The Internet – From where, where to…?

Shlomo Kalish, founding partner JGV

February 2002

All materials contained in this presentation are confidential and not intended for distribution without the written consent of Jerusalem Global Ventures.

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Agenda

• Overview of JGV

• What Was

• What is

• What will be

• Investment themes

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• Founded by Dr. Shlomo Kalish• VC fund focusing on seed/early stage Israeli startups• Focus on funding exceptional individuals• Strong GP’s and professional staff• Managing $200M from world players

Overview of Jerusalem Global Ventures

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Dr. Shlomo Kalish Founding Partner

• Founder of Jerusalem Global Group which represented such successful companies as: Amdocs, Orckit, Creo, Galileo Technology, QXL, PictureVision, Memco, DSPC, Breezecom, ESC Medical Technologies, and Xacct.

• General Partner in Concord Ventures I, LP (Saifun, Exent, Oridion)• PhD from MIT, faculty member of the School of Management at

Tel Aviv University• IDF Air Force fighter pilot

Jonathan (Yoni) HashkesManaging Partner – IT

• Co-founder of Magic Software (NASDAQ: MGIC)• Co-founder NDS, a News Corp Subsidiary (NASDAQ: NNDS)

General Partners

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Jerusalem Global Background

• Seven years of leadership in financing high technology in Israel

• Highly recognized and respected name in Israel

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Institutional & Strategic Investors•Africa Israel Investment•Agilent Technologies•Time Warner/AOL•Bank of America•Bank Hapoalim•Bausch & Lomb•China Development Industrial Bank•Clal Industries•Conexant Systems•Comverse

Executive Investors•AMCC (MCC)•Check Point•Chiaro Networks•Galileo Technology•Merril Lynch•Qualcomm•Raza Foundries•Saban Entertainment•Texas Instruments

•CTC Itochu Techno Science•DEP Technology•ECI Telecom•Eurocom Communications•Motorola•NDS•Net2Phone•Poalim Investments•STI Ventures•Telecom Italia Lab•Tyco

Limited Partners

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IT Portfolio

• APPower Systems: Enabling software publishers to communicate with their users (URM) and the users with other users from within the application.

• Kashya: Storage Networking over WAN.• LocatioNet Systems: Location-based services platform with unique

mapping and delivery services.• Mobile Economy: Billing and settlement for mobile-Internet.

• Unicorn: Enterprise information unification.

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Internet: what was

• In the beginning: the original sin– free for all– anonymous

• Opened to everyone:– Killer app: email

• WWW – presentation languages– For publishing information/entertainment

• Commercial ISP’s: AOL, Compuserve, etc.– Commercial access to email and information

• NetScape formed to commercialize WWW– Quick time to billions $$$

• E-Commerce –Ebay, Amazon

• The big bang…

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The Big Bang

• Virtual World – no need for physical anymore– Ecommerce, entertainment, relationships, etc…

• Day traders and internet traders set the agenda– Running stocks, rumors sites, breeds grid…

• Investors follow through• Hundreds of billions $ invested in 1000’s of companies• “The WorldWide Democracy – anyone can sell, advertise, no

entry barriers, quick time to $$• Forget old economy – long live the new economy!!!

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Some Examples

• eToy.com, pets.com, anything.com• Names selling for millions of dollars• Internet VC’s

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Reality sinks in

• The dot-com death toll more than doubled this year,with at least 537 Internet companies either going outof business or seeking refuse in bankruptcy court...." - Associated Press article, Dec. 28, 2001

• Hundreds of billions of $$ erased in market value – CMGI from $40B to 400M

• Idealab from $4B IPO to being sued by investors

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Was vs. Is

• The world is not virtual– Billing, Inventory, shipment, installation, returns, service, training

– People want some physical relationships• Real people• Real space• Real time

• The world is not infinite:– Finite number of people

– 24 hours in a day

– Finite amount of money

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Was vs. Is (contd.)

