By Jonathan Ferziger and Gwen Ackerman - Dec 30, 2011 5:01 AM GMT+0700
Dec. 30 (Bloomberg) -- Startup investor and Digital Life Design conference organizer Yossi Vardi discusses the growing interest in Israel's technology industry from large U.S. companies. He spoke Nov. 6 in Tel Aviv with Bloomberg's Gwen Ackerman. (Source: Bloomberg)
The Google Inc. (GOOG) executive with his bright yellow vest was impossible to miss in the middle of the Israeli startup owners seeking cash in a rusty boathouse at Tel Aviv’s Jaffa port.
David Lawee, Google’s mergers and acquisitions chief, used the early November session, called Garage Geeks, to round out his contact list. “I’ve met about 100 Israeli companies in two days and that’s, like, super-efficient,” he said between conversations at the corporate speed-dating-style event arranged by startup promoter Yossi Vardi that introduced local businesses to multinationals.
Google set up a funding program two weeks later for Israeli entrepreneurs, part of an acceleration in U.S. technology companies’ backing in late 2011 that has included Apple Inc. (AAPL) buying a company in the country for the first time, according to business newspaper Calcalist.
The foreign investments are important to Israel, where the high-tech industry accounts for 47 percent of manufactured exports, and could be a new source of innovation for giants like Google because of the Mountain View, California-based company’s strength in technology startups.
Money from Google and others is making up for a decline in local financing that Avi Sasson, Israel’s state research-grant provider, says could hurt industry growth.
Venture Capital Slump
“The minute the Israeli venture-capital funds aren’t helping in the early stage, there won’t be a new generation of companies for the foreign investors to invest in three or four years down the road,” said Koby Simana, head of the Israel Venture Capital Research Center, in an interview. “Israeli startups won’t exist if there is no Israeli venture capital.”
Of the $522 million raised by Israeli technology companies in the third quarter, $96 million came from domestic venture- capital funds, a drop of 40 percent from the second quarter and 12 percent from a year earlier, according to the research center. The proportion coming from Israel, at 18 percent, was the lowest since the center started covering the industry in 1999, Simana said.
Many Israeli venture capital funds, hurt by the global recession, have been unable to raise money, and 2012 will be “crucial” for their recovery, Simana said. “For some, it will be a make or break year because they haven’t raised funds since 2007 or 2006 and if they don’t raise any money this year or next, many will cease to operate,” he said.
State Funding
The Israeli government’s annual research-funding allocation has been cut by 1 billion shekels ($262 million) over the past decade, Sasson, who oversees the Ministry of Industry and Trade’s development financing for local companies, said this month at a conference in Tel Aviv. That represents a decrease of 56 percent to a yearly budget of about 800 million shekels.
Israel, with a population similar to Switzerland’s at 7.7 million people, was dubbed the “startup nation” in a 2009 book of that name by Saul Singer and Dan Senor. It has 64 companies on the Nasdaq (CCMP) Stock Market, the most of any country outside North America after China, with 56 percent focused on technology.
Google’s investments in fledgling Israeli companies in the past two years include takeovers (GOOG) of LabPixies, a developer of game applications, for $25 million, and Quiksee, which makes software for posting three-dimensional video online, for an undisclosed price. Other U.S. investors that have acquired Israeli assets include social-networking site Facebook Inc. and online marketplace EBay Inc. (EBAY)
Netanyahu on Twitter
Apple agreed to buy semiconductor designer Anobit Technologies Ltd., Calcalist reported Dec. 20. On the same day, Prime Minister Benjamin Netanyahu’s office posted on its Twitter account a message congratulating Apple “on your first acquisition here,” without naming the target company. Mark Regev, a spokesman for Netanyahu, declined to elaborate.
Anobit, founded in 2006 and based in Herzliya Pituach, and investor Pitango Venture Capital declined to comment. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on “rumor and speculation.”
International investments may not be the answer to the needs of Israel’s startups because the smaller number of local financiers poses a risk to the industry’s independence, said Abraham Peled, executive chairman of Staines, England-based digital-television coding developer NDS Group Plc.
“The minute Israeli high-tech is primarily based on development centers of major companies, their fortune will be tied to that of those companies so that, if they are cutting staff, they will cut in Israel as well,” Peled said.
‘Nimble’ Startups
Israel’s “nimble” startup model can still thrive even as government funds drop because Internet companies only need small amounts of money, Vardi said. The city of Tel Aviv recently opened a working space called the Library for young technology entrepreneurs, he said.
The hour-long Garage Geeks event closed the Tel Aviv part of Digital Life Design, an international technology industry convention held in Munich. The Israeli edition attracted 300 visitors from outside the country, Vardi said.
“Somehow the word is out that this is where everyone has to be,” said Vardi, co-chairman of the global conference and a founding investor in the former Mirabilis Ltd., which developed the ICQ online-chat system.
Top executives from Seattle-based Amazon.com Inc. (AMZN), Paris- based Alcatel-Lucent and Russia’s Yandex NV were among nine potential benefactors at Garage Geeks who donned yellow vests. About 300 startup founders, clustering in groups as large as 30, roamed from suitor to suitor making appeals under loose rules that urged “short” presentations.
“When you make a connection with an entrepreneur who’s really excited, whether you do a deal with him or not, that’s kind of the juice of the job,” Google’s Lawee said.
To contact the reporters on this story: Jonathan Ferziger in Tel Aviv jferziger@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Andrew J. Barden at barden@bloomberg.net.
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