Edouard Cukierman Venture capital criteria for funding Israeli start-ups I think one major characteristic is the absolute obligation, for most Israeli companies, to develop the business internationally at a very early stage. Take the example of OTI, in which the Venture Capital Fund Astra invested in 1995 and managed until 2000. OTI is a technology leader in the field of contactless smart cards, for which there was a very limited local market in Israel. It was therefore necessary for this company to start their marketing efforts abroad, which was a major challenge for this company to overcome very early in its development. In the smart card field in particular most players of the first generation of technologies were French, and OTI found it very hard to penetrate these organizations. At that time, these companies essentially worked only with French technologies. OTI, therefore, started to establish partnership alliances with German and Asian companies, which, together with the U.S. companies, were starting to compete in the smart card market with second-generation technologies. The success of the first activities initiated by OTI made it possible to take the company public in the Neuer Markt in Germany. From a general point of view, Israeli companies are often obliged to compete with leading technologies and leading players worldwide. In addition, these companies do not have access to the markets in which their products are sold, as they are not physically present. The consequence is that they need additional resources, notably in terms of marketing and distribution, which they do not usually have. The solution chosen by many companies ” like OTI ” is to operate with market-driven players with which they establish partnership agreements. Israeli companies therefore provide technology solutions, while foreign partners market the products. This was the case with another Israeli company, Vcon, which we accompanied as their investment banker during their IPO on the French Nouveau March (equivalent to the U.S. Nasdaq). The company established OEM agreements with players like Siemens, Philips, Sony, and others, which initially realized 100% of its sales before Vcon was able to market their product using their own brand name . And it was only a few years later that Vcon started opening subsidiaries worldwide and setting up its own sales force. Strengths of Israeli high-tech companies Entrepreneurship culture is a key asset of Israeli companies. The experience provided by the army, notably, gives Israeli people the ability to take and manage risk. Another asset is technology expertise. Israelis are very technology driven. Their education, in particular, provides a very practical training to engineers : early in their education they have to choose specific applications on which they will work until they graduate. I do not think however that this approach necessarily has to be imitated. Asian companies, for example, are more focused on manufacturing whereas European companies may be more focused on market distribution, and it works. You have to focus on your strengths and leverage them. In the Israeli system, the technology sector benefitted from the active support of the government. The Israeli state co-invested with private funds in many start-ups, operating indirectly with the launching of incubation programs, the development of industrial parks, etc. Israel faces special difficulties Of course Israel's political situation has some impact on the business arena, as it might sometimes affect the perception of foreign companies which could be more reluctant to invest or develop their activities with an Israeli company. The biggest constraint however is linked to the Nasdaq crash of 2000 and 2001, which strongly affects high-technology companies. As a consequence, many small- to medium- sized Israeli companies ” that is, the majority ” will have a more difficult time finding funds, and this is precisely where they need to develop. Israeli companies have two main options to surmount these hurdles: to restructure and reorganize or to be bought by or merge with bigger players. | 