Israel Innovation 2.0

Sarah Lacy over at TechCrunch posted today that Israeli entrepreneurs post-bubble have lost their mojo and VC funding has reflected that. There has been a lot of reaction to her post in the comments section and off the site, but it is really much more complex and wide-ranging than a post on TechCrunch or even here on Israel Innovation 2.0 can handle. I think that Sarah is both right and, of course, wrong.  

She is right that the crop of Israeli IT and Web startups are disappointing when compared to Check Point and ICQ from the 1990s. There have been many theories, denials and other responses of the lack of companies of this caliber in the past few years and I have to say, when researching these different companies, there definitely is a difference. 

The theories for this that I believe and have often mentioned (sorry to anyone familiar with those posts) are the ones Daniel Cohen of Gemini Israel Funds wrote about in an article on Venture Beat back in the fall of 2007: “Entrepreneurs want to retire with $3-$4M, Impatience of investors, ‘Think small’ mentality and The lack of $1bn experience.” Add to these reasons the brain drain of top engineers and entrepreneurs and relocating the company outside of Israel and Lacy has a very good point. 

Fortunately though, Lacy’s post on TechCrunch was only fulfilling a certain agenda and only relevant for the IT and Web 2.0 sectors which TechCrunch covers. No matter what happens with Israeli IT companies in the future (and I believe Israeli SaaS and security companies, such as Clarizen, Imperva and Trusteer all have a lot of potential), Israel is almost guaranteed to be the main player beyond this in the next tech revolution, clean technology. 

A lot of VC funding has gone into cleantech companies in wastewater management, solar energy and wind energy that won’t mature and really show its worth for another few years. In addition, there is a noticeable trend over the past year of people from Israel’s IT sector considering and heading into cleantech.

So, where does China fit into cleantech? I haven’t researched it to say, but on the Israel end I know that China, along with several other Asian countries, countries in Africa and Australia have all expressed interest in Israel’s innovations especially to deal with water conservation management and solar energy. If in relation to Lacy’s article, China is getting more investments in IT (the greatest tech sector in the past) in comparison to Israel but not in relation to cleantech (the likely greatest tech sector in the future), the answer to Lacy’s question about “If China is the new Israel..” would really be that Israel is the new Israel.

Earlier this week Daniel Cohen of Gemini Israel Funds posted on his blog his predictions for Israel’s tech community in 2009. Topics he made predictions for included cleantech, Google making acquitisions, Web 2.0 companies being acquired and that “there is a world beyond Atlanta/Southeast, New York and Silicon Valley, specifically in Asia.” 

Asia might gain ground in 2009 in terms of, according to him, “companies starting in Israel and marketing to Asia directly without having anything to do with the US market,” but Atlanta/Southeast, New York, and most parts of California (particularly San Diego) will still continue to thrive. My prediction is that Silicon Valley, in specific, will probably lose ground.

Regarding the Atlanta/Southeast region, towards the end of 2008, the AICC-Southeast region created a blog for posting the latest news related to any of its companies and partnerships. To get an idea of what can be expected this year in that region and why it will still thrive, here are titles of some blog entries about Israeli companies and the Southeast region from the end of November to the end of December 2008:  

• AICC Member TopEyeView Demos at Madonna Concert - December 30, 2008
• AICC Members Work Together: SGR Advises Given Imaging in Acquisition of Medtronic’s Bravo – December 28, 2008
• AICC Member Scopus Video Networks Acquired by Harmonic for $86 million – December 23, 2008
• AICC Member BlogTV Wins YouTube Stars to Make a Web TV Network – December 10, 2008
• AICC Mission to Israel in Atlanta Business Chronicle – December 6, 2008
• AICC Member PerSay Raises $2.4 Million – November 27, 2008
• MobiMate and WorldMate Establish New Headquarters in Atlanta – November 27, 2008

What do you think? Will the Atlanta Chamber of Commerce continue to help Israel thrive, stay neutral or lose ground in 2009?

