Humility and Credibility

Great post by Josh Koppelman on Entrepreneurial credibility. I am not sure what VCs he is talking about though :)

Another Inspiration

This one mixes three of my passions: Religion, Education and great management!


For the NYT Article click here and for the NYT video here.

A Bit Heavy

Hat tip to Uncle Mayer who sent this unbelievable video. It is pretty heavy but very important.

Meltdown

As the markets continue to melt down and the dollar keeps dropping, I wanted to "drop" a few notes:

1. Seeking Alpha (Benchmark Investment) has unbelievable coverage of the Bear Stearns Fire Sale, including the official presentation that I have not seen elsewhere and some good questions and analysis including  this one from Barry Ritholtz.

2. While the Talmud says that prophecy was given to fools and I desperately try to stay out of the prediction business,  I think the fed bail out of Bear Stearns and massive intervention will cause a further drop in the dollar. See my post yesterday for the impact on the cost of engineers in Israel. based on some meetings yesterday, this problem is impacting very widely. Charitable institutions have seen their income drop by 30% in the last year from the dollar donations. This will be an issue of crisis proportions that many charities are ill-equipped to deal with since it requires financial sophistication and a likely cut in expenses.

3. Like the movies which used to arrive in Israel 6 months late, financial meltdowns tend to arrive here late. When the bubble burst, the impact on VC investing in Israel trailed the US by about 2 quarters. With the globalization of business, the slow down and market drops will arrive here as well. Yesterday's drop in the Tel Aviv stock exchange was only the opening salvo in my opinion. I also wonder whether all of the Israeli Banks exposure is out in the public yet?

4. I expect IT spending to slow down in 2008, particularly in the US. This may be a case where a dual market focus for a start up will pay dividends. So many Israeli companies start selling in europe and the US at the same time that it may provide somewhat of a hedge, although expenses are certainly higher in that case. 

5. Online advertising may be hit a bit less since the secular shift from TV and print to online still continues apace. In fact, the slowdown may hit TV and print more than online, causing yet a further ripple through traditional media.

6. In Israel, a further meltdown will speed the move to the shekel. Israel has always been a dual currency country. The shekel was the official currency but many goods and services such as real estate, legal fees etc. were quoted in dollars. We are now seeing people trying to sell in dollars but fixed to a fixed shekel/dollar exchange rate above 4:1. This is obviously absurd and just a sign of a market in transition. I think we will soon be an all Shekel economy as we try to decouple from the falling dollar. In the long term, this is good for the local economy.

7. Lastly, at times like this I try to remember Warren Buffet's mantra on investing (quote 3 from 2004).

Hiring Software Engineers in Israel is Now More Expensive Than Hiring Engineers in Silicon Valley

I have written previously on the impact of the dropping value of the dollar on Israeli startups (I encourage you to read it).  When I boarded the plane back to Israel yesterday in New York, a headline in one of the Hebrew newspapers caught my eye. $1 = 3.36 Shekels. The value of the dollar has dropped approximately 30% against the shekel in the last year!  

Following on the cries of help from Israeli exporters, Governor of the Bank Of Israel Stanley Fisher jumped into the fray today, buying $300 million of the Greenback to prop it up. Somehow, I do not think that will work. The US economy is in a precipitous decline. Actually, I would say that this is a global shifting of economic power away from the USA (but that is a topic for another post) to other economies. 

The impact on the Israeli high tech scene is immediate. Today, it costs about 30,000 - 35,000 NIS per month to get a very good software engineer in Israel. That is now about $10,500 per month plus the 30% social benefits you pay here on top of that. An equivalent engineer in Silicon Valley is about $120,000 - $130,000, making it more expensive to hire engineering here than in Silicon Valley. And, engineers in Ohio are definitely less expensive.

What does this mean for Israeli high tech?

1. There is an opportunity for Israel to do engineering price arbitrage in the Far East. Israel is no longer a place for price arbitrage on engineers. 

2. Israeli tech companies need to raise their game and lead on innovation. This is a fantastic place to invest because of the ingenuity, not the price. we need to now prove that in spades. 

3. The corollary is that we need bigger outcomes from start up companies.  The bar has been raised vis a vis an investment in Silicon Valley. No longer will it cost less to build companies in Israel so we need bigger outcomes for these companies.

4. We need to increase the number of software engineers in Israel. Companies and the government need to invest in incentives and retraining to create a larger supply of engineers. This investment will have many benefits. The larger the supply of engineers here, the less pricing pressure there will be on engineering salaries. Second, engineers are very highly paid now which makes them very competitive compensation-wise with lawyers and accountants and a very good way to raise the average national wage. Hopefully, someone will get this message across to the universities and Jewish mothers here who will stop pushing their children to be lawyers and accountants and instead push them into engineering. And, hopefully the government is listening. More engineers means more economic growth for Israel. More lawyers means more headaches and an overcrowded judicial system.

