How good and how difficult it was for KenTech Ventures two years ago. When the investments consulting firm first started to cultivate companies from the seed stage, it appeared to be a strange animal in the local fund-intensive scene. What was good about it? On the one hand, founder Amir Keren did not have to fight for good deals. The small innumerable investment boutiques, the mediators and angels that have since sprung up did not exist then.
On the other hand, explaining to start-ups why they need escorting and consultancy to raise money and recruit the appropriate manpower in order to build up a company from beginning to end was hard. The profile of the entrepreneur of two years ago was typically Sabra, the sort that knows it all. Both investors and entrepreneurs have meanwhile learned a thing or two.
President and CEO Amir Keren, like many others, came to venture capital from industry. He was a founder of Nasdaq-listed Israeli company BOS, vice president of several companies, and was also involved in setting up the Ministry of Industry and Trade Chief Scientist's incubator project.
Memco founders Israel Mazin and Eliyahu Mashiah had faith in Keren, along with Gil Migdan and Yossi Segev, joint general managers of the Logon software house, Discount Investments, Liraz Systems general manager Moti Gutman, the owners of the Metar-Litman law firm, Zvika Gal, former Merrill Lynch technology manager and current AT&T vice president. Excluding Discount Investments, all the above put their own money into the fund.
Even with this impressive lineup of investors, Keren makes the following comment: "We make competitive offers". It plans to invest an average $500,000 in companies, out of a total of $10 million for investments. If necessary, there is no problem attached to increasing this sum, since it is not a venture capital fund, Keren says. Not every company receives an immediate investment, it depends on the company's situation and requirements.
In exchange for its efforts, KenTech receives shares in the company, but no management fees or payments for services. KenTech does not take a majority position, but is content with 15-49% of equity.
KenTech still generally maintains its stand of investing in seed. Most of the companies in its portfolio reached KenTech at the idea stage, but it also has companies in more advanced stages, although a start-up with a product and a US company is likely to be a borderline instance. Indocs Online is such an example. Marketing and Projects manager Tamar Shahar: "Indocs had a product, but it was not wrapped properly. From the moment they had a product, we had more than twenty flights to the US." That's one way of measuring the amount of work.
"Globes": Could a situation arise in which you'd take an idea in order to change it completely?
Keren: "Yes. It happened with our first company, Expand Networks. It often occurs in the industry. If a start-up does not review its business plan after a year, something is wrong with it."
KenTech reviews no less than 40-100 ideas a month. The investment company created a sort of supermarket to complement entrepreneurs' abilities. If someone comes to the company from a technology background, they'll add the business aspects; if someone comes from a business background, they'll offer technology answers, they say.
At the beginning, KenTech took on investors in companies at later stages, mainly angels. Today, the company works more with funds. Ophir Holdings invested in five of KenTech's portfolio companies. Emicom, an investment company founded by Memco graduates, invested in two of them.
You were once a lone wolf on the scene. How prepared are you for the changed picture?
"The picture has changed enormously, and we're very happy with it. When we started, we had to explain to entrepreneurs that money isn't everything. Nowadays, with Yazam and Garage, the sales process is great. At the percentage level, it increases the chances of success. On the other hand, competition over the better entrepreneurs is stiff. We still believe, however, that our model is very sound. Our infrastructure is stronger than it was two years ago."
Shahar: "The market has declined. Many companies raised a great deal of money and it's not clear why. The feeling is that most of the technology companies show real strength and capability. Internet is a strong platform. There'll be corrections, but the feeling is that in the long run businesses will remain there."
All these comments were made before the huge falls on Nasdaq, and even then, KenTech complained about company valuations: "Some entrepreneurs are afraid of raising at low valuations. You have to keep financial reserves, not for twelve, but for eighteen months. When you raise money, you pay for the high valuations."
Here are some of KenTech's portfolio companies. Expand Networks was the first company KenTech invested in, in 1997. KenTech was partner to the setting up of the company, which developed a combined hardware and software system that increases bandwidth for organizations and ISPs by 100-300%. Attune, founded in 1998, develops a product for monitoring organizational computer performance, isolating problems before they can harm the systems' functioning.
Indocs Online, which KenTech entered a year later, is an Internet company, enabling editing, management and production of graphic documents via the Internet browser. The product's goal is to cut costs in producing printed marketing material. Zactus is a virtual portal whose target audience is musicians and movie people. Memo founder Israel Mazin is a director in the company.
Business Card
Name: KenTech Ventures
Investment Stage: Idea and seed stage
Investment areas: Internet - infrastructures, services and content, communications
Capital managed: $10 million
Average investment offered: Hundreds of thousands of dollars
Portfolio companies: Zactus, Expand Networks, Indocs Online, Attune Networks, Trans4U
Investors: Israel Mazin, Eliyahu Mashiah, Gil Migdan, Yossi Segev, Discount Investments, Liraz Systems general manager Moti Gutman, Zvika Gal, Meitar-Litman law firm owners
Exits: None
Published by Israel's Business Arena on 2 May, 2000