As part of the course “Discover Israel, The Startup Nation,” I met many interesting start-ups there, each with a particular flavor of the Israeli start-up culture. I encountered a great company called MobileEye that is revolutionalizing how car collision detection is made.About Mobileye
Ever since its inception in 1999, Mobileye’s goal is to develop and market vision-based systems that will help drivers keep passengers safe on the roads and decrease traffic accidents. The company now has 340 employees from which 270 work in Israel. This company is a great example of a Venture Capital investment model success despite a long sales cycle of 5 years and a long technology development cycle.
Contracts with car manufacturers have long lead times. The company needs to forecast revenues for the next 5 years. Contract that are signed now only materialize in 4-5 years because car designs are made many years before production.
The company started to generate modest revenues in 2007 but has had strong sales growth ever since (5x-10x in 2011). Many car manufacturers, such as BMW, GM, Opel, Citroen, Ford and Hyundai have incorporated the camera system during manufacturing time.
An unusual VC investment
Lots of R&D was necessary to meet the automotive reliability requirements. In turn, this pre-revenue phase required having patient investors. Many investors require revenues within 3 years and an exit 5-7 years. The company CEO has rejected this type of investor since building this type of company was similar to “running a marathon.” The company has been able to go through two crises because he raised enough money. In this case, the CEO was able to communicate clearly the revenue streams that grow slowly but that are sustainable over the long term.
In this case, the entrepreneur recognized the opportunity cost associated with bootstrapping and found a way to finance the growth with good investors that understood the business and business cycle, which probably led to fair term-sheet valuation. In turn, the company is highly successful and may generate billions of revenues for the Israel economy someday and even go IPO!
My experience with bootstrapping
The company that I bootstrapped ended working well but not without much pain. I have to say that I still wear the scars of those 8 years finding clever ways to finance the company from suppliers, government grants strategic partners and so on. Bootstrapping is hard and has opportunity costs, though I agree that entrepreneurs need to attract the right investors and at the right time. Getting investors too early can affect valuation and employee morale.
The Mobileye example shows that an entrepreneur can find top VC investors and scale, even with a non-traditional VC business model.