Economic Predictions (or not) from Yossi Vardi

Yossi Vardi spoke last night at the Networking and Informative Event of the Startups and Societal Ventures Network meetup in Raanana (thanks to HP for hosting the impressive event). The top of his lecture was “What next? Economic situation and trends.”  He began the evening by explaining that he was not going to predict the future, other than to say that the economic downturn would turn around, though he would not venture to guess when.

He quickly explained the connection between interest and investment. When interest is high, venture capitalists are in the mood to invest.  Currently, people who have money are holding on to it, such that investment was down 20-30% compared to previous periods.

There are exceptions, including one of his companies that just took in a commitment for $10 million, but overall, money is scarce. For a man who has been in the business for mor than 40 years and founded or helped build at least 50 hi-tech companies, a prediction of two to three years of a bad economy may not seem nearly as catastrophic to those sitting in the room. Vardi was quick to point out that he is an “Angel” and not a “Venture Capitalist.” He also commended governments internationally for acting quickly to try to address the economic crisis and feels this will effect how severe it will be.

Currently, in this economy, he feels that there is no option but to diversify. I found this particularly inspiring, as this is exactly what WritePoint has been focusing on in the last few months – expanding our course offerings, expanding into the publishing business, etc.

Vardi explained that he has seen these economic swings at least 6 times in the last 40 years, though he admits that this time does seem totally different. What is needed is confidence in the market, and that is precisely what is lacking now. He said that after previous down-times, the economy has even taken years to swing back. For example, after the dot com crash, the economy didn’t really rebound for about 4 years.

Despite taht, Vardi feels that even now there are some subtle signs that the economy is beginning to turn. There are companies, such as French Telecom and others who are looking at the Israeli economy and coming to seek investment opportunities. The economy is certainly not dead, Vardi said, but clearly what is lacking is the enthusiasm to spend money and believe on a return.

As for advice, Vardi sees this as a good opportunity to return to the basics. He feels there have been a “ridiculous number of startups” and spending has been artificially high. It’s time, he explained, to go back to low levels of spending. Dekompozice He feels this is especially appropriate for those who are developing web applications. What once took a year to program can now be done in months, thus conserving funds.

He returned to the previous point that there are still companies getting funding, even now and said that the world of investment and startups is very much like the weather. Summer WILL follow Winter and a period of improved investment will follow. We just don’t know when or how long this “winter” will last. Vardi commended large companies like HP, Microsoft, IBM, Amdocs, etc. for reaching out to smaller companies and recognizing that this helps the parent company, as well as the small company. Plus, he said with a smile, this is a very Israeli thing to do.

Towards the end of his lecture, Vardi explained that once the idea was to first secure the market share in your industry, and then to go after the money. In these times, he suggests that small companies consider doing the reverse – go after getting whatever investment you can. Just keep your company afloat. In a nod towards the ever growing social media applications, Vardi feels they are an excellent and inexpensive way to market your startups.

Finally, he said that part of business is taking risks. If you dont’ take risks, you won’t succeed. At the same time, he acknowledged that times were difficult and thus the risk was even higher than “normal.”

His lecture ended on a humorous note as he discussed the Israeli government. He explained that he is lucky. When he wants to give away money, at least he only has to answer to his wife, so he makes sure to only lend money to nice people. That way, if it doesn’t work out, at least he feels he gave the money to a someone worthy.

In response to a question about cleantech, Vardi explained that he doesn’t feel Israel’s strength rests in cleantech, nearly so much as it does in more traditional innovations – telecommunications, mobile communications, etc.

It was an interesting discussion which offered, a few basic points:

  • We don’t know how long this bad economy will last.
  • We can prepare for it and survive it if we focus on preserving our resources, lowering our expenses and diversifying our efforts and interests.
  • Cooperation will help the economy and our businesses.
  • We have to take risks and be prepared to reach out in new ways – such as social marketing.

Thanks to the people who organized this event. It was well attended, well presented, and offered each of us a challenge. It is up to us now, to meet that challenge.