Investment ignorance is not bliss
Until two years ago, well-known personalities were in demand in the world of the new economy. Many of them were recruited to highlight Internet enterprises and startups on the eve of initial public offerings. They were often asked to part with tidy sums in exchange for a percentage of future profits, and sometimes their names and occupations were enough to earn them a place in the company's content department, whose value promised to surpass soon any figures from the archaic world of the old economy.
Some of these celebrities were athletes, broadcasters, lawyers and businessmen. In business jargon, they are called "angels," mainly because they are the first to invest in a company. The exact meaning of the word includes chaperoning the companies' business dealings and providing advice, connections and proficiency for them. Only a few Israeli angels possessed such capabilities and qualifications.
All the angels followed roughly the same path: They invested tens or hundreds of thousands of dollars; then came the IPOs, and the value of the shares skyrocketed. Those who held negotiable shares and had enough sense to sell them became enticing examples for other celebrities to follow. Most of them, however, watched their investments dwindle to nothing within a week or two, or a few months at best.
Now, in the depths of the high-tech crisis, there is no more need for angels. Do the celebrities feel traumatized by their high-tech adventure? Apparently not.
Guy Goodes, for example, joined the long and illustrious line of investors in the Hypernix company. The Internet company, whose name is a combination of the word hype and the NBA's New York Knicks, was founded in January 1999 by attorneys Ran Shalom and Shai Adler, Yaron Zilberman and television and theater personalities. Hypernix's first round of capital-raising netted $13.5 million, a few hundred thousand of which came from Goodes and other Israeli basketball players like Doron Sheffer and Nadav Henefeld. American and Japanese companies also invested a few million dollars, and the company's market value climbed first to $60 million and then to $80 million.
Hypernix was the first Israeli Internet company to fold. In 1999, the company offered to sell out to Star Media for $99 million, but was turned down. On September 1, 2000, a temporary receiver was appointed and the investors lost their money.
"I got to Hypernix through Nadav Henefeld, who was close to the founders," says Goodes. "I thought, like everyone did, that this was an interesting opportunity, and we brought Doron Sheffer in too. It was a period when the high-tech [industry] was attracting a lot of people. But I didn't want to spend any more money. In retrospect, nothing came of it."
Despite Goodes's unsuccessful experience with Hypernix, he has no intentions of steering clear of high-tech ventures. "I still have shares in some high-tech companies," he admits. "Although it is a risky business I am not deterred. In the future, I will have to think a lot harder about what I am doing."
Henefeld also lost money in Hypernix, but he had previously enjoyed better success. In 1990, when he joined Maccabi Tel Aviv, he received 25,000 Mercury options as part of his contract. When Mercury went public on Wall Street in 1993, Henefeld's shares were worth $450,000. Mercury's market value soared to $8 billion, making Henefeld's shares worth $10 million. He probably realized at least some of his options when they were worth a few million.
The positive experience with Mercury led Henefeld to invest in other companies such as Tegrity and Orsus, and apparently also in Hypernix. "I don't like when my name is mentioned in the newspaper in connection with high-tech, and I was never asked if they could use my name or not," says Henefeld. "But I accept my fate because I have no other choice."
Henefeld's success led other athletes to invest in high-tech and the Internet. A few soccer players invested in the sports website Sportello, which was launched in June 1999 and closed three weeks ago. According to the Haifa Kolbo newspaper, Alon Harazi and Alon Hazan invested some $60,000 for a 4 percent stake in the website, and Haim Revivo, Eyal Berkovitz, Tal Binyan and others invested $35,000 each for 2 percent parcels of Sportello shares. Berkovitz later purchased another $280,000 worth of shares.
Sportello's owners, the Eurodream Group, lost $500,000 when it invested in the Formula 1 Internet site. One month later, the dot-com company market collapsed and Eurodream was left without any cash. The soccer players who had invested in shares and had not yet realized their profits lost all their money.
Pini Gershon, former coach of the Maccabi Tel Aviv basketball team, apparently did not learn from past experience and last month invested in the Let Me Know start-up, which belongs to Crystal of the Formula Group. Gershon belongs to a group of investors that holds 11.3 million shares in the company. The group hopes to use Gershon's connections to obtain contracts from sports content providers.
Well-known media names have also been invited to invest in high-tech. WizCom, developer of Quicktionary, which scans texts and translates into 25 languages, raised $30 million on the Frankfurt stock exchange in March 1999. In March 2000, the company had only $2 million in its coffers due to poor sales.
During WizCom's heyday, people like TV newscaster Dan Shilon and soccer coach Avraham Grant were invited to invest, and apparently did - at $50,000 each. "It was less than that, and my name was wrongfully associated with the company out of proportion to my investment," says Shilon. Today he is quite clear regarding his future investment plans. "I don't understand high-tech and do not intend to invest in high-tech."
Yehoshua Kastiel, owner of Kastiel furnishings, had better luck in a start-up founded by a graduate of the Israel Defense Forces' Talpiot program. "I was sitting, almost by coincidence, with a young entrepreneur whom I had known for years," he recalls. "I didn't understand the first idea, fell asleep during the second, the third sounded outlandish and the fourth was good. I invested a small sum, and to my great surprise, a carpenter like me was able to come out on top because everyone came to me to buy furniture."
The start-up recently raised $9 million.
Is he thinking of selling his shares? "Not necessarily. From my point of view this as an adventure that is interesting to follow."