Dov Gal - Emicom

The recent developments on Nasdaq in the US are affecting the world in general, and Israeli high-tech in particular. In Israel, we’re sensitive to Nasdaq developments since most business activity by Israeli companies here is expressed in issues, mergers and acquisitions in the US market. I regard the security situation as localized and temporary and its effect is therefore less comprehensive and fateful for the sector. In any event, regardless of the situation, we build the managements of joint companies in the US close to the market. As a result, the companies’ link to the security situation in Israel is reduced.

The situation on Nasdaq has made it more difficult for many companies to raise money (both private placements and public offerings) and even if it becomes possible, the company valuations are much lower than those of six months ago. Start-ups and funds need to comprehend the new situation and get used to it.

The belief in Israeli technologies, entrepreneurs and start-ups remains intact. Now, however, the handling, examination and investments are more selective and inclining towards start-ups showing clear profits and sales business models in communications infrastructures and corporate software. If in the distant past (a year ago) business models based on eyeballs were sufficient for money raising, and in the recent past (four months ago), business models based on sales were required, now business models based on sales and profits in the short-term are required, with no heavy expenditures.

Existing start-ups need to prepare for the given situation through two aspects:

• Strategically, by adopting a model that will enable sales to be presented in the short-term, without extensive expenditure, and

• Economic-business-wise, by making sure the resources at their disposal will enable them to operate in the longer term, while at the same time advancing business activity in the field. Reduction of the burn rate does not mean freezing a company, but concentrating only on activities likely to bring sales in the short term, which will enable future financing rounds to be held.

Summing up, you could say the rules of the game have changed, but the game has not. “The good ones will succeed.” A company bringing a state-of-the-art technology with real value will succeed even in a relatively weak capital market.

The writer is founding partner and CEO of the Emicom group

Published by Israel's Business Arena on January 1, 2001