Stanley Fisher's dollar buying spree provides only momentary relief. The market forces are stronger than that. We need to get used to a strong shekel and a weak dollar and start planning accordingly both on a company-specific and a national level. The time is now. let us not wait until it is too late.

iPhone iFund, iALREADY iFunded an iPhone App

I think a number of people were shocked by Kleiner Perkins' announcement of the iFund for iPhone apps. Remember the Java fund?

GigaOm asks
"I am just trying to understand how a big standalone company will emerge when Apple is going to be gatekeeper."

Fair question but it assumes that mobile operators are not already playing gatekeeper and toll collector today (which is why we have seen few, if any, big mobile apps companies) and it also assumes that someone is building apps only for the iPhone.

Having already backed an iPhone app company myself (still in stealth mode), I am not surprised at all. For those of you with a jailbroken iPhone, you know that the installer serves up some great apps on the iPhone that are taking advantage of the interactive screen, gyro, GPS, music and wireless convergence. Apple is on the bleeding edge of mobile innovation but Samsung and Nokia will soon follow suit on many of these functions. Therefore, the iPhone fund is simply a metaphor for trying to pick the next great mobile apps, as these worlds converge.

I am assuming that there is nothing stopping the investee app company from building first for the iPhone and then for Android and for other mobile phone operating systems. I know my portfolio iPhone app company is doing exactly that.

The advantage of the Iphone is that its users are totally passionate about using it and are completely obsessive about the phone and its apps so you can get huge user feedback and usage quickly on the iPhone platform. That is a big advantage for nimble app developers and one that I assume the fund is hoping to tap into. It is certainly the mania that our portfolio company is "tapping" into.

Doing Good While Doing Well in Social Media

Community service and charity are near and dear to my heart and I love it when entrepreneurs keep this front and center as they build their companies. Big tip of the hat to Zeev Rozov, founder of Sportingo, for this initiative. In his own words below,
“As part of my agenda to have social media support charities we launched a partnership with UNICEF in South Africa. Sportingo is giving them advertising space and donating $10 for every author that submits an article to Sportingo in March.

I don’t believe that anyone has figured out a business model to compensate UGC contributors. The majority of people submitting content don’t care about making a few dollars of their content or winning a prize. Yet they do want to feel appreciated for their work and if they can see how it benefits a cause they care about I believe they will care more about their content. “
Zeev – Great initiative!

Murdering Children

I am still recovering from a broken heart borne of the murder of the 8 high school students in Jerusalem Thursday night. I was at a reunion of my Yeshiva in Israel that quickly turned into a solemn evening. In fact, the father of one of the slain boys was at the reunion.

I have many questions, but no answers to this tragic and unfathomable tragedy.

I try to fathom what could move any human being to murder 8 kids in a school library?

I try to fathom what country would not seek to change or do something in order to protect its citizens in the wake of this barbarian act? Looks like I will have to ponder this for even longer.

I try to fathom what country would set the stage for someone to think they can do this with impunity? I guess, when there is no price for raining 3000 rockets on Sderot in a few years, then the logical conclusion is there is no price for murdering high school students in a library. Maybe....Still opening fire on unarmed high school kids? unfathomable. barbarian. depressing.

I am a father of 7 children. I will be sending my kids to a school like this in the coming years. How should I feel? How should they feel? Where is the deterrence? Where is the humanity?

I mourn the loss of these precious kids with all of my heart and continue to ponder this unthinkable predicament.

Desperate for Flash designer in Israel

When all else fails, turn to the blog. I am desperately looking for a top rate flash designer in Israel to work on user interfaces at one of my companies. If you fit the bill, leave your name and email address in the comments section below.

With the booming internet economy here and the growth in web startups we are facing a dire national shortage of talented internet programmers, flash programmers and designers. If Adobe is listening out there, set up a flash/flex training school in Israel. You will make a mint and spur this economy.

Ipod School Bus Pranks

When I was a kid I guess the extent of school bus pranks were pushing Freshman to crawl on the above head racks on coach buses or pulling girls' braids and pig tails. I came home last night and my boys were positively giddy. They told me that one of their friends but an FM tuner for an iPod. My son brought his iPod, hooked it up the FM tuner and as their school van driver turned on the radio to listen to the hourly news, they flipped on the iPod and played songs on the van stereo system.  Then they would cut it off and ask the driver to turn up the volume so they could hear the news and then again, you guessed it, would flip on the FM Tuner and iPod.

It was way to creative for me to discipline them for it although I have a feeling that they will be saving up their allowance to buy an FM Tuner shortly.