Last night, at the Jerusalem Business Networking Forum (which I co-organize), I had the opportunity to hear Orna Berry — a Gemini Israel Funds Venture Partner and the Israel Venture Association (IVA) Chairperson — give an overview of the VC process and discuss what VCs can offer Israeli businesses.

During the Q&A session, I asked her if she agreed with her Gemini colleague, Daniel Cohen’s Op-Ed in VentureBeat last fall that explained why Israeli companies that have been founded in recent years don’t reach their full potential and beyond, and if she thought that despite the current climate, there are companies that can reach the Nokia-level.

Her response was that she did agree with Daniel Cohen, but she only gave examples of successful companies that were established before the creation of VC funds in Israel, such as Comverse and Amdocs. Unfortunately, I didn’t get a chance to follow up with her about this after the meeting and so, I am still left wondering, do any Israeli companies founded in the past 10 years have the potential to grow into a Nokia or Google and, if so, which?

I have set up a poll below with four Israeli companies that I have covered in recent months that seem to be very promising. Which one, if any, do you think can make it?
 

Think a different Israeli company not in the poll is more promising. Share your opinion in the comments below.

Related ITGumbo content:
People information and networking… Shouldn’t the next big thing be from Israel?
Company in Focus: Red Bend Software
Company in Focus: Gemini Israel Funds
Company in Focus: Voltaire, Ltd.

About the author: Lisa Damast is the Membership
Manager of ebizQ.net and currently resides in Israel. Any questions or
inquiries regarding this blog or ebizQ membership services can be
directed to her via email at ldamast (at) ebizq (dot) net. She can also be followed on Twitter, where she covers additional Israeli technology companies and Israel-related headlines and topics.

Tim Berners-Lee, the father of the World Wide Web, recently mentioned in his blog that social networking on the Web is providing people with the opportunity to share data about themselves and things related to them for the interest of others (i.e., for connecting to others). He explains though that the popularity of these social networks hide the reality of people using these closed sites not for the sites themselves but for the opportunities and connections that they provide them.

For those who aren’t familiar with Israeli society, it tends to pride itself on giving advice and having connections (protexia). The connection of people and information are strong values that are practically innate in Israelis and has probably contributed to Israel’s high-tech sector being very active in the Web 2.0 phenomena — so active, that I have been thinking ever since Daniel Cohen’s Israei Nokia article that if all these Israeli companies were pooled, Israel could have countered Google or created its own Facebook.

Unfortunately, it’s a lot easier said than done or even fully imagined. However, with Berners-Lee talking about the Giant Global Graph and the need to transcend the limits of the current social networking graph, maybe there is still the chance that Israel will build the next big networking phenomena. Israeli companies just have to think outside the box of the Web and the set up of social networks as we know it.

For anyone who wants to get started on this, here’s a list of some of the top Israeli Web 2.0 companies that offer interactive services that if were combined in a new way, I think could create the next big thing:

Fun:
Aniboom- Users can create animated clips, post clips, view clips here, and based on the popularity of content that you post, you have the chance to make some money as well.

Metacafe- A user-driven video-sharing site that shows only entertaining short clips that is first reviewed by users before it gets posted on the site. Program creators of the most popular content get paid.

BlogTV- For anyone who has something to share via video. This gives you the chance to create your own live channel on anything you want.

Search and Information:
Walla!- An Internet portal with free email for anyone, this is the first stop for local information and direction on the Web.

Answers.com- Formerly with the tag line, the encyclodictionalmanacapedia, Answers.com is a one stop information engine. It’s popular wikiAnswers allows users to post and answer questions on anything they might be wondering.

Collaboration and work environment:
eSnips- While it is great for its music features, eSnips’ 5GB storage gives users a way to easily store and share documents on the Web.

ooVoo- 6-way video conferences, video messaging and video chatrooms make this ideal for live video communication for business or for fun.

Verix- Offers solutions for Business Intelligence when it comes to sales.

