Israel Ingenuity: Carmel Sofer, Gemini Funds
Written by: Aaron Katsman | April 28, 2008
The entire interview with Gemini’s Carmel Sofer is part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the product and the opportunities we cover at www.israelnewsletter.com.
Can you tell us a bit about Gemini?
Carmel Sofer, Partner: Gemini was one of Israel’s first VCs and is 15 years old. We now manage more than $600 million via 4 funds. We’ve just closed our 4th fund and are in the process of raising our 5th fund, which we’re targeting to be $200 million. We’ve had over 30 exits including Saifun and recently, Traiana.
What do you look at when you look at a prospective investment?
CS: We have three criteria that we look at when we meet with entrepreneurs. We’re focused on IT business. By that, we mean that we’re looking at companies that compete in enterprise software, consumer electronics, semiconductors, Internet, and mobile. We’re now also looking at Media companies, which we define to be TV infrastructure and advertising. We only invest in Israeli companies. By Israeli, we mean that either R&D should be located in Israel or that the founder, the entrepreneur, is Israeli. We’re finding good opportunities now with Israelis residing overseas. We invest in early stage companies. We’re the professionals in early stage investing in Israel. Entrepreneurs walk into our door with a slideshow presentation and we work together with them to build a large business. We’re now working with some of the best entrepreneurs in Israel. Out of the twenty portfolio companies in our fourth fund, nine of these companies are lead by serial entrepreneurs working on their second and sometimes, even third companies. We’ve recently invested in new companies started by Dov Moran who founded Msystems and Amir Ashkenazi of Shopping.com.
How big are your typical investment rounds?
CS: Every investment is different but typically, our seed rounds are $500,000 and A rounds are $3-5 million.
Do you continue to invest alongside your portfolio companies as they grow?
CS: That’s a good question. Many early stage investors pour money in at the beginning and watch and see what happens. We continue to work and invest alongside our companies as they grow. We have to believe that our companies are going to be very big companies and by that, I mean $1 billion companies. Of course, forecasting a billion dollars of potential in an early stage company is tough, but if we can’t get there, we won’t invest. We recently had two companies come to us with good models and good leaders. We only foresaw exists of about $150 million. This number was corroborated by some other VCs. We passed on both deals while other VCs funded both deals.
Do you see any significant trends in Israel right now?
CS: We were some of the earliest to spot a key trend we see playing out right now: the return of successful entrepreneurs. We’re seeing serial founders of startups rebound off successful exits and with money in pocket, begin building new businesses. We’re seeing more and more of this caliber of professional starting new companies. They’re not necessarily interested in the money. They have a strong commitment to building a company and they’re coming from a variety of different fields. In our 4th fund, we have nine companies of this type and interestingly enough, most of their first ventures were funded by VC firms other than Gemini.
Why are these serial entrepreneurs turning to you and your team?
CS: I think it’s for a couple of reasons. They value our professionalism. They like the prospect of working together with us. They value our experience both in the investment process and on the other side of the table. We come from an operational background with a focus on running businesses.
Can you tell us about some of your portfolio companies?
CS: Massive Impact is headquartered in Taipei with R&D in Israel. The founder, Sephi Shapira, is a young Israeli who’s lived in Taiwan for years with his family. His first company sells ringtones and funtones to mobile customers via relationships with the network operators in Asia Pacific. Massive Impact was born from an idea that started while building his first firm. The company enables direct marketing via the mobile phone with an extremely high response rate via a statistical engine that targets the optimal population to receive a client’s message. Massive Atack monetizes its service via a payper-call function to tie together the consumer with the advertiser. The company is already operational and producing revenues in Taiwan, Hong Kong, Thailand and China. We’ve also invested in a company called PrimeSense. This startup was created by very young gamers. They found that the user interface (UI) for gaming wasn’t great. They developed on an idea to create a 3D camera at the price of a webcam to enable gamers to operate games by using body gestures. They employ a unique, local design that enables this 3D camera. If you know the Nintendo Wii, the gaming console employs a 2D camera and requires you to hold the device in your hand. There are lots of applications for gaming as well as for training (skiing, dancing, etc.). We’re very happy with the progress of this company and they’ve recently attracted an ex-Managing Director of DSPG Group (Nasdaq: DSPG) to join them in building out their company. They’re in negotiations with top tier players. Another company we have recently invested in is called Intercast Networks. Professor Yechiam Yemini from Columbia University founded this company. He’s the ex-brother-in-law to Kobi Alexander and founded Comverse (OTC: CMVT.pk) and was the co-founder of SMARTS, acquired by EMC for $206M. On his new venture, he could have taken an investment from anyone. Intercast “overlays a software and switching infrastructure over the Internet to allow TV quality distribution of content to a mass audience at a low cost.” Essentially, he’s enabling a broadcasting mechanism, multicasting, on the Internet. It’s an end-to-end solution. The content provider will be one type of customer while the network providers will be another. Network providers can offer their customers IPTV without investing
in a huge infrastructure.
Isn’t this what Akamai (Nasdaq:AKAM) proposed to do?
CS: It’s similar. But, in order to cover the U.S. with their service, Akamai needs something like 10,000 servers. Intercast needs 10 servers and some switches. After years of focusing on enterprise technologies, we’re hearing from other VCs that Israelis are beginning to hit their stride with startups developing consumer-facing technologies.
Do you see this trend?
CS: Definitely. We’re seeing more people thinking about consumer plays. It’s really 3 phenomena. Internet: We are seeing a lot of entrepreneurs focusing on Internet plays. While many of the startups in this crowded space are clustered around few ideas, we’re seeing some really different type of companies being founded here in Israel. Consumer play: Dov Moran’s new firm, Modu, of which Gemini is an investor, has the potential to be a multi billion dollar company. Gemini was one of the first to invest in consumer technologies. Business terms, not just technology: We’re witnessing the maturation of the Israeli start-up. Years ago, companies were very much technology-focused. Leaders are beginning to recognize the value in sales and marketing and this has changed the requirements of those who are building start-ups. Tech is important but it’s not everything.
Carmel, you have an extensive operational background. Given this experience, how do you view the positioning of some of the Israeli publicly-traded firms?
CS: I’m speaking as an analyst, definitely not as an insider, which I’m not. I like Comverse (OTC: CMVT.pk). This company is really implementing the right strategy to create a more focused and more profitable company and if things go right, there is a lot of value in this company at current stock prices. Amdocs (NYSE: DOX) is doing great. Their business is growing, they’re number one worldwide in billing and working diligently on growth engines in the nontraditional parts of their business. I’m sensing a very strong positive vibe in the market about their business.
Looking out a year or two from today, where is Israel’s business strength going to be?
CS: The consumer Internet was created and built in the U.S. Israel didn’t participate, relatively, that much in the first round. We’re now witnessing the emergence of the mobile Internet, and this is coming from Israel. The mobile phone is no longer being looked at just for its voice capabilities, it’s being considered as a data device. Many are trying to take web applications and make them work on the phone. This is just part of the story. Those companies, and many of them are located in Israel, who can start developing mobile applications from the ground up as they look how users will interact with the Mobile Internet are going to be the winners. These companies are working on application development as much as building sustainable businesses.
Does Google’s mobile initiatives influence this?
CS: It certainly does but the trend started before Google’s (Nasdaq:GOOG) recent moves for mobile. There is an Israeli ecosystem here of companies, applications, and people who are experts in their fields and are emerging as experts in mobile Internet technologies.
Thanks.
NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.
Please see our Disclaimer HERE.
Share with others:
