The World Has Gone Topsy Turvy What To Do

1
The World Has Gone Topsy TurvyWhat To Do???

• Michael Eisenberg, General Partner Presentation
  to
• Hebrew University Course in Entrepreneurship

2
Israel Seed Partners History

• Founded in 1995 in a Jerusalem garage
• 260M under management
• 6 Exits
• 38 portfolio companies

3
Israel Seed Investors

• PIERRE OMIDYAR
• MARC ANDREESEN
• JERRY YANG
• AMOS HOSTETTER
• MIT
• INVESCO
• FLAG
• STATE FARM INSURANCE
• de BENEDETTI FAMILY
• CalPERS
• McKINSEY
• BROADVIEW

4
ISP Philosophy

• Look for fast growing markets with talented and
  experienced entrepreneurs to drive the companies
• Add real value in recruiting management,
  marketing and securing follow-on financing
• US/UK background enables ISLP to act as cultural
  bridge between Israeli companies and US/European
  markets
• Areas of focus and expertise
• Internet Infrastructure
• Wireless Infrastructure
• Enterprise Software
• Broadband-Fiber Optic Communications
• Communications ICs
• Genomics/Life Sciences

5
The Picture Today
IPOs on Nasdaq
Source Nasdaq Issuer Services
Dollar Value in Millions
1995
1996
1997
1998
1999
2000
Jan
-
01
Feb
-
01
Mar
-
01
Apr
-
01
May
-
01
Jun
-
01
Jul
-
01
Aug
-
01
6
Capital Raised by Private Israeli Tech companies
vs. Nasdaq Index
Source IVC Survey 1H, 2001
7
The World is a More Uncertain Place

• Terrorism and war has people nervous
• Americans are not flying
• Americans are not going to baseball games
• Americans are not going to shopping at malls
• Consumer spending is slowing
• IT spending being reduced for the first time in a
  decade

8
Post Bubble and post Sept. 11 tragedy, Economic
Environment has been brutal

• Nasdaq down 65 and companies can not raise cash
• Start ups are going out of business
• Big companies are hurting and in Existential
  Peril
• Investors are sitting on their hands
• New Anthrax cases brings more fear to the markets
• Most big hedge funds have huge cash positions
• 32B were withdrawn from mutual funds in
  September
• Corporations are tightening their belts
• CIOs are not buying products
• CAPEX Budgets have been cut by Fortune 1000 by
  15-20 and Carriers by an average of 25-35
• Companies have been forced to make massive layoffs

TheStreet.com survey, Aug 2001
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This Leads to Constrained Resources

• Less Cash
• Less Workers
• Less Revenue
• Board Pressure
• Full gas Bneutral Working hard with less
  results

10
Life SucksWhat do VCs Do?

• Reexamine investment strategy
• Should we do more later stage
• Raise the Bar on investments
• Should we do earlier stage
• After all, customers are not buying now anyway
• For how loong do we need to fund a company since
  there are no investors
• How do we make the returns we need to give our
  investors
• How much do we need to reserve for follow on
  investments since there it is hard to raise
  outside money
• Exit values are lower
• The Shakeout is coming. . . . . In the VC world
  and.

11
Life SucksWhat Should YOU do?

• START A COMPANY
• Down Markets are the best time to start a company
• In last down market, big names were born
• Siebel started in East Palo Alto, 0.41 per sq.
  ft. and on Desks bought from failing companies
• Why?
• Less competition.. . .Shakeout
• Talent and infrastructure are cheaper
• You can take your time to do it right
• The world looks for the next BIG thing not
  incremental opportunities

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What should Entrepreneurs Do

• Get Creative
• Nail down your business model
• Recruit only A players
• Start your company with Customers
• Run on low burn rates
• Scrounge for bargains
• Find new financing methods
• Employees wear more hats
• Upgrade employees
• Use your Board and/or your network

13
Case Study Ofer Shoshan

• Israel Seed EIR (Insead graduate)
• On 100K
• Researched 5 different areas of technology based
  on clear market trends
• Built and rejected business plans for more than
  100 business ideas
• Locked onto a killer concept
• Found pieces of a code base to jumpstart
• Interviewed partners and customers
• Landed first three customers
• Built team (world class CTO and engineers)
• Company start up date
• NOVEMBER 1, 2001