The Shifting Sands from Israel to China

One of the questions to the Akamai CEO Paul Sagan yesterday was if he regrets not having his company based in the Silicon Valley (Akamai has an office in San Mateo). Paul said they are happy to be next to the School that ‘technically’ spun them off (MIT), etc. Yet I didn’t hear enough conviction in the answer. Paul complained jokingly about the New England January and about the People’s Republic of Cambridge regulations that don’t even allow Akamai or Goolge, etc to have a prominent sign on the buildings. Paul significantly mentioned that Boston/Cambridge is in danger of loosing the critical mass required for a thriving tech culture.

I always think about this and more recently in the context of the notable blogging debut by Sarah Lacy who just joined Tech Crunch from the Business Week – Now that China Is the New Israel…What’s Israel? The post is about poor nominal investments returns on the Israeli startups:

“By 2004, an executive from Silicon Valley Bank was quoted in the San Francisco Chronicle after leading a contingent of VCs back to the Holy Land saying Israel was poised to explode again. He crowed that the crash and violence aside, Israel was getting more venture money than anywhere other than Silicon Valley and Boston and it was only ramping up.

But it turned out, he was wrong. Money continued to invest along the same $1.2 billion-to-$1.4 billion a year range, and returns fell off a cliff. Israeli companies have raised just over $10 billion since the beginning 2001, but acquisitions and IPOs have returned just over $860 million over that almost eight-and-a-half-year period.”

(Some interesting explanations for this are outlined in Sarah Lacy’s second post – Risk Aversion And The Perils Of Selling Too Early (Israeli Startups, Part II). Yet I find this quote in the post particularly illuminating:

“In sheer numbers, Israel’s place on the global scale of investing has been dwarfed by China, and matched by the United Kingdom. And after three days of talking to dozens of entrepreneurs and investors in Tel Aviv, this seems like a country wandering in the desert, looking for a new tech movement to own and dominate.

What happened to Israel is a bit like what happened to Boston-the story and opportunity moved away from what the city’s entrepreneurs were good at. In the case of Israel, security and encryption was always a strength, but that’s not the growth industry that it was. In the case of Boston, enterprise technologies and telecom were always strengths. Now, as media has become the story of the last boom, it’s not a surprise New York surpassed Boston in the amount of venture capital raised.”

The energy is definitely in flux (I can feel it) but those fascinating broad strokes are perhaps too general. What are the NY companies at the forefront of the media boom? Will it survive the Wall St. downturn? What’s next?

P.S. Sarbanes Oxley backlash is Growing