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Spotting the silver lining in the storm By Guy Griml For Israeli entrepreneurs, the worldwide economic slowdown is a frightening reality, that could just bear profitable fruit How will Israeli entrepreneurs and venture capitalists in Silicon Valley fare as financial crisis seizes the business world by the throat? Nobody has any idea, really, how things will develop. Daniel Cohen, for one, the managing partner at Gemini Israel Fund, has been the fund's representative in Silicon Valley since 2006 and calls this the worst economic crisis since the crash of 1929. Advertisement "The good news is that the crisis is clearly different from the dot.com crash of 2000," says Cohen. "Then, the Valley was full of companies with no commercial justification, with worthless business models. They had to disappear, which had a serious impact on the technology world. The feeling with this crisis is that many of the companies here are still relevant, and have business models that can and should work." Cohen contends that there is even a silver lining to the trouble. "Venture capital today isn't based on high leverage, so when credit dries up, the industry won't collapse," he says. "On the other hand, it will be harder to obtain bridge loans." For the funds, the result is double jeopardy. On the one hand, investing is cheap, but on the other, portfolio companies get investments at lower company values. Also, there is concern that fund backers with limited means won't fulfill their financing pledges. It hasn't happened *et, but it could, Cohen predicts darkly. Rooly Eliezerov, co-founder and president of Gigya, a Palo Alto company that develops networks for distributing widgets, has its own crisis story. Last March, Gigya raised $9.5 million. Just three months later, in June, Michael Eisenberg, an investor for Benchmark Capital, began pressuring Gigya to raise more money. The company's third financing round had been planned for mid-2009. "We doubled revenues and browser traffic increased," says Eliezerov. "Dag Ventures was interested in us. They agreed to the value we requested, and we closed with them at the end of July. The signing itself occurred during the crisis, just when the American government approved an economic assistance program, after the big crashes. But Dag signed, and I give them credit for that." What did you think when you were raising capital in the eye of the storm? "When the round was completed" - Gigya raised $11 million - "I said to myself, 'it's a good thing we did this now.' Gigya relies on the advertising market. Perhaps now, with the economic downturn, advertising budgets will be cut. Thanks to the third round, we have breathing space for at least three years, and we can concentrate on developing our technology. At the moment, we are focusing on just one thing - the network we are building for distributing widgets ... In our field - widgets and media distribution - all sorts of companies cropped up and offered inferior solutions to advertisers. Everyone is vying for advertising budgets. I believe that now, during a recession, it will be harder for them to attract funding and survive. There will be less competition." So you feel settled for the next three years, thanks to the last round of capital raising? "We have no fears, and our employees are secure. Everyone is pulling together to achieve the company's goals." The offices of Clarizen, which develops project management software on an SaaS (software as a service) basis, are located in San Mateo, California. Co-founder and CEO Avinoam Nowogrodski believes that the current crisis requires Clarizen to find creative marketing methods and to adapt its business model to the new reality. "In a company like ours, which is based on SaaS," says Nowogrodski, "the customers do not pay in advance, but rather per use. We try to leverage this to our benefit. Particularly since our product does not require investments in hardware and software, and it is easy to use - this is the message we try to convey to customers. Beyond that, I think the crisis has made us concentrate harder to create partnerships. We are more open to partnerships, and people are looking for a way to leverage solutions via partners." Nowogrodski says that everyone in Silicon Valley realizes that streamlining is key: "It's obvious that in situations like this, you try to find ways to be more efficient." Zohar Levkovitz, CEO of Amobee, which develops technology for mobile advertising, works from the company's offices in Redwood, California. He says that at this stage, the crisis has not hurt Amobee. "We are not feeling a recession or slowdown, either from the cellular operators with which we work or from the advertisers. Still, it would be very naive to think that the crisis would not seep into our market. Perhaps because we are working with the big cell-phone companies, it will take a while until we feel the recession, but this crisis is so deep and so intense that it is impossible not to be affected by it," says Levkovitz. One of Amobees' investors is the Sequoia Fund. Levkovitz declined to comment on the convention the fund held recently for its entrepreneurs and CEOs, at which the "Goodbye to the Good Life" presentation was shown. The message between the lines was loud and clear. While Nowogrodski believes that the startups and VC investors are beginning to digest the enormity of the crisis, Levkovitz still thinks there is more to it than meets the eye. "No one understands yet what will happen," he says. Levkovitz believes that the recession the American economy is entering represents an opportunity for his company, and not a problem. "Take, for example, a Levi's store. When things are good and the store is full, they don't need to advertise themselves and change their advertising strategy. "But when there are no consumers, they do have to change and look at other avenues, like advertising on cell phones, for example ... When there is a recession in the advertising market, the companies look for new ways to advertise, plus the fact that our service helps clients lower the costs of their products." Alon Bloch, CEO of Wix, works at the company's headquarters in New York. He says people working in various sectors of the American economy are anxious. "The restaurants in New York are still full," reports Bloch, "but people are afraid. It reminds me of September 11. There is a crisis here that is harming the economy in a concrete way, and it looks like it's going to be a long one." Like Levkovitz, Bloch sees advantages in the current situation, in that there will be fewer competitors for Wix. "Fewer companies will survive, and that means we will have less competition. I believe in Wix. Our product lets people build a Web site and save money. Instead of people going to site designers, the designers will go after site owners." Wix, like Gigya, apparently did have its fair share of luck. Last month the company completed a $3.5 million round of financing, from Mangrove Venture Capital and Bessemer Venture Partners. "We began the round in August, and finished it fairly quickly," says Bloch. Yaniv Ben-Saadon, the entrepreneur behind FixYa, which helps browsers figure out how to operate electronic devices, is also based in San Mateo, and says that whereas Silicon Valley has been protected from the crisis until now, it is currently beginning to seep in. "Funds like Sequoia and Mayflower are approaching CEOs and advising them to tighten their belts and replan their expenses, in the realization that it will be harder to raise capital in the near future," explains Ben-Saadon, who says that FixYa will not be affected much by the crisis. "We started out thinking thin," he says. "We raised a considerable sum ($10 million so far - G.G.), but we were very aggressive and took care of our revenue sources. We concentrated on revenues, and will soon be profitable. At the moment, we have enough money in the bank for quite a few years. I believe we will gain from this crisis. The more consumers buy fewer new products, the more exposure there will be for FixYa's services." Ben-Saadon believes that many companies will disappear in the wake of the current crisis. Most of the responses and concerns from Silicon Valley seem similar to those voiced here in Israel - the fear of the unknown. Even though Silicon Valley and the Israeli high-tech industry have been affected for the past two months since the crisis erupted on Wall Street, it is still difficult to quantify its effect. All in all, the startup scene here and in Silicon Valley is continuing to mosey along. But the big question remains whether this negative impact will continue into the fourth quarter of the year, and as a result will affect total VC investments for the entire year. Bookmark to del.icio.us   The King is dead Archeologists find new evidence for King Herod's tomb site. Al-Hasbara Israel launches Arabic YouTube channel to bypass Arab media.

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