Israel Innovation 2.0

Nine months ago there was talk and speculation that Israel’s Web sector was done and not likely to recover. Mainly expressed by TechCrunch editor-at-large Sarah Lacy after her visit to Israel in March, at the time she wrote about her disappointment with Israeli Web startups except for MyHeritage and a few others. Her piece caused an uproar among Israelis on Twitter and in the blogosphere, including on Israel Innovation 2.0.

At the time Lacy wasn’t completely off. It had been a while since an Israeli Web startup had a big exit or received a large investment or a lot of media attention. Combining this with the poor economy and the rise of Israel’s cleantech sector (which continues to grow), it seemed that Israeli innovation in the Web space had peaked when Shopping.com was purchased by eBay in 2005.

By September of this year though it became clear that 2009 was actually the resurrection of Israel’s Web industry and that Israeli entrepreneurs did not lose their mojo as Lacy had suggested they did. At TechCrunch50 in San Francisco Israeli startups Trollim, Red Beacon and AnyClip received the three top prizes for their promising technologies. A few weeks later in October, it was revealed that Answers.com, perhaps the most memorable Israeli site to have survived the dot.com bust and to thrive, was the 13th most visited Website in September.

In addition to these sites, the second half of 2009 saw the rise of another part of Israel’s Web industry, Facebook and mobile applications. In November the Facebook facial-recognition application Face.com went live and in December the community-generated traffic tracking mobile application Waze started to make headway in the U.S. market, among other regions.

While most of these companies still need to prove themselves (with growth, revenue and exits…) it is clear that there is a new drive among Israeli Web entrepreneurs and Israel’s Web industry is reemerging. 2010 will be an interesting year to see what happens to these startups and if the newfound mojo will reverse the investment decline of recent years in the sector.

Editor’s note: This was originally posted on TechAviv.com.

During the week of March 22, 2009, it was announced that Israel will share its farming technology with Kenya and more details of the government’s water technology initiative, NEWTech were given. The sale of Aladdin Knowledge to Vector Capital was completed with the news that Aladdin and SafeNet were under common management and information security company, Tufin, added new features to its firewall management platform. Facebook became even more stalkerish with a new photo facial recoginition and tagging application by Israel-based Face.com and SEO guru, Barry Schwartz shared what he found Israeli SEMs are looking for. These stories are only some of the main ones that made it into the media last week. For links to these and the rest of the stories from the week of March 22, 2009, check below. 

Cleantech and Environment

1. Israel NEWTech, A Government Initiative To Promote And Grow Israeli Water Technology And Innovation

2. Israel to share farming technology with Kenya

Investment and M&A

3. Value of Israeli high-tech M&A fell 19 percent in 2008

4. Funded: GoViral, BriefCam, Extreme Reach (BriefCam)

5. SafeNet, Aladdin Knowledge Under Common Mgmt

Information Technology

6. HP to Provide Compaq My Bhasha with its Desktops

7. New Cyber-Ark controller clocks all super-user activity

8. SkillIQ is set to Revolutionize the Human Resources World

9. Dell Certifies Aternity as ISV Partner

10. Tufin adds white lists to firewall management platform

Miscellaneous

11. Israel’s Explay helps you see the big picture

12. First Look: Photo Finder facial recognition app for Facebook

13. Drops in the bucket

14. Partnerships between Florida, Israel are key

15. What Israeli SEMs Want

Bonus: TechCrunch’s Sarah Lacy in Israel and reactions. 

Last week Twitter and the Web erupted when the newest member of the TechCrunch team, Sarah Lacy, posted that Israeli entrepreneurs lost their mojo and that investing in Israel was overhyped. Here are are just some of the responses to Lacy’s post as well as her post and its follow up. 

Now that China Is the New Israel…What’s Israel? (TC)

What’s behind Sarah Lacy trash talking the Israeli VC scene

Israel is the new Israel (Israel Innovation 2.0 response)

Israel Hype Cycle

Sarah Lacy, David Li and the Wrong Side of Historical Performance

Risk Aversion And The Perils Of Selling Too Early (Israeli Startups, Part II) (TC)

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.