Are Israeli VCs the next victims of the Financial Crisis?
Posted on Thursday, March 20th, 2008 | In Foreign MarketsWe 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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 About Aaron Katsman (http://israelnewsletter.com/)
Aaron is a managing director and the senior portfolio manager of America Israel Investment Associates, Israel Growth Portfolio (www.israelgrowth.com) where he manages a portfolio of Israeli stocks that trade in the US. He is also president of the Global Investments for Profile Investments. Aaron is a frequent contributor to StraightStocks.com, focusing on Israeli stocks. He was a founder and managed the private banking group for Citigroup in Israel for three and a half years. From 1999-2001, he was a senior analyst at a leading Israeli venture capital fund, where he gained an intimate working knowledge of the Israeli hi-tech scene. Aaron holds a B.A. in Political Science from Yeshiva University in New York. He is licensed as an investment advisor by the Israel Securities Authority and holds NASD series 7, 63, 65 in the US. |
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