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Gray hair giving way to black hair06/06/2007. Source: IVCJ (Israel Venture Capital Journal). 
 Venture capital management firms are or soon will be facing the issue of succession in their top management. In this IVCJ article, Zeev Holtzman, founder and chairman of Giza Venture Capital, provides his prescription for a successful succession process.
Israeli venture capital is widely regarded as a young, dynamic industry which is an accurate assessment in my opinion.
But among the most experienced Israeli venture funds, which initiated their activities in the 1992-3 period, we are seeing a graying of management. The senior managers of many of those early funds are now 50-plus and for the first time, the early Israeli venture capitalists are beginning to face a major challenge - succession.
In Israel, the succession issue will come to a head in the next capital raising round; expected in 2008-9. By this time, many managers will have reached the age of 60, and the issue will become directly relevant to the local industry's capital raising efforts.
How is this so? The life of a newly formed VC fund is today generally from 10 to 12 years. While gray haired managers are considered by some to possess a wealth of insights, sound judgment and experience that can only come from having undergone complete economic cycles, potential investors might be less than enthused if the managers in whom they entrust their money fail to go the distance - that is, not be there at the end of the process.
Two key items evaluated by limited partner investors are:
a. the team
b. the length of time the team will be committed to the fund
With changing leadership of the general manager, investors want to be assured that their funds remain in reliable hands.
In the United States, having had a longer history, the venture capital industry has already had multiple cycles of succession. Managers have moved on to retire or create new funds. In some cases entire existing teams have been spun off. The succession issue in the US generally appears to have been mastered well with younger, yet experienced partners, replacing older partners.
Here in Israel, one of the two Israeli funds that has gone through succession is Evergreen, where founder Jacob Burak and Ofer Neeman stepped aside for a younger management. Both remain with Evergreen in an advisory capacity, while Neeman has the additional role as Chairman of the Executive Committee.
I founded Giza Venture Capital in 1992, and this year I relinquished my CEO position to the capable hands of Ori Kirshner, while retaining the Chairmanship and head of the Investment Committee.
In both cases, succession has taken place in a smooth, planned and controlled way. Will Israel's other fund managers rise to the challenge? At times, I hear colleagues lament that they would be willing to step aside, but that no one else could do the job as well or effectively or that their presence is essential to the success of their firm. The tendency is to put one's head in the sand and avoid the succession issue. Perhaps that's a natural response, but it reminds me of the memorable expression of Charles de Gaulle, who said, 'The cemeteries of the world are full of indispensable men.'
I have several recommendations for the recalcitrant Israeli venture capitalist that could facilitate a smooth and workable succession process:
- Plan succession carefully and in advance.
- Look at your team and its DNA, and begin early to groom potential successors who fit well with your corporate culture.
- Don't parachute new partners in at the last minute to fill a void. Existing team members usually make the best replacements.
- The process should be coordinated with the leading limited partners in your funds. Limited partners don't want surprises and expect to be consulted.
- Take limited partner input into account, as limited partners often have good insights on the succession process.
- Succession is best accomplished mid-term - before raising the next fund. This gives your replacement experience before embarking on the capital raising process.
In Jewish tradition, when a boy reaches the age of 13, he has a bar mitzvah at which time he assumes the obligations of Jewish law. At that time, the boy's father recites a blessing for being relieved of responsibility of his son's actions, as responsibility is then transferred to the child himself.
Transition in the venture industry is definitely not so simple, but with proper forethought and planning, it can be accomplished to the benefit of the general and limited partners alike.
This article appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, 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
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