The demise of Shai Agassi’s Better Place rattles a ‘Start-up Nation’ accustomed to success.
Tel Aviv — In recent years, the Better Place electric car startup and its visionary Shai Agassi have been synonymous with the daring and genius of Israeli tech entrepreneurs. The story of its founding even served as the introduction to the best-selling book “Start-Up Nation.”
But with the announcement of Better Place’s closing this week, Israel’s tech community and the country as a whole have been trying to come to grips with the most spectacular flameout of a private Israeli technology venture ever seen.
Not only does it tarnish Israel’s startup brand, the implosion has reverberated throughout the world of “clean technology” companies and automobiles with renewable energies.
“The sad thing about it is this project was really associated with our national brand. It was a great story,” said Jonathan Medved, a venture capitalist who is the chief of Our Crowd Ltd., and a former partner in Israel Seed Partners. (Medved was not an investor in Better Place.) “As a country we had skin in the game. This is not just a loss of the investors, employees and suppliers; we all share in this loss.”
Barely a year after the Better Place cars hit the market and after burning through nearly $1 billion in venture capital investments, the company’s investors — chief among them Israeli business tycoon Idan Ofer — decided they could no longer underwrite the company.
Agassi, the charismatic young Israeli tech executive who was the heart and soul of Better Place, was selected by Time magazine as one of the 100 most influential people in 2009.
It was Agassi who sold Israeli President Shimon Peres and former Prime Minister Ehud Olmert on the idea of making Israel a pilot market to test a car that was supposed to upend the auto industry and free the world from dependence on gasoline producers.
But as chief executive, he is also bearing the brunt of accusations of widespread mismanagement and dubious business strategy that led to the squandering of the Better Place investment war chest. He left the company in October after a falling out with the Better Place board — the first sign that the company’s future was looking dim.
In the days following the announcement of Better Place’s liquidation on Sunday, there have been endless postmortems and debates about what went wrong.
Did the company lose focus on its all-important pilot market by simultaneously seeking footholds in bigger countries like Australia and China? Or did it not expand and build up infrastructure fast enough?
Was Israel’s expensive market for automobiles, concentrated in the hands of a few powerful importers and dominated by leasing companies, really the ideal pilot market? After selling about 1,000 cars in a year, could Better Place have done a better job at marketing in a country in which many saw it as a national project?
And finally, did it raise too much money and suffer from bloat, or did it underestimate the amount it would need in its coffers to fight big automotive makers and energy companies?
Despite the myriad problems, owners and others who had tested the battery-fitted Renault Fluence praised the driving experience.
One venture capital investor insisted that Better Place still had a positive impact by shaking up the automobile and energy industries, and focusing attention on shifting away from gasoline-fueled cars.
“Better Place was taking on big auto and big energy,” said Jeff Pulver, the founder of Vonage and a venture capital investor. “They needed a logarithmic amount of more money. I look at this as a positive failure not a negative investment. If I look at where the world is going, Better Place proved you could have a vision and make it happen. Maybe next time they will have deeper pockets.”
However, Pulver acknowledged, “From the public relations perspective, if it turns this company into the largest failure in a startup, it will stand out in the record books. But it was a big idea, and they had to do everything they could do to make it big.”
Better Place’s investors and a group of customers are now battling in court over the company’s liquidation. The startup made a promise to Renault to buy 100,000 cars by 2015 — an example of Agassi’s boldness. The company must deal with customers who paid some $30,000 for cars and prepaid tens of thousands of dollars up front for electricity service that may become unusable if there is no one to operate the company’s switching stations.
Jacob Ner David, a Better Place car owner and serial entrepreneur who is managing partner Jerusalem Capital I, said the company did not inform customers until the morning it filed for liquidation.
“The customers were the big believers. To everyone who spent 125,000 shekels [$33,000] and prepaid for four years of electricity, it was a big decision,” said Ner David, who faulted Better Place for forgetting it was a startup and allowing itself to become bloated from its cash. “The people who are really getting screwed are the customers, and they are the ones who stepped forward.”
Writing in the Jerusalem Post, Yosef Abramowitz, who pioneered the establishment of solar energy fields in the desert of southern Israel by establishing Arava Power, said that oil giants and autocratic regimes that export oil are the big winners from the Better Place collapse.
He noted that while the core vision of Better Place could still be implemented, investors are likely to be more demanding and barriers to entry will be higher.
“There was a moment in time when it was believable that Israel could lead the way to become the first carbon-neutral country on the planet,” Abramowitz wrote.
“The crash of Better Place is a sad day for Israel and for ‘Start-up Nation’ because the concept and brand so associated with making the world a better place through a business has failed.”
Medved, the venture capitalist, said he was trying to take the setback in stride. After nearly two decades on the international map of high-tech development, Israel needs to take a mature approach to the Better Place failure by realizing that startups involve failure as well as success. Israeli high-tech entrepreneurs need to learn the lessons and move on rather than bemoan Better Place, he suggested.
“A sign of maturity is not just how do you celebrate your big wins, but how do you deal your big losses. You should obviously reach conclusions about what lessons can be learned,” Medved said.
“You don’t get colossal wins without colossal failure. Anyone who doubts that Shai Agassi will be back is wrong.”
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