A Tough Venture Lesson Of Israeli Entrepreneurs: Not All Seed Money Is Created EqualOct. 8, 2013
Too many entrepreneurs are way too grateful to get seed money for their ventures. When they are anxious to take anyone’s money, bad things can happen in the second round of funding: They often don’t get it. Why? The first-round investors lack the connections and respect to impress later-stage backers who have bigger dollars. Numerous Israeli startups have learned this tough lesson, and they have profited handsomely by being choosey with their investors.
Before entrepreneurs accept any money from an early stage venture capital firm, they need to become clear on how they’ll raise their second round. Why? Because it’s much harder to raise the second round than the first, and the VCs you choose for the first round can make or break you. Case in point: Israeli startup Waze just sold to Google for $1.1 billion. The company, which provides a free mobile app to drivers who want to know current traffic conditions, initially took $12 million from BlueRun Ventures (along with Magma Venture Partners and Vertex Venture Capital) in 2008. Subsequently, in 2010 Waze raised another $25 million from the same VCs (along with Qualcomm Ventures).
A few days ago I was surrounded by experts in the seed funding to B round transition while moderating a group of 22 carefully selected venture capitalists. Some were from Israel and the rest from Silicon Valley (John Malloy, managing partner of BlueRun Ventures among them). The event was organized by the California Israel Chamber of Commerce (CICC), and hosted by Silicon Valley Bank (SVB). We had live polling and frank discussions on how early stage Israeli VCs should work with larger U.S.-based VCs in funding the B round (and beyond) and for scaling young Israeli companies in the U.S. Eyal Niv, Managing Director of Giza Venture Capital, one of the oldest VC firms in Israel, presented an overview of the Israeli VC scene. Interestingly, of all the venture investment in Israel, only 25% comes from Israeli VCs, with the remainder coming from non-Israeli VCs and multinationals (like Cisco, represented at the event by Tal Slobodkin, Corporate Development Strategy, Acquisitions & Investments).
New Israeli VCs weighed in as well. Kobi Samboursky, serial CEO and now Managing Partner of Glilot Capital Partners, formed in 2011, commented on the challenges faced by Israeli VC firms when opening offices in Silicon Valley to develop their own direct networks. He said, “Many of us have tried it without good success. Frankly, maintaining a constant presence in California is not productive. We’ve found the best success in frequent travel and focusing our attention on those Silicon Valley VCs and multinationals that we resonate with. This is the best way we can serve the companies we invest in.”
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