Open Letter to TechCrunch’s Sarah Lacy

It seems our friends over at TechCrunch are having a “who can get the most comments” competition because their posts keep getting more provocative by the day. Today’s winner, Sarah Lacy with her post: Now that China Is the New Israel…What’s Israel? As of this post, she’s tallied up over 100 great and as usual racist comments. I’ll bet she’ll break 200 with this doozy. That said, there’s an important conversation to be had here.

In the post Sarah writes:

By 2004, an executive from Silicon Valley Bank was quoted in the San Francisco Chronicle after leading a contingent of VCs back to the Holy Land saying Israel was poised to explode again. He crowed that the crash and violence aside, Israel was getting more venture money than anywhere other than Silicon Valley and Boston and it was only ramping up.

But it turned out, he was wrong. Money continued to invest along the same $1.2 billion-to-$1.4 billion a year range, and returns fell off a cliff. Israeli companies have raised just over $10 billion since the beginning 2001, but acquisitions and IPOs have returned just over $860 million over that almost eight-and-a-half-year period. 

And continues … 

Ten years after the peak of the last bubble, it’s clear that when foreign investment fell in Israel from about $4 billion a year to $1 billion a year, the country wasn’t just weathering a recession. Somewhere along the way, the entrepreneur scene here lost its mojo.

So I don’t say this to trash Israel, but facts are facts. In sheer numbers, Israel’s place on the global scale of investing has been dwarfed by China, and matched by the United Kingdom. And after three days of talking to dozens of entrepreneurs and investors in Tel Aviv, this seems like a country wandering in the desert, looking for a new tech movement to own and dominate.

Was a booming Israel just a relic of the 1990s boom like Webvan and the Pets.com sock puppet? I don’t believe so. But I’m in Tel Aviv for the next two weeks looking for the company and the tech movement that will prove me right. If you find it, drop me a note.

Here’s my note Sarah:

Sarah,

It’s a shame you jumped to post this misguided conclusion before spending your two weeks in Israel, but thanks for igniting the important conversation. The companies you need to meet are here and I’m happy to introduce you to any of the 300 founders you see in our startups tab. The tech movement you’re completely missing is the new generation of new media/web/mobile startups that are bursting onto the global scene from Israel. Yes, we’ve been historically strong in deep technology, but the kids graduating from the elite programming units of the IDF are building killer Internet-powered startups, not semiconductors. The seeds being planted now … Boxee, Kaltura, Outbrain, fring, Face.com, plaYce, Gigya, Innovid, Dapper to name a few are ushering in a new era of Israeli hi-tech — light companies focused relentlessly on user experience, not technology.

I’m a little confused, as perhaps you are, about your stance on the matter. Why would you ask if we’re a relic of the 90’s if you don’t believe so? As for your stats on M&A/IPO returns, why didn’t you mention their source? Please do. BTW, they’re wrong. Happy to send official data if interested.

Most importantly, have a great time in Tel Aviv.

UPDATE: Since many of you have asked, here is official data from the Israeli Venture Capital (IVC) Research Center:

From 2000 to 2008, the 8 year period Sarah is refering to, Israeli hi-tech companies have returned over $40B in M&A transactions alone, far outpacing any country besides the US. I can post the IPO data as well, but its really not the point here. Sarah’s data is wrong, and that happens in the blogosphere (not usually by 40X) but her qualitative point about us “losing our mojo” based on conversations with Israeli’s in her trip to Israel should be considered. Its the perspective of one person in the first days of visiting our country. Fair enough. It’s unfortunate that pre-judged perspective took the stage on the most widely read tech blog in the universe backed by false data. It created a lot of confusion. As for mojo Sarah, spend an evening with the founders at any of the monthly TechAviv meetups worldwide and maybe you’ll consider a second TC post. Inperfect and challenged by a global economic meltdown we are. Mojo we most certainly do not lack.

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