One company heavily into the Internet, where it hopes to find its next portfolio companies, is BRM. BRM functions more as an investment company than an investment fund. In this context, it is interesting to note that Nir Barkat, BRM's general manager and one of its founders, prefers to talk of companies rather than technologies. So, in fact, do most investors who, with 2000 just around the corner, believe more in people and organisations than in cards and algorithms.
Nir Barkat: "The test the Israeli economy faces today is whether it will succeed in creating a better ratio of successful companies to successful products. Mirabilis is an excellent product, not a company. Will the Israeli economy also produce good companies and not just good technologies? Ultimately, only a good company can leverage a good technological idea".
"Globes": Are entrepreneurs maturing and looking to found companies?
"Yes. We are seeing more investment by US companies that bring not only money but also knowhow. Today, the ground is better prepared for setting up large companies, and entrepreneurs who come to us are also more open to the idea of nurturing a company".
What do you regard as the most promising fields?
"We are focused on Internet infrastructure. I refer to that element that facilitates the construction of a surrounding platform, or a marketing-business idea. Today, industry is looking to see what else can be brought to the Internet in order to make life simpler. The best investments for 2000 are those that are made by people who have a business vision on which a company can be built.
"Many of the ideas people come up with amount to only a product. By Internet infrastructures, I mean an idea that can become a platform on which a number of applications can be built, as with Check Point and BackWeb. People should organise to build a company, not to develop a product. And once the first application is working properly, more applications should be added".
How do you identify an idea that constitutes a platform?
"You can see that it opens up a broad business field; or that further ideas, on the same technological basis, can be evolved from this idea. You can spot this from the very beginning. You need to start with a winning application based on the principal technology, which also easy to implement".
Does this involve a different strategy on your part?
"At BRM we are gearing up to generate a larger quantity of investments. I am talking about 12-15 investments by the end of 2000, as against 2 in the past year. All will relate to Internet infrastructure, because we believe that this is Israel's domain, and as a group, we have a relative advantage in this field. In contrast to previous years, we will not just invest at the seed stage. Eight companies will be seed investments, and the rest will be at more advanced stages.
"From our point of view, these will be minority rather than majority investments. We are taking steps, at the moment, to create a commitment to investments in the range of $150 million by the end of 2000. This compares with $50 million to date. We will invest on average $7-10 million in a company. Out of that amount, a large part will consist of later stage investment. Every company we invest in must raise $25-50 million in order to build up a company with serious standing in its field. BRM, for its part, will not invest the entire amount".
Which is to say, you are becoming a larger investment company.
"Today, we have Charlie Federman in the US, and American partners will be coming in in the next eighteen months. In my assessment, these are people with a strong operative background, who will be able to assist the general managers and entrepreneurs to cope with the difficult problems they encounter. Even today, we have an HQ in the United States, and in that sense, we are not an Israeli group, we are merely the Israeli facet of the group. Even now, when people approach the group, they get tested on the Israeli side and on the US side. We have structured ourselves as a bi-national company".
Why, in fact, are you moving to minority investments?
"Our motive in moving to a large number of investments is derived from a strategy based on the assumption that if we want to be a significant player, we must be a large player in a specific field. Our plan is that, within a number of years, this sort of success will greatly smooth the way for companies in our cluster, and will make our company a global group that has a say in the industry. Accordingly, we are also investing in US companies. Three months ago, for example, we invested in People Link. Our idea is to form a group of companies in the field in which we specialise, and on which we focus".
In whom or what will you invest?
"We have in mind a solution to the genuine problems that users have in the Internet, or new opportunities. It starts from the user, and the solution must be correctly presented on the marketing level. Most solutions will be software solutions. They may sometimes involve hardware components, but in most cases, in my opinion, it will be a question of software.
"I will not be surprise if we receive a thousand applications by year-end. The turnover time between an application and an investment will be dramatically shortened. I believe that about half to two thirds of investments will be at a very early stage. When there is still no company. We are classic seed players, and hope most of the investments will be Israeli.
"We will want to see people with a business-technical-marketing orientation, with the general manager as the axis. A good general manager builds a company. BRM's focus is on entrepreneurs and on finding the general manager. It's best if the general manager belongs to the entrepreneurial group. But if not, he can be recruited from the outside. When you go in for a new opportunity, you are competing against time, in which case, middling is bad".
So what is the perfect start-up for 2000?
"We need to look for something that good investors have latched onto. Whoever fits that bill, will find themselves in the group of successful 2000 start-ups. If you do not have this momentum, you had better start wondering what you are doing wrong".
Published by Israel's Business Arena September 30, 1999