• Old Economy vs. New Economy:– There is no free lunch

– Value of a business is the NPV of cash flow

– Can you generate profits?

– You need to:• Strong brand• Relationsips with customers?• Loyalty• Uniqueness• Premium value?

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Was vs. Is

• There is no democracy:– One big player in every field

• eBay• AOL• Amazon• eTrade• Yahoo

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So if everything is changingwhat’s constant?

• Homo Sapiens• Have basic needs:

– Security– Communications– Entertainment– Etc. etc.

• Technology provides for:– Better, faster, more powerful

• Question is:– Are you supplying a basic need to someone?– Is this a pain factor?– Can you do it better/cheaper than the competing technologies– How do I develop an ongoing relationship with the customer?

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What is the internet

• New more powerful/efficient/quicker communications medium• With good publishing/presentation capabilities (TV)• With ability to switch to each one individually (Telephone)

• And….• Also allowing computers to communicate….

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Communications

• Past:– Mail

– Phone

– Fax

• Internet– E-mail

– Instant Messaging

– Video/Voice

• Cellular communications– Mobile email

– SMS

– MM Comm.

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Business and the Internet

• Each business provides customer with a service• Customer is willing to pay for service:

– Killer problem– Able customer

• HW components, information components, human components• All businesses have to have phones!!!• However, need to remember:

– Customer –micro marketing– Relationships– Feedback

• Higher the information level – the more “internetti…”– Newspapers – WSJ, Venture Wire– Entertainment – Napstar, – Banking– On Line trading

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Business Models

• No free lunch – pay per use and per quality– Develop the infrastructure to support this

• QOS• Security• Billing• Customer relationships

• Information: Subscription for defined segments– WSJ, VentureWire

• Advertising for mass market communications– Yahoo, CNET (portals)

• eCommerce:– Existing brands and stores have to use internet– One key pure play player in each category

• eBay• Amazon

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What will be

• Bright future – great efficient communications and publishing medium– Communications

– Entertainment

– Information

• Changes the way we interact and do business• Every business must have it• Most people will have it• However, it enhances what we do, not replace

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2002 Positive Trends in Israel

• Technology based vs. e-commerce, dot.com• Fundamentals are strong:

– Highest rates of VC/GDP (USx3)– Highest rate of Engineers/Capita (USx2)– More experienced entrepreneurs– Entrepreneurship spirit high

• Labor, rent & services costs are falling

• Lower prices• Better people• Better due diligence• More time to build strong companies• Less competition in seed

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What makes a success

• Great leadership– A leader is someone that people will follow (Drucker)– Experience, salesmanship, charisma, integrity,

dependable, motivated, energetic and agile

• Customer focus– A specific customer (with ability to pay)– Identify a real painful problem– Position a solution to solve problem

• Cost cutting• Increase efficiency

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JGV Focus• Focus on infrastructure & enabling technologies• Looking for network infrastructure and

middleware platforms • Serve as basis for operators to deploy revenue

generating applications / services.• Leveraging changes in the market and/or new

technology.• Two existing investments:

– LocatioNet – Mobile Economy

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Happy Purim!!

• Mishenichnas Adar Marbim Besimcha!!

Thank YouDr. Shlomo Kalish

Jerusalem Global Ventures

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Is the Internet Good or Bad

• Technology is neutral• Depends what you use it for..

– Help the needy

– Educate the remote

– Or

– Promote hate and Nazism

– Teach terrorism

• It is another little world:– You decide if it is going to be good or bad

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Success (Contd.)

