"We have achieved what we could have gained a quietly a long time ago without a crisis in confidence or media witch-hunt. The compromise has not yet been signed. Each of the investors will examine the proposal over the next two weeks, after which we can officially approve it," a senior source in the investor group that recently petitioned the courts to liquidate the Israeli partnership in the venture capital funds managed by Jerusalem Global Ventures (JGV) told "Globes". The source believed that the investors would not oppose the proposal, since it conformed to their initial demands.
Sources close to JGV also believe that all the parties involved will accept the compromise over the next two weeks. Under the pending compromise, the investors will withdraw their demand for liquidation, while the funds will be reduced from $120 million to $80 million. It is anticipated that this compromise will put and end to the uproar that has shaken the Israeli venture capital industry in recent months.
The dispute between the Israeli investors and the JGV management company broke out in June. JGV reduced the size of two funds under its management, NetLaunch and CommLaunch, from $75 million to $60 million.
The investors demanded the return of their shares in the funds. JGV sued Polar Communications, Koonras, and Rimon Ben-Shaoul, for breach of the investment and partnership agreements in the funds. The Israeli investors then petitioned the court to wind up the funds.
Now that the proposed compromise has apparently ended the brawl between JGV and the investors' group, the parties sum up: "This was the investors' original demand - to reduce the size of the managed funds to a scale suitable to the market climate," in the words of a source from the investors' group. He said the compromise restores the investors control over funds they gave JGV to manage. "JGV forgot that the money belongs to the investors, which they gave to the fund to manage. When the investors concluded that the objectives were not being met, and the market values of the companies was plummeting, and there was no reason to continue managing such large sums, the fund managers refused to agree and launched a witch-hunt and campaign of scare-mongering in the media."
JGV staff declined to comment officially on the pending compromise. The JGV spokesman said, "JGV is satisfied with the compromise and hopes it will be accepted, enabling the fund to continue moving forward."
Off the record, sources close to the fund claim that the only reason the investors' group chose to confront JGV, even though most of them are also investors in other Israeli funds, was that JGV was a conservative fund that selected its latest investments very carefully. "The Israeli investors would have had something to gain if they had succeeded in liquidating the fund."
The JGV spokesman also claimed that the compromise would not harm the fund or prevent it from raising capital in the future. However, he said it would have a short-term impact. "The rules of the game in the venture capital industry are very clear. The bottom line is what counts. It's true that the fund will manage smaller amounts and there will be less capital available for new investments, but, as I said, its profitable management of investments will serve it in future financing rounds."
Published by Globes [online] - www.globes.co.il - on October 12, 2003