Last updated July 13th 2014
Terra Venture Partners is a clean tech venture and incubator with an awareness problem. It’s not that startups aren’t aware of Terra; it’s that startups don’t realize they are themselves clean tech. Any software company that streamlines processes and increases efficiency can be considered clean tech. And there are a lot of those in Israel. Barak Goldstein is a Venture Partner at TVP and CEO of their incubator TerraLab. “The ecosystem here doesn’t acknowledge clean web,” he told me. “Entrepreneurs don’t understand the added value.”
Barak is well acquainted with trends in the Tel Aviv startup scene. He receives materials from 25 companies each week, speaks to 8-9 entrepreneurs, and meets around 5-6. That adds up. “Most first-time entrepreneurs here want to do a simple application and exit in 2 years.” Their success rate is fairly good and no wonder: “we have the best breed of IT entrepreneurs.” But, he added, it could be better. “Most first-time entrepreneurs don’t understand the market outside of Israel. They don’t know industry leaders. They don’t get feedback. So they go to a simpler place with a lower success rate.” “Entrepreneurs need to understand the obstacles to entry,” Barak said.
TVP was established in 2006 and has since invested in 10 companies. Their initial investment is usually $700,000. Of those 10 companies, 7 are alive and kicking; of of those 7, 3 are at a stage of selling and earning substantial income outside of Israel. Over the lifecycle of a company, TVP invests $2-3M.
For all the startups Barak sees, he still sees a shortage of high-quality startups. “There is a lot of acceleration and not enough startups. There is high demand for quality startups. Accelerators need 15-20 startups/year. In the world, there’s probably 5 very successful programs that attract the strongest entrepreneurs. The rest are 2nd or 3rd tier. So the current accelerator model isn’t sustainable.”
But accelerators are still important because entrepreneurs need them. Why? First, because startups are full-time jobs that don’t pay, so accelerators provide income. Entrepreneurs can quit their day jobs and reallocate all that time they’d otherwise spend raising money to building their company. Second, because entrepreneurs need expertise, preferably from the big guys: corporations. Whether a startup exits or doesn’t, continuous expert feedback is essential to building a competitive product. “Having a champion in an organization,” Barak said,” can be more valuable than raising $100,000 more.” Accelerators can provide access to industry leaders.
An accelerator that doesn’t take equity is even better, Barak said. “A good entrepreneur doesn’t need the $20-30,000 an accelerator might take. He can raise it himself.” And anyway, that initial investment gets diluted if the startup is at all successful. A 6% ownership will very quickly become 1%. Better to wage a bet after the startup has been tested in the marketplace and then invest.
Now, TVP is ramping up their efforts not just to educate the ecosystem about clean tech, but also to cultivate clean tech at the source. As for the former, they’re planning a train car pitch event and heavy rotation at the December Cleantech and Eilat-Eilot conferences in Eilat. As for the latter, Barak’s lips are sealed, but much more is coming.
For Terra Venture Partners, see http://www.terravp.com/.
For their incubator, visit http://www.terralb.com/.