• Leverage the strengths of others– Work with the giants– Outsource everything

• Money makes the world go around– Raise when you can and always more– Maximize your LT value, not your percentage

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The Mobile Market

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• 770 million wireless subscribers currently

• 12.6% of the world’s population

• Penetration to double in next 5 years (Yankee Group)

The Cellular Market opportunity

Source: UBSW

0

200

400

600

800

1,000

1,200

Q1/19

95

Q1/19

96

Q1/19

97

Q1/19

98

Q1/19

99

Q1/20

00

Q1/20

01E

Q1/20

02E

Mil

lio

ns

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Total subscribers Penetration

Source: UBSW

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Subscriber Growth Is In Developing World Cellular operators in the US and W. Europe need to look

beyond total subscriber numbers for future growth

Growth In Subscribers By Region, 2002E

0%

5%

10%

15%

20%

25%

30%

35%

40%

LatinAmerica

EasternEurope

AsiaPacific

World NorthAmerica

WesternEurope

Source: UBSW

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Opportunity To Leverage Subscriber Base• Developed world - High penetration• Opportunity to sell new handsets, services and

applications

2Q01 Penetration Rates

0%

10%

20%

30%

40%

50%

60%

70%

World W. Europe Japan USSource: ML & GS

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Future Revenue DriversMarket inflection points drive new opportunities• New network / handset technologies

– 2.5G - GPRS, EDGE and CDMA 1XRTT– 802.11x– 3G – CDMA 2000, W-CDMA– Java enabled handsets

• Enabling New Services– Mobile access to business applications– Messaging– Gaming– Location Based Services– Video and imaging– Billing

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Models for the future?

• Asia leads wireless data penetration.• Japan has by far the highest wireless data

penetration of subscriber base.– Japan: 69% of cellular subscribers

• NTT DoCoMo (I-Mode) – 27.8m• J-Phone (JSkyWeb) – 8.5m • KDDI (EZWeb) – 8.6m• Java handset users 75% higher ARPU ($32.5)

• Korea has more than 2.5m wireless data subscribers (8% penetration).

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Trends

• Lots of Startups – 4000 per year in Israel– Over 100,000 on a worldwide basis

• Lots of Money and Investors– $40B rate/year in US alone– A lot of non-institutional money

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Extreme Competition

• Need to assume there are many others like you

• Problem – you don’t even know who and where

• What to do?

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Critical Success Factors

• Time to Market– Better to be quick to market with an OK product

• Perfect Execution– Can’t afford trial and error

• Partner with the Giants– Develop relationships with market leaders to rise above

the noise

• Global from Day One– EC and Japan are not followers any more

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Time to Market

• Time to money • Buy versus build – money can buy time

– Manufacturing– Site building and E-Commerce backbone– Distribution and sales: OEM, Private Label– R&D– Operation

• Parallel everything• Get customer involvement from day one• Other

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Perfect Execution

• Need to hire experienced executives• Seek on-line coaching by experts• Get customers to design your service/product• Use professional assistance to maximize

efficiency– Lawyers– Head hunters, etc.

• Have global help with local expertise

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Partnership with the Giants

• Building brands becomes too expensive and risky• Develop relationships with entities who have the

connections/network• Formulate business models that win/win/win• How to work with:

– LP’s that are giants

– Bring in the giant investors

– Management that “know the giants.”

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Global from Day One

• Used to be – USA, ROW follow

• Major trends:– GSM– Imode– EC Unification

• How can a startup be global?

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Cellular market food chain

Network operators

Network Infrastructure vendors

Middleware vendors

Application vendors

Consumers

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Infrastructure Vendors

• Infrastructure improvements– Antennas, base stations, indoor coverage

• Smart components– Amplifiers, Modems

• Security and Authentication

• Interoperability between different wireless standards

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Network Operators

• Billing – mediation, content based

• Network Management

• Profile Management

• Differentiated service/QoS

• Application enabling platforms

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Middleware & Application Vendors

• Platforms:– Gaming

– Messaging

– Location

– Voice recognition

– Video and Imaging

– Enterprise App Access

– Billing

• Applications:– Multi-user interactive

– Teenage communities

– Fleet management

– Call center

– Sports video clips

– Field Workers

– Mobile Commerce

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Killer applications beyond vanilla voice?• Voice is still an opportunity for cellular operators• New voice driven applications

– Best interface for wireless applications– Cellular voice converts downtime into uptime

• Car phones, hands-free etc

– Voice recognition technologies maturing:• Semantic based Natural Speech Recognition overlays• Security – biometric identification / authentication• Voice enabled portals / call centers

• SMS – has shown to be a killer app• What's next? Multimedia messaging? Unified messaging?

