After more than 16 years in Israeli venture capital, and 13 years at the Israel-United States Binational Industrial Research and Development Foundation (BIRD-F) fund, Ed Mlavsky (81) has already seen it all.
When he was at BIRD-F, terms like "venture capital" and "exit" were foreign to Israel's economic reality. He was among the few who knew how the industry really works. He understood what an influx of money in return for shares could do for the Israel high-tech industry, and to what extent big money can change the picture.
With these insights, Mlavsky was a partner in the idea to set up the government Yozma fund, and he founded Gemini Israel Funds, the first venture capital fund, together with Yossi Sela.
With this background, in addition to his British manners and sense of humor, which he still retains after 30 years in Israel, Mlavsky has his own elegant way of delivering criticism, including that of the industry which he helped found.
"People don't understand what a technology powerhouse Israel has become," he says in a special interview with "Globes", on the occasion of his receipt of the lifetime achievement award from the Israel Management Center (IMC). "However," he adds, "we have to become expert here in how to bring the product to customers who are on the other end of the world.
"Solving this problem became a substantial matter and we made many mistakes getting there. One of the results is that companies here are sold much too quickly."
Globes: Wait, isn't that your fault - the fund and the industry?
Mlavsky: "We share the blame, yes. But it is not really our fault. Venture capital funds are not a homogeneous creature. Every fund is in a different place, and has a different point of view. In the end, we want a successful exit and sometimes it's worth waiting and not rushing to sell."
After all the years in the industry, Mlavsky's range of associations is wide, and so every discussion turns into a series of stories, some known, some less so. In this case, in order to demonstrate that it is not always the fund that pushes for an exit, Mlavsky pulls out the story of Traiana, one of Gemini's portfolio companies, that was sold in October, 2007, to ICAP.
It turns out that in 2006, the company, received a purchase offer for $30 million, and founder Gil Mandelzis thought to sell. "We told him that it pays to wait, and 18 months later we sold it for $250 million. There have been cases where we told founders, 'why are your rushing?'"
"There are a number of rules that you learn about how to manage venture capital. At Gemini, we learned them from Advent (a US private equity firm which set up the fund together with Sela and Mlavsky), and half of them were nonsense.
"They say, for example, that when you are raising money, it always goes to the company and not to private people, founders or investors. Yes, that is an excellent idea, but only as long as you are willing to break it, such as, for example, when you are about to lose the founder of the company and sell it for a fraction of what you could have received."
Mlavsky is quick to pull out a graph of the US venture capital association, the NVCA, which shows that 92% of a company's growth is after a public offering. "Besides that, from a national perspective, to sell fast is a bad thing", he continues. "I would prefer to see more Israeli public companies buying more Israeli start-ups. We don’t need to sell these companies to somebody else."
Here he cites the example of Orbot and Optrotech, which were direct competitors in the printed circuit board inspection industry, and merged in 1992 to form Orbotech Ltd. (Nasdaq: ORBK). "They were forced to merge and it was a bloodbath, but a world leader in the industry was formed," relates Mlavsky.
"We did some things correctly then, and some things not," he confesses. "We had to learn. Believe me, we had good teachers, who taught us the wrong things. The immediate response is that when a company is sold too quickly, it's because of the funds.
"Sometimes that is correct. If a fund is in the final stages of its life, and investors want to raise a new fund, and you have to show results, they will try to sell, and that is different from a fund which is starting out. Israel's reputation as a place of technological abilities arose to a large extent thanks to the funds. Could they have done a better job? Certainly. But we couldn't have done it without them."
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010