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Boot Camp for Entrepreneurs

Last week Alan Patricof, a pioneer of the VC industry, founder of Greycoft and before that Apax partners, came to Israel to see 24 early-stage Israeli startups at BootCamp Ventures Innovation Marathon and share some of his wisdom with the young entrepreneurs.  Also attending were a mix of investors from Israel and abroad including industry players such as Merck Serono, Phillips Lifestyle Incubator and BT.
The companies were divided into four groups: mobile, medical, cloud computing and digital media.  The startups had some interesting technologies and some looked like they could be good businesses also.
Among those that stood out are Camtrax which has software that lets a PC with a webcam play motion games and BioLert which developed a device that alerts caregivers when a patient is having an epileptic seizure.
The biomedical companies are out of my area of knowledge and it’s very difficult to really understand if their technology makes sense without being an expert in the field. Biolert is working on a medical device which is easier to understand, but as Jasper Bos from Merck Serono pointed out, consumer medical devices are still hard to sell.
Half the companies are working on cancer diagnosis, which is a great thing, but will need a lot of time and capital to bring a solution to market.  Any biomedical companies who are looking at broad based solutions to major medical issues are in for a long haul. It seems that the only viable strategy for such a company is to get brought out by a larger company. Investors realize this, and Alan indicated that Greycroft doesn’t focus on biomed because it’s so capital intensive.
Concentrating on mobile, Cellint generates road traffic information from tracking cellular phones, NowForce provides mobile command and control for emergency response organizations and Communitake lets providers remotely operate customer’s smart phones – something that is certainly a real need as I believe that 90% of the people with smart phones today don’t know how to use most of their phone’s functionality.
The other mobile companies are concentrating on converting software to mobile or Android, which is less interesting because these are temporary needs which don’t have a long term business case. By now most new applications for mobile phones are being written for Android, and the new generation of smart phones can handle most web sites as they are.
In cloud computing there was a concentration of security based companies. In Israel this is typical where everyone wants to be the next Checkpoint. There were also some interesting SaaS (Software as a Service) models which can get up and running and start generating revenue quickly.
This possibility to be “up and running” with a lot less time and capital than in the past is one of the most significant ways that the internet and cloud computing are changing the VC industry. According to Mr. Patricof, the average exit for a startup today is $70 Million and the businesses are much less capital intensive then the network equipment companies which were common in Israel 10 years ago.
This requires a change of focus for the VCs and is a problem for large funds with high minimum investment levels. You can’t raise money at a $50M valuation on a company that you can only sell for $70M and give your investors a decent return. This means smaller rounds with lower valuations if you want to be able to exit at a realistic price.
It comes down to buying low and selling at a good price as opposed to the buying high and trying to sell even higher paradigm of the high tech boom.
Biomed is an exception to this rule because it is still very capital intensive and the development and regulatory cycle is so long. These kinds of investments are best left to investors that understand medicine and to funds such as Merck Serono that are backed by big companies in the medical industry.
Mr. Patricof gave one more word of good advice that young entrepreneurs should take to heart: Being first is more important than being best.  Get to market quickly, learn the market and “pivot”, changing direction as the market demands.
Good advice in today’s fast changing world.

The author has no personal interest in any of the companies mentioned.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.