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Wireless broadband data without 3G?• Wide scale 3G deployments not for many years.• Emerging med/high bandwidth wireless standards:

– 802.11b – 11Mbs– 802.11a/g – 54Mbs– Bluetooth – short range up to 723 Kbs

• 22m WLAN enabled devices by 2006 (Forrester)

• 802.11x / Wireless LAN– Mobile data hot-spots (airports, hotels, restaurants etc)– Enterprise networking – rich wireless functionality

• Additional data business for cellular operators?

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JGV In The Wireless Arena

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JGV in the wireless arena:‘AdvancedAdvanced data-billing infrastructure data-billing infrastructure enabling operators enabling operators

to offer to offer flexible pricing structuresflexible pricing structures for Internet content for Internet content and data servicesand data services.’

• Real-time telco-grade billing platform

• Signed contract with NetCom (Norway) for full deployment

• Late stage discussions with other European operators.

• Platform enables service driven billing, first application:– Mi-800 - Mobile-Internet subsidized-access service similar to the wire-

line 1-800 / 0800 free-phone.

• Strong management team led by Ofer Bengal, CEO - Founder of RIT Technologies.

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JGV In The Wireless Arena

IP mediationIP mediation

IP mediation

IP mediationIP mediation

IP mediation

IPIPmediation systemsmediation systems

ComptelHPXacctNarus

ComptelComptelHPHPXacctXacctNarusNarus

Turn-key data-billing solutionsTurnTurn--key datakey data--billing solutionsbilling solutions

datadata--billing platformsbilling platformsEricssonComverse

EricssonEricssonComverseComverse

Billing systemsBilling systems(pre/post paid)(pre/post paid)

PortalAmdocsLucent (Kenan)Sema (LHS)Logica

PortalPortalAmdocsAmdocsLucent (Lucent (KenanKenan))SemaSema (LHS)(LHS)LogicaLogica

IP mediationIP mediation

IP mediation

IP mediationIP mediation

IP mediation

IPIPmediation systemsmediation systems

ComptelHPXacctNarus

ComptelComptelHPHPXacctXacctNarusNarus

IPIPmediation systemsmediation systems

ComptelHPXacctNarus

ComptelComptelHPHPXacctXacctNarusNarus

Turn-key data-billing solutionsTurnTurn--key datakey data--billing solutionsbilling solutions

datadata--billing platformsbilling platformsEricssonComverse

EricssonEricssonComverseComversedatadata--billing platformsbilling platformsEricssonComverse

EricssonEricssonComverseComverse

Billing systemsBilling systems(pre/post paid)(pre/post paid)

PortalAmdocsLucent (Kenan)Sema (LHS)Logica

PortalPortalAmdocsAmdocsLucent (Lucent (KenanKenan))SemaSema (LHS)(LHS)LogicaLogica

Billing systemsBilling systems(pre/post paid)(pre/post paid)

PortalAmdocsLucent (Kenan)Sema (LHS)Logica

PortalPortalAmdocsAmdocsLucent (Lucent (KenanKenan))SemaSema (LHS)(LHS)LogicaLogica

Mobile Economy’s technology forms a new a layer above existing IP Mediation and Billing Systems

CONFIDENTIAL

Thank you

Contact Information:Shlomo Kalish Micah AvniPhone: +972-2-572-2222 Phone: +972-2-572-2230E-mail: skalish@jgv.com e-mail: mavni@jgv.com