Advertising:
Kontera- “Kontera is a leading provider of In-Text Advertising and Information Services based on patent- pending text and content analysis technology that maximizes relevancy and yield for online users, publishers, and advertisers.”

TVinci - “The TVinci media management platform helps video content owners, broadcasting channels and publishers enrich, socialize and personalize video content, while maximizing monetization.”

Hiro Media- Hiro’s ad-supported video downloading technology allows any video distributor to allow the unlimited sharing of its product over the Internet with the ability to monetize it. monetized.

News
Last week, Gemini Israel Funds made the news as one of several investors who contributed to the new Israeli solar-energy start up that raised $9 million in funding, XJet, Ltd (see my post). For Gemini Israel Funds, the investment marks the second cleantech start up that it has added to its portfolio since August and signifies a new importance the company is putting on the future of cleantech.

Company Overview

Gemini Israel Funds was the first Israeli VC fund to be established from the Israeli government’s Yozma program in 1993 after Israel high-tech and VC pioneer, Ed Mlavsky, agreed to manage the fund. According to Gemini’s website, over the years, Gemini has focused on seed and early fund investments in areas of Communications such as Wireless Technologies, Enterprise Software, Internet, Consumer Electronics and Semiconductors, investing in companies such as RADLive, WeFi, Inc, IXI Mobile Inc, Adap.TV, Triana Inc, and OpTier Inc. Gemini has offices in Israel and Silicon Valley and manages funds totaling $550 million.

Analysis: Sun only beginning to shine on investing in Israel’s cleantech sector

While cleantech still isn’t a top priority for Gemini (it currently only has two cleantech companies in its portfolio), its recent cleantech investments have placed Gemini as a serious leader in cleantech venture capital community in Israel — an area that is picking up steam with the coverage that companies such as XJet, Ltd and Project Better Place have been getting lately and the latest news that Al Gore has become a partner in the VC firm, Kleiner Perkins Caufield & Byerswill (KPCB) and will help the company find and invest in start-ups globally (including Israel).

Despite any potential future interest by KPCB, as more Israeli and international VC firms become active in Israel cleantech in the future, Gemini is poised to be little affected given its approach and its founding partner and Chairman, Ed Mlavsky.

According to a company self-description, “Gemini’s key contributions include an ability to make daring investment decisions and the capability to utilize past operational experience in assisting portfolio companies.” The firm’s willingness and ability to make “daring investment decisions,” is a direct influence of Mlavsky.

Since his days at Tyco in the 1960s, Mlavsky has always embraced new technologies and has taken risks with them. While at Tyco (which he co-founded) he initiated the development and commercialization of a “novel photovoltaic technology” that he later oversaw as Executive Vice President of joint-venture Mobil Tyco Solar Energy Corporation. Risks such as that led Tyco to become the $40 billion company that it is today (and Gemini to have $550 million in funds). As such, it can be assumed that his attitude is what has sparked Gemini’s early entrance into cleantech. Additionally, his experience (and solar-energy expertise) fulfills Gemini’s “capability to utilize past operational experience in assisting portfolio companies” in cleantech, which, presumably, also gives the company a bit of a one up in the experience department over other Israeli VC firms entering cleantech.

However, although the cleantech industry is poised for great success, it is still a fledgling area and requires many obstacles to be lifted before any company will become a major global player and give Gemini and other VC firms the returns that they expect. Analysts predict that since this is a new area, big payoffs and mature cleantech startups aren’t likely for several years.

This may take even longer as it is very unlikely that in the near future any cleantech start-up will be able to expand its market-share significantly in major markets such as the United States and China due to a lack of government incentives and payoffs in the former, and lax regulations in the latter. As both governments become increasingly pressured to make these changes, though, and even more opportunities open up, Gemini’s business acumen should ensure that its cleantech companies will meet its expectations and eventually provide it with a nice ROI.

Additional Resources
Adap.tv
Overview of Gemini
Opportunities in Television
OpTier

Company Blogs
Ed Mlavsky: GOLB
Tali Aben
Daniel Cohen
Sagi Rubin
Ouriel Ohayon