Are Israeli VCs the next victims of the Financial Crisis?
Written by: Aaron Katsman | March 20, 2008
Aaron Katsman
www.IsraelNewsletter.com
We have posted frequently about how Israeli publicly traded companies in the US have basically mismanaged their cash and have had to write down large amounts of their cash reserves. Many companies tried to squeeze higher yields on the cash they held by investing in Auction Rate Securities (ARS) ranked AAA and AA, which pay much higher interest rates than other similar fixed income alternatives, only to watch as this market has dried up and their investments have lost significant value. While no one knows what will ultimately happen to these ARS, since there is currently no secondary market for them, many companies have no access to cash.
Scott Austin had a great article in CBS Marketwatch about the impact cash management is having on the world of Venture Capital.
“Back at the conference, another panelist, Battery Ventures general partner Ken Lawler, sounded an alarm. He said his firm took a quick poll of his group of 60 or so portfolio companies and was shocked to find out that 12 of them, or 20%, have some amount of cash tied in auction-rate securities.”
Hi-tech start-ups use cash to fund their operations. Most of the time they don’t have the luxury of taking large sums of cash and trying to invest it. The fact that we are starting to see that they have exposure to ARS, is very worrisome, because if they can’t access their cash, they can’t fund their operations. Where was the VC oversight that allowed this to happen?
We already know that many Israeli publicly traded companies have received bad advice vis-a-vis managing their cash — let’s hope that Israeli start-ups don’t suffer a similar fate. If they do, the Israeli VC industry may just grind to a halt.
Disclosure: Author’s has no position in any stock mentioned as of 3/19/08.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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