The Big Value Creation Trend of 2015: Q&A with Jonathan Medved

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technology as a whole is not bubble-ish at all, but is actually well-valued. There are certain companies that are frothy, but I think in general if you look at the tech sector, it’s not.

It depends, really, on where you are investing. We’re primarily an Israel-oriented investor. We’re seeing really reasonable valuations here. That’s probably why the money invested in Israel has gone up so dramatically. In 2013, there was $2.2 billion in venture capital invested here, and this year, there will be over $5 billion. Technology just marches on.

X: Aren’t companies outside of Silicon Valley in general getting funded at lower valuations?

JM: There’s an overseas discount at work, depending on where you are. By the way, that’s where I think this crowd-funding stuff is actually going to help. Because you’re creating these platforms that allow investors to get into the act no matter where they are, and entrepreneurs are able to source capital wherever they are.

X: In some of the regional tech hubs in the United States, the thing I hear over and over again is that availability of venture capital is a limiting factor.

JM: Yeah, it really is. This crowd-funding thing has the potential to really bring more capital out to these parts of the world. Big Time. We’re very focused on that, and we’re really looking there.

Now, when you’re looking at crowd funding, there are two camps.

One camp says, “OK, we’re opening up this thing to everybody, let’s let the crowd decide.  Let’s maintain this public offering metaphor, so let people do a sort of junior IPO and let people buy stock directly from the company. The [Web] portals will sort of take the role of the underwriter investment bank. They’ll get paid a placement fee or a success fee for getting the money raised, and the company will have a bunch of individual shareholders and it’ll sail off nicely into the sunset.”

That’s one vision, but it’s not mine. I mean it’s going to happen, I’m just not sure that’s the way it should happen. I think companies are private because they’re not ready to go public yet, because they need added value investors, and not just a check.

So the other model is to take the money from people, maybe it’s not from the broad masses. Maybe it’s just from accredited investors, which you know is a restricted part of the universe, and aggregate that and manage that process so the company gets a single check. It gets a check in a way that won’t hurt its ability to get quality venture capital or quality corporate money. If you stick 500 individual investors into a small company, that might hurt it.

One metaphor is kind of junior IPO and the other metaphor is democratic venture capital. On the democratic venture capital we don’t get paid placement fees, but we get our interests aligned with the investor. We don’t take money from companies, which means you don’t get a negative feedback loop.

X: The important thing is to make sure that the interests are aligned, right?

JM: Yes, the interests are aligned. So you’re not taking a placement fee. You’re taking a management fee and a carried interest, a success fee, when the investor makes money.

X: Are you affected by the fact that many investors in Silicon Valley won’t invest outside the Bay Area?

JM: I get the reason for that, but I think it’s a little quaint for today’s world. We’re dealing with this global reality now, where there are … Next Page »

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Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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