Sigma P.C.M. Group is one of the more unusual among the investors in Quigo Technologies Ltd., which was sold 10 days ago to AOL for $350 million. The investment house, which is owned and managed by Adv. Rivka Perry and Prof. Dan Galai, father of Quigo founder Yaron Galai and a financial expert of world renown, invests in early stage companies. The company has funded a number of successful companies such as Blue Green Environment Technologies Ltd., Oridion Systems Ltd. (SWX: ORIDN), and, of course, Quigo.
Pre-seed investments
When Galai and Perry started, early-stage investment was less popular than it is now. The first funds to make investments opted for more mature companies. In the high-tech fraternity, pre-seed investors are usually former entrepreneurs themselves.
"We started in 1992, and founded an investment bank that engaged in all fields, portfolio management, mutual funds, and underwriting," says Perry. "We decided to handle ventures at the pre-seed stage. We wanted to enter ventures when they were still in their infancy. This is what we do - take a good idea on paper and turn it into a successful company."
Galai has been interested in high-tech for years. He was formerly at the R&D authority at the Prime Minister's office, and has extensive experience in drafting and building business plans, and has even written a book on the subject, which is now part of almost every entrepreneurship course worthy of the name. He still teaches a seminar on entrepreneurship at the Hebrew University, and was involved in various kibbutz-owned companies, as well as raising funds for companies such as Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), and ABIC Ltd. Galai says he was exposed to enterprises in their initial stages, both through his university work and through direct approaches from entrepreneurs.
"When we began, the Tel Aviv Stock Exchange was booming, we were in the middle of a wave of immigration from Russia and the CIS, and the government had just launched the Yozma program," says Perry. "One of the first ventures it supported was our ecological enterprise." They were ahead of their time, she continues. "Today, everyone is talking about it, but nobody knew what cleantech was back then."
They founded Blue Green, which specialized in water purification. "It was a grandiose idea - purifying well water at the municipal level. We were the first to introduce the BOT business model, which was unheard of then, and the banks didn't know how it worked," recalls Perry.
The duo's latest investment is in a company called Cassiopea, which focuses on natural resource exploration. Perry is unwilling to go into details, but says this is an entrepreneur with a most unusual story. "We couldn't ignore an idea like this."
Globes: What's your investment model? Do you bring in outside investors? Have you allocated capital for investments?
Galai: "We invest our own money in all the companies, and also bring outside investors, some of whom are clients of our investment house, who are unable to invest in ventures with a higher risk through venture capital funds. The fact that we are investing our own money in companies makes investors feel better."
How do you safeguard your share?
"We manage the company up to the first or second round, and then we sell our holdings or become diluted. We know that our advantage is in the early stages."
Galai and Perry say they're involved daily in the setting up of their companies at the initial stages. "We have an advantage when it comes to company formation," says Galai. "Our involvement is not at the board or advisory board level. Our day-to-day involvement is what makes the difference at these stages. We help them translate the business plan into a company, subject to budgetary constraints. We teach them how to use the money wisely, and achieve their goals with limited means."
Legend has it that all companies change their business plans several times before the exit.
Perry: "The companies we've been involved with so far have stuck to their business plans. We believe in initial plans whose drafting entailed hard work. That's how it was with Ad4ever and Quigo, which were on the verge of closure and eventually climbed back."
How many investments do you make a year?
Perry: "Around two. We get applications from lots of entrepreneurs and it takes a lot of hard work to go through all the ideas. As a rule, the click between us and the entrepreneur is formed at the first meeting. We make a point of seeing all the entrepreneurs, because we believe in direct contact with them. So far, we've never missed."
How did you find working in Quigo together with your son Yaron?
Galai: "The idea was innovative, and I was confident that the entrepreneurs knew what they were doing. We are often approached by entrepreneurs who have good ideas but no understanding of the market they wish to operate in. In Quigo's case it was different. It had a cutting-edge technology and an understanding of the market. The fact that we were part of the same family did not make things difficult - quite the contrary." This explains why Sigma has also invested in Yaron's new company, Outbrain. "It will be easier next time round," says Galai senior.
Published by Globes [online], Israel business news - www.globes.co.il - on November 26, 2007
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