from the October 2010 issue

The season of mergers and acquisitions is in full swing.

Google has acquired Quicksee for $10m., 3M purchased Attenti for $230m. Bittstream acquired Press-sense Ltd. for $6.5m. Oracle bought Convergin among a number of other transactions. While the Israeli high-tech industry is praised internationally for its innovation it nevertheless is criticized for not producing large companies. The critics point to Finland's Nokia but neglect to point out that there is only one Nokia.

Nevertheless, the criticism is justified. In the early years of the history of Israeli high-tech there was insufficient faith in these companies to attract buyers. As a result in those years companies had little choice but to develop on their own steam. A number of large companies were spawned. These included Scitex, Comverse, Iscar, CheckPoint and Teva, among others. With the exception of Scitex these companies still thrive today.

So why do companies have difficulty in growing into large international concerns? One reason is that the Israeli venture capital industry is loath to provide funds for advanced rounds of financing. This could be traced to the fact that not too many years ago initial; investments averaged $10m. Today the average is $40m. The venture capital funds taught their investors that they would get quick results. Four years was the average figure. Obviously without sufficient funds companies found it hard to expand.

An equally important issue is that of a lack of an experienced management corps. Most managers have experience only in one or two companies. Moreover, Israelis are known for their impatience and tend to cut corners. They are anxious for quick profits. The problem is that they do succeed. A young cousin of mine sold out his company Quigo for $350m., before he reached 40. There is little incentive to grow companies when such returns are to be had. There are very few Gil Schwed's, Eli Hutwitzes in sight. There is little prospect that this situation will change. It is unlikely that a new Teva will sprout. Yet we should be pleased with current results. They represent a really important part of Israel's Gross National Product.

Reprinted from the Israel High-Tech & Investment Report October 2010

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