid fact you have to create a new account in addition to your easyjet account

** Very efficient **

Easyjet made me loose money but mostly time and energy in a critical period of my business life.

They handled stupidly and cheap (like their to ticket price ) the situation

I had to find my solution alone. The airport had no wifi in the cheap terminal they were in (they need to save on that too)

So all i had was my iPhone. My brother helped me book a ticket for next day (everything is packed in Barcelona because ofthe mobile congress) and finding a hotel is a nightmare

What saved my life was Twitter. Twitter is easyjet unexpected best customer support. I literrally received 10 proposals of help and finally spent a great evening. Problem solved in 10 min

Wow !!

Easyjet makes you pay every dollar you save with them. Now I  am going to make them pay for this.

This is just the beginning of a long fight. Starting with this post. Twits and more to come.

I will avoid them always from now

They just felt on the wrong customer

ps: big win to Splendia hotels for the stunning customer service and diligence. and big win to Vueling on which i am flying now which is worth every single dollar i overpaid on easyjet

For the past 6 years, any side project that have started has become my next "big thing". When i was at ICQ, i started TechCrunch France, which lead me to my new VC job and running one of the largest... Ouriel Ohayon

For the past 6 years, any side project that have started has become my next "big thing". When i was at ICQ, i started TechCrunch France, which lead me to my new VC job and running one of the largest blog in Europe (unfortunately now on stand by since i left). When i was at Gemini/LightSpeed i started AppsFire, which is now my full time job. Since we launched AppsFire, we launched PasteFire as a side project because we needed it for ourselves and PasteFire is taking off in an unexpected way.

Google has this 20% time rule, where any employee can start a side project which can become the next "Google thing dot com". Gmail was born like that, like many of the great non search Google products. I know too many entrepreneurs who are now running a startup that started as a side project

A side project is a must have. Employers should allow them, and you should allow them for yourself even if it means working beyond working hours. A side project is something that you die to have and to build. You dream about it but you are not sure if will succeed or even become something real.

But there is this spark.The beginning of a fire somewhere. This extra positive energy will drive you to get super creative and because limited by time and resources, very efficient. 

You should not start a side project for the sake of it. You should only start one if you believe you can spend more than a month working on it every day seriously (meaning a couple of hours every day including week ends). This is not a matter of the brain but a matter of the heart

Be tough with yourself and kill any idea that does not make you fall in love. Just kill it. Move to the next one.

What happens after is a matter of luck, encounters (rarely you ll succeed alone) and opportunity. Sometimes of right timing. 

What i know is that side projects can lead to something great and should not be under estimated. They are more important than anything you can write in a resume.

Not having a side project is very fine. Actually you can be very happy without one. But if you are looking for a jump in your life, starting a side project is probably the best way to get you there. What i mean is that if you think you have a good idea (does mean it IS good) more than 2 weeks in a row, then do it.

If you are afraid of being blamed by your boss or your peers, ask for a permission. But if you don 't get it, take it. A side project should be a right to any one. It is a ticket to your next dream.

And anyone has a right to dream

There is a big biais but it feels special to make it on a Forbes list Ouriel Ohayon

There is a big biais but it feels special to make it on a Forbes list

A few weeks ago i wrote a post called "Looking back". When i was writting it is was already thinking about the post you are reading right now. It is about a few things that are going to change in... Ouriel Ohayon

A few weeks ago i wrote a post called "Looking back". When i was writting it is was already thinking about the post you are reading right now. It is about a few things that are going to change in my immediate future. In "Looking back" i was explaining that i learned in the past years that the lack of focus did not help me in getting to the next steps in many things i was starting up.

When i left my job it was still unclear where i would head. Until end last year i was still doing consulting here and there and still worked with Yoni at LightSpeed Ventures. But from today things are going to change. I am going to focus on Appsfire.com

We just announced our first round of table (more here) with four of the very best web entrepreneurs in Europe that happen to be French: Marc Simoncini, Meetic.com CEO, Xavier Niel, Free CEO, Jacques Antoine Granjon, Vente-Privee.com CEO and Jean-David Blanc, founder of Allocine.com (more here)

This means that with my partner, Yann Lechelle, we will dedicate all my energy to this project and will back off from other things i was involved in until now. The only other project, which takes an exciting direction, i will still be involved in, although not at an executive role, is ISAI, the early stage fund we co-created with other french entrepreneurs and on which more news will come soon (Jean David Chamboredon ex-3i, just joined to manage the fund!)

The challenge is big and having such investors in our company is both a blessing and an opportunity to make a difference in a competitive world (the mobile app is one of the fastest moving and most demanding vertical i have met to date).

It means for me a radical change in lifestyle, along with a few positive sacrifices. Back to other side as they say.

The danger for me in that project, is that it is so rich and sophisticated that it will be easy to lose focus and be tempted to do too many things. It is hard to imagine right now that "discovery" can be so rich, but as we roll out our products i hope people will realize close to nothing had been done so far.

Hopefully the learnings from the past will be helpful.

I really look forward to that.

With the iPad, Apple wants to launch a new consumer product category. Will it work? Shai Tsur