Click here for printer friendly page
Right from the start - A perspective on Entrepreneur in Residence (EIR) programs21/09/2005. Source: Israel Venture Capital Journal.
 In this IVCJ article, Dr. Shlomo Kalish, Founder and Chairman of Jerusalem Global Ventures, discusses entrepreneur in residence programs - a growing phenomenon among Israeli venture capital funds.
Great companies are created by great entrepreneurs! In my 20 years in the global and Israeli venture capital and high-tech industries, the most fundamental lesson I have learned is that it is the entrepreneur that makes a company. Take the leading technology companies.
It is clear that their greatness stems from their leaders: Microsoft (Bill Gates), Oracle (Larry Ellison), Apple (Steve Jobs), Dell (Michael Dell), Qualcomm (Irwin Jacobs.) Without these leaders, the companies would not have grown to such success.
Early stage investors are constantly looking at ways to minimize risk. Some venture capitalists try to do this by focusing on the market or the technology in an attempt to secure first mover advantage or barriers to entry. Another approach is to focus on the entrepreneur. The reason is simple, a typical start-up will face many different challenges: markets change, development of competing technologies, competition, funding challenges, growth, and if necessary downsizing.
In the same way that one chooses a captain to navigate the ship through rough seas, one should choose an entrepreneur based on his leadership and his ability to tackle the waves that definitely will come, and lead the company to success.
Based on my experience, a VC firm should focus its deal sourcing on recruiting individuals who it believes have the ability to be exceptional entrepreneurs. Whether or not the entrepreneur has a business concept or plan is secondary. An EIR program, while differing slightly from fund to fund, is a relationship that a venture firm initiates with an entrepreneur to give that entrepreneur the opportunity to develop a business plan for a new company while using the resources of the fund.
If the entrepreneur can come up with a successful business over the pre-determined timeframe, the VC will help fund the plan.
I believe that if you start the company right, with the right leader, with the time to do the right planning and research, you greatly reduce the need for expensive fixing later on, such as replacing management, changing products specs, and so forth.
In the case of Jerusalem Global, for example, if an appropriate EIR is identified, he sits in our offices with the goal of coming up with a fundable business plan within six months. Typically, once the business plan is completed, we have another VC set the terms of the initial investment round, and then we jointly fund the new company.
If the EIR can't get a term sheet from another VC, we'll typically discontinue the program, and everyone goes their own way. This process of sitting in our offices and developing the business reduces risk on both sides. The EIR has the opportunity to discuss ideas and receive feedback from the VC partner with whom he will eventually work, and to think as an investor.
It enables us to better know the individual and see if we really think he can do it. It also reduces the risk to the EIR, as he is less likely to put time and resources into a business that will not be funded or is less likely to succeed. EIR programs may take more time and investment early on, but the pleasure of working with great entrepreneurs, helping them build companies the right way, and supporting them in building companies, is a very satisfying experience.
This article first appeared in the Israel Venture Capital & Private Equity Journal. IVC Research Center publishes the Israel Venture Capital & Private Equity Journal (IVCJ), a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
|
