Venture Capital Investments

– Israeli VC funds needed to re-adjust to their strategy to capture the potential of Israeli consumer internet applications. Gemini Israel Funds was the pioneer in the field, by creating LGiLab, an joint venture with LightSpeed Venture Partners that dynamically invests small amounts in promising pre-seed projects. The shift paid off, since Gemini got involved in no less than a total of nine investments, five of them through the lab.

– Most of the startups that managed to raise capital from VCs were in the large part founded by experienced entrepreneurs. Their ideas were more than just features, but to echo Gemini’s Danny Cohen in his interview to Venture Beat, we haven’t seen game-changing products coming out of Israel this year.

– A trend that grew this year is vc investments in Israeli companies made by international funds. Israel was marked as an attractive target for investors and most likely the reasons for such investments are:

• International funds recognized the potential of the Israeli internet industry
• Lack of supply of disruptive ideas in some of the international markets
• The added value that international funds provide is likely to be higher than a local investor
• Israeli entrepreneurs seek international investments when they experience difficulties raising capital from local vcs.

This trend is likely to continue growing next year.

Thecoils compiled the informative table below, summarizing all the internet investments in Israeli companies during 2007 (Click to maximize)

Short recap of this year’s investments in Israeli web startups by international VC funds:

- Mayfield: Fixya.com
- Accel : Dapper, MetaCafe, MyHeritage, Zlango
- First Round Capital: Gigya, Reimage
- Crossbar Capital: Reimage, BitWine
- Spark Capital: 5Min

– There’s also the opposite trend – Israeli funds investing in foreign ideas: Gemini had two of those in France this year: Wikio and Bahu.

– Not all the startups didn’t receive funding, and for many it took a long time to get there. It’s not a bad thing – natural selection and angel investors play a big role with this bunch.

Private investors and angels

2007 will be remembered as the comeback year for the angels in Israel.

– Yossi Vardi alone, who recently interviewed with BusinessWeek magazine, invested in 65 companies in the past five years. Most of them are Israeli. He said that third were a success.
– Private funds started appearing, organizing groups of investors. One example is Igal Ahuvi’s private fund, Partam Properties Ltd.

– Angel Clubs such as afterdox and Tevel are becoming more and more popular. This year they haven’t made an impact in the investment arena, but next year you are likely to hear more about them.

Israeli Internet Exits

– 2007 returned the glory to the Israeli exits. The dream to start a company and get rich even evolved into “Mesudarim“, the Israeli version of ‘Entourage’ – a show about four friends that sell their startup to an American corporation for $217 million and live it up with the new found wealth.

– Quigo, Kassamba and Oridian Online were some of the biggest Israeli internet exits of 2007 adding up to more than $400 million dollars in returns.
– Yedda gave hope to all the startups that didn’t open an American branch. Terms were undisclosed. dPolls that was acquired by Toluna.

– Smartshopper was sold to Zango for $9M and Rawsugar that was thought to be dead but eventually sold to Suggestica inc, likely for peanuts.

Israeli Internet startups got more traction

You’ve got to hand it to some of the tiny Israeli startups that managed to catch the spotlight using creative marketing, originality and the well known Israeli ‘hutzpa’. A few noteworthy startups include:

– Gigya: started as a fun email application for kids, but today its one of the leaders in the widget industry. Seven out of the ten big sites uses their products. This is one to keep an eye on.

– Pando: revolutionized large file transferring using bit torrent technology. Getting close to 15M users.

– 5min: a life videopedia and one of the biggest collections of how to videos on the web. 5mnin recently raised $5M from Spark capital and are now in the process of opening offices in the US.

–BlogTV: a broadcasting platform that is trying to get a stand in a new market

– Oberon Media: online game manufacturer signed an agreement with Myspace.com and is likely to be the next giant Israeli internet exit when it goes public in 2008. (see more here)

– FoxyTunes: one of the top ten most popular plugins for firefox, allowing users to control any media player through the browser.

– Fring and Pudding Media: bring the VOIP revolution and IM chats to the mobile phone.

– AniBoom – The youtube of Online Animation

and many more. (click for a long list of Israeli startups)

Global recognition and awards

Israeli companies brought some pride home with a few significant achievements in global startup competitions :

TechCrunch40: Kaltura wins the people’s choice, Ceedo is nominated

LeWeb3: PLYmedia and G.ho.st won the second and third place respectively (see more here)

Crunchies: iMedix, aniboom, Fring, Gizmoz were nominated among the finalists in four different categories (see more here).

Alternative search engines: Omgili and Answers.com ranked in the top 10 alternative search engines (see more here).

Fast 500: Israeli Tops Deloitte Technology Fast 500 Ranking: Takes First, Second and Third Places in Europe (see more here)

Wrapping up 2007

I join the authors of thecoils in congratulating the Israeli internet industry for doing much with little and redefining the meaning of bootstrapping. May 2008 be full of exits and exciting new technology. I’d like to use this opportunity to reach out to Israeli startups that are interested in being featured on VC Cafe if you are launching a new product, looking for funding or introductions, contact me at eze@vccafe.com.

First, some exciting news. Sarah Needleman from the Wall Street Journal interviewed me a couple of weeks ago, and the article went live last Friday (4/20) on Startup Journal, the Wall Street Journal center for entrepreneurs. The VC Cafe is featured in an article on “What small business can learn from blogs“.

I am very excited to be on this list with many respected blogs such as:

• Work Happy provides advice, ideas, inspiration and resources Carson McComas accumulated through his own experience as a consultant to entrepreneurs and owner of four Web-based ventures.
• Franchise Pundit reports on emerging franchises, relevant legal news and various industry happenings.
• Young Go Getter covers all aspects of starting and running a business from the perspective of a young person
• Escape from Cubicle Nation focuses on the emotional aspect of leaving the corporate world to start a business.
• Biz Bang Buzz is about legal issues pertaining to entrepreneurs
• Marketing Blog provides ideas and opinions about small-business marketing
• Small Business Trends focuses on major developments that affect small-business owners
• The Invent Blog gathers articles on patents and legal related topics
• How to Change the World is Guy Kawasaki’s ‘best-seller’ blog, which you all probably know…

All of the above are great blogs and I warmly recommend checking them out. If this is your first visit to VC Cafe – Welcome! Whether you are an entrepreneur seeking to gain blogosphere exposure for your startup, or a VC looking for new investments, I look forward to connecting with you.

For the full article in WSJ, click here.