What do venture capitalists look for when they cast their eyes over a high-tech start-up? The answer, according to Chemi Peres, managing general partner and co-founder of Pitango Venture Capital, is quite a surprise.
“I’d have to say that the people are more important than the products and systems being developed,” he says. “It’s easier to redirect the product development than to change the people. Only good people with vision and an ability to work as part of a team will get investment from us.
“We only invest in one out of every 100 companies that I see, and we only look at a fraction of the companies who approach us. But I have to say, even in failure, Israelis are admirable. I often bump into entrepreneurs that we have turned down. When I ask them about the idea that they presented to us they say: ‘Oh that didn’t work out so we changed direction and are now succeeding with another product.’” He adds: “You need luck but you also need persistence.”
Mr Peres has the optimism and boundless energy of his father President Shimon Peres. He is one of the founding fathers of Israel’s venture capital industry, having set up the Mofet Israel Technology Fund in 1992, which he managed until 1996 when he founded Pitango, today the largest Israeli venture capital (VC) partnership with $1.5 billion (£0.96 bn) under management.
He is reluctant to discuss specific investments. “Generally speaking, we invest in companies that have promising high growth potential and address global markets. But we see our companies as if they are our children. If I start praising one particular company, then the others may feel slighted.”
Mr Peres sits on the board of five companies, including Voltaire, which develops server and storage fabric switches and advanced management software; SpeedBit, which develops download accelerators; and Provigent, which develops integrated silicon solutions for the broadband wireless industry.
In the past, he has served on the board of countless companies which have had successful Nasdaq offerings and exits, including Audiocodes, Magic Software Enterprises, VocalTec, Aladdin Software and BackWeb.
Mr Peres, who has a BSc in Industrial Engineering and an MBA from Tel Aviv University, came to venture capital after working as a senior executive at Israel Aerospace Industries.
He rarely strays into politics, but clearly buys his father’s agenda and talks enthusiastically about the importance of regional collaboration and social inclusion for Israel’s minorities through high-tech.
He recently set up and chairs the Al Bawader (Arabic for “buds”) VC Fund, which has $50 million (£32m) in Israeli government and private investment funds for the Israeli Arab start-up sector. He says: “There is a new generation of young Israeli Arabs in Nazareth and elsewhere with great ideas. We are about to make our first investments.”
Pitango’s most successful ever exit was the $4.5 billion (£2.8bn) sale of optical fibre technology company Chromatis Technologies to Lucent in 2000.
Commenting on the current VC market, he acknowledges that it is “much more difficult for start-ups to raise money these days. VC funds are more rigorous in their investment criteria, there is no question of a public offering before revenue is being generated and exits are more difficult to come by because large companies are much more careful before making investments.”
Even so Pitango has had plenty of success. In May alone, chip developer ComSys Communications and Signal Process was sold to Intel for $30 million (£19.2m).
Mr Peres himself specialises in IT and communications and while he says that mobile, wireless and internet communications start-ups still have much to offer, he feels medical devices, renewable energy and water technologies will be among the most important sectors in the coming years.
He declines to comment on the investor returns Pitango’s funds bring, but admits times are difficult. The California Public Employees Retirement System, which has invested $125 million (£80m) in Israeli VC funds, reports 5 per cent returns in one fund but negative 11 per cent yields in another.
Despite these discouraging figures, Mr Peres remains optimistic about Israeli high-tech in general and VC in particular. He says: “There is much uncertainty in the global economy but what is certain is that the world’s large corporations will always have a high demand for the innovative developments that Israeli start-ups provide.”
And what advice does he offer budding high-tech entrepreneurs? “Dedicate yourself over the long-term, and don’t panic when the going gets tough.”
