Highland Partners invested $5 million in Quigo's second financing round. Founded in 2000 by COO Yaron Galai and CTO Oded Itzhak, Quigo develops proprietary search solutions that facilitate online contextual advertising, search engine marketing and business intelligence gathering. It had previously raised $3 million, and its shareholders include Hebrew University of Jerusalem's compensation fund, Leon Recanati's GlenRock, Prof. Dan Galai, Jack Lahav, and Igal Lichtman.

No Israelis this time

In contrast to Highland Capital's previous investments in Israeli companies, it did not join with an Israeli venture capital fund in the Quigo investment. Highland Capital has made two previous investments in Israeli companies: GuruNet (formerly Atomica), and Savantis Systems. Highland Capital invested in GuruNet's second financing round in June 2000, but did not participate in its latest round a month ago. Highland Capital participated in Savantis's two financing rounds. The second one took place six months ago, with the participation of Star Ventures and Sigma Partners.

Highland Capital was founded in 1998. It manages $2 billion in six funds; the $800 million sixth fund was closed a few months ago. Highland Capital managing general partner Bob Higgins, former chairman of the US National Venture Capital Association (NVCA), established the sixth fund. Highland Capital invests in IT, communications and healthcare seed-stage companies. The stars of its huge portfolio, numbering scores of companies, are Sybase (NYSE:SY) and Terra Lycos (Nasdaq:TRLY). Lycos's founder, Bob Davis, joined Highland Capital in 2001, after its merger with Terra.

Highland Capital principle Fergal Mullen, an expert in software and services companies, will attend the European Tech Tour, to be held on March 28-30 in Israel. This is his first visit to Israel, which suggests that Highland Capital is definitely interested in investing in Israeli start-ups.

Mullen says that ighland Capital specializes in three areas: enterprise software; communications, with a focus on operators; and the life sciences - biotechnology, medical devices, and medical services.

Mullen says, "Our firm has 11 professional venture partners. Each is responsible for a particular sector and deepens his or her expertise in it. We are known as a fund that invests in early-stage companies, but we also make later stage investments, especially when we have the opportunity to examine a company that has entered the market, has a product that is 'best of breed', and can show initial sales."

"Globes": Are you seeking such companies in Israel as well?

Mullen: "Most of our portfolio companies are in the US, but we certainly examine companies in Europe and Israel, and we've begun to aggressively seek Indian companies too. When Highland Capital invests in a foreign company, it prefers for it to move to the US, even if its R&D center stays in Israel. Our team has the experience and ability to greatly assist a newly-established company, not just in capital invested, but the added value cannot be provided if the company's headquarters is far away."

Mullen makes it clear that Highland Capital does not necessarily focus on Israel, and has no specific allocation or investment team for the country. "Israel has excellent technologies and entrepreneurs who also contact us. We don’t focus on a particular region. We look for the best deals, for companies to which we believe we can make a contribution."

Meeting Israeli partners

As I mentioned, Mullen will be attending the Israeli Tech Tour 2004. He has attended previous European Tech Tours, and has found the events to be a superb tool for thickening his address book. "Within a few days, I'll see 30 companies for which we've already started the selection process. It's like diving deep into a market, and it has proved effective in the past. As an investor, I add scores of names to my address book, I get companies' business models, and most importantly, I meet entrepreneurs on their home court. I'll also meet our Israeli venture capital partners, Israel Seed Partners, Jerusalem Venture Partners, and Star Ventures, and I hope we'll continue making joint investments with them and others I've forgotten to mention."

Mullen says Highland Capital prefers investing jointly with Israeli venture capital funds, although it made a solo investment in Quigo. "That's definitely our policy, mainly because we invest at the early R&D stage, but almost always in a company that has already been backed by a local venture capital fund in a previous round. I think it's essential for a local venture capital fund to have already conducted due diligence. We recognize our limited ability to carry out examinations from far away. I think it's a good model for someone local, who knows the entrepreneurs, to look at a company. Cooperation with Israeli funds also exposes us to excellent deals."

You said you're looking at Indian companies. Can you make a comparison? Is India a competitor of Israel?

"I think that Israeli technology companies still have an advantage in certain fields, despite the acceleration in India, which has its own advantages. I think that Israel has excellent positioning, and that will not change soon, but everyone must take into account that things change fast in the globalization era."

Published by Globes [online] - www.globes.co.il - on March 3, 2004