STI Ventures: Diamond portfolio

Where is Benny Steinmetz? For years we have been hearing about the continent-hopping diamond merchant’s daring investments, yet no one says a word. Born into a diamond family, Steinmetz applied the ingrained mining secrecy to his other endeavors. However, in the high-tech world, some public relations are required and two years ago the first grains of information started filtering into the economic press. There were reports that the believer in hand-shake deals is cooperating with Yossi Vardi and putting money in international Internet company Tucows.

The trickle has since grown into a flood, but Steinmetz continues to be silent. I was about to interview Steinmetz and Erez Aluf, general manager of his investment company on four occasions, but came away empty-handed. Now that STI has publicized its first external investment in a company (to date, Steinmetz and his family financed it from their flourishing diamond business), he is willing to elaborate on the public announcements. He also reveals that the company has already made 35 investments. Aluf takes over from here.

Aluf says that the two met four years ago, several months after which they decided to do some high-tech together. Formerly sales and marketing manager at Siemens, Aluf managed the business and Steinmetz provided the financing. They later decided to establish the business as an investment company. Establish? Why did Steinmetz not continue as an angel, as many diamond merchants do? Aluf is starry-eyed as he talks about Steinmetz, “Benny is one of the most dynamic people I’ve ever met. I’ve never seen such drive. He doesn’t just enter into something, he charges at full steam, with methodical sharpness, logic and strategy.”

“Globes”: Why has he gone into high-tech?

Aluf: ”I think it was due to our meeting. He’s extremely sharp, with a natural instinct for the right business and people. That’s also helpful in technology deals. STI is active in the US and Europe and Benny has experience in international business. He has local connections and understands business mentality in other places.”

Aluf says that Steinmetz has great influence over STI, but I have to admit that until I saw the white door opening slightly and Steinmetz’s smile while peeping out, I found it difficult to believe he really there. Steinmetz remained in his office as Aluf denominated the added value STI can bring a company. “We are characteristically business-like and make investments quickly, partly because we’re private capital, which is normally more business-like in making decisions.”

But you paid for this by spreading the risk, at least until another investor enters.

”Spreading the risk factors enter into it in any event. We have two key parameters for investments: people and the relevant technology development direction in a given time frame. We have built inhouse a services company enabling us to more rapidly and objectively. For example, we have a full-time attorney, meaning that the term sheet can lie on the table within a very short time once a decision is made.”

Nevertheless, STI chose to spread the risk and bring in external investors. The company claims strategic considerations were behind the decision – the wish to expand and establish the company’s connections. The company announced a $50 million private placement a month ago, led by Softbank Europe, at an undisclosed company value, although it is estimated at $300-400 million, after money.

Other investors in the round were Comverse and Pacific Capital Group (PCG), which is the major shareholder in optic infrastructure company Global Crossing. STI plans to bring in another $10 million shortly from private investors in the high-tech industry, an excellent strategic mine. There is talk of an overall investment of $500 million in technology start-ups worldwide in the next five years.

More than anything else, STI loves seed investments and has recently made ten such investments. The company typically invests $1.5-4 million in the early stage of a strong technology company, in exchange for 20-30% of equity. STI likes to invest as the sole investor at first, but does not exploit it to take a BRM-like position (BRM openly demanded control until recently).

Another advantage an investment company like STI has, compared with rigidly-chartered venture capital funds, is flexibility. STI can choose to accompany a company all the way. The company tries to maintain a position throughout, which means that its investments sometimes reach $10-12 million (with the concerted help of lawyers who carefully word the rights involved in the initial investment document).

Who is STI’s most promising portfolio player? Aluf says there are many, but names Banter and InterWise, which develop corporate distance learning software; Orika, an optic switches developer; GOU Lite, developer of Optical Translation Measurement technology; InfoWrap, and Tucows.

Aluf does not mention the diamond portal Steinmetz set up, Diamond.com.

To date, the company has posted three exits: Tradeum, sold at the beginning of the year to VerticalNet; Security-7, sold to CA for $20 million, and Butterfly, sold to Texas Instruments for $50 million.

Published by Israel's Business Arena on 5 December, 2000