Samurai comes out fighting
 
The Marker   August 28, 2000
   
  Mere moments before the young venture capital fund Samurai Ventures was to float its stock on the TASE, the dam broke.

It happened back in March. Suddenly technology stocks in general, and Internet shares in particular, became outcasts. The prices of Internet stocks nose-dived to mere fractions of their peak value, sometimes losing as much as 90% of their value. Analysts hastened to stuff the Internet dream into the bottom drawer. The Nasdaq spearheaded the change with the TASE, and the rest of the world, trotting faithfully at its rear, trampling the former dream stocks beneath its feet.

Samurai's owners could only wipe away a tear as the bursting bubble awoke them from their gauzy dream of floating their fund. Samurai was co-founded by advocate David Efrati, his son Simi Efrati, and Boaz and Yossi Moldawsky. You guessed it, it specialized in Internet companies. The sudden disfavor of Internet endeavors slashed the value of its portfolio, leading to a commensurate decline in Samurai's market value. Naturally, its draft prospectus returned to Efrati's shelves for the purposes of sitting there and collecting dust.

From feeble to formidable, thanks to nobody's fool
Nor have Internet stocks since regained their weight. Moreover, their inability to raise capital on the public markets forced many a firm to hold private placements at utterly absurd valuations, or to sell themselves outright at a loss, or to simply fold up. Just two of many examples of companies that leapt out with a roar, only to curl up with tail between legs as investors sobered up, are Hypernix, a young Tel Aviv-based company that developed the revolutionary roving Internet platform Gooey, and the Israeli e-commerce site Combina that offered surfer-to-surfer trade.

With Internet companies are up to their necks in mire, it was a surprise to find Samurai back in the headlines: The Green Holdings group, headed by businessman Yitzhak Tshuva, has just invested $8 million in the fund according to a company market value of $20 million, and that's before the money. True, that is a hefty 45% below the value Efrati and the Moldevsky family hoped to attain for the company on the stock exchange, but it isn't bad at all considering how low other Internet company prices have sunk.

Now factor in that Tshuva invested in a private placement, a process that normally prices companies below the value they would achieve on the public market. Add the general opinion that Tshuva is really, but really, nobody's fool when it comes to hi-tech investments, and what do you have? You have an Internet company that has barely lost any of its value.

Fearsome featherweights
The company's rehabilitation would have been less surprising if Samurai could boast an established activity, complete with business model culminating in a black bottom line. But it doesn't. What Samurai can show is, as usual, a "relative edge" in managing young startups.

It can also show investments totaling $2.5 million in ten toddler startups. One of its more intriguing investments is in young Feather Mobile Systems, a startup that supplies cellular Internet services using WAP technology. Others are the British company Digital Mobility, online Psychology Network (site under construction), e-commerce site Travel Fusion, and Infomedia, a database of Israeli companies. Another company that received seed capital from Samurai is CommonSearch, which adds a smart community-segment extension to every search performed by existing search engines.

The whiff of 1.5 birds in hand and plenty in the bush
Intriguing is nice. What about successful? Samurai has one and a half of these. It sold its 11% stake in the cash-challenged Israeli Hebrew-language portal Tapuz (Hebrew site) to the TASE-traded Suny group, according to a company market value of $8 million. That's the demi-success.

More interesting is Samurai's 3% stake in AppStream, a company incorporated in Silicon Valley that provides application services. Lately AppStream held a private placement that valued it at $130 million.

We understand that most of the value Tshuva attributes to Samurai is based on lively expectations of bettering its portfolio companies. His detractors may believe that at $20 million, Tshuva overpaid. But others who have been following the evolution of his sense of smell, most keenly evident in his launching and results of Green Holdings, will reach another conclusion. Green is a fund of funds, trading on the TASE. Tshuva has almost entirely returned his investment, thanks to a series of successful exits by the venture capital funds Green holds. Tshuva enthusiasts will conclude that if he invested $8 million in Samurai according to a company valuation of $20 million, he must have good reason.

The most important message of the Tshuva-Samurai deal is that this businessman, a leader in the Israeli business world, is hinting to us all that, as he sees it, Internet is not dead. It's alive and kicking, it will be back, and it will have a lot more to say than we might think now.
   
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