Tuesday, August 16, 2011
Europe's hottest startup capitals: Tel Aviv
This article was taken from the September 2011 issue of Wired magazine.
London's startup scene is booming -- you need only read Wired to see that. But what are Europe's other hot digital cities -- and which are the companies and founders to watch? Welcome to Wired's first annual guide to the continent's rising stars.
Israel's technology exports hit $28.5 billion in 2010. Here is the next wave of businesses to watch.
Coordinates: 32°4'N 34°47'E
Global Cities Index ranking 2010: 50
At the eastern edge of the Mediterranean, stretching 180 kilometres from Haifa in the north to the outskirts of Jerusalem, runs Israel's "Silicon Wadi". Centred on Tel Aviv, the strip has produced so many widely adopted high-tech products -- from ICQ instant messaging, through wireless-internet technologies to USB memory sticks -- it is often seen as the closest international rival to California's iconic Silicon Valley.
The entrepreneurial spirit is boosted by an intense commitment to R&D -- the country reinvests about 4.5 per cent of its output in civilian research, making it number one in the world for R&D as a percentage of GDP. In 2010, Israel's technology exports hit $28.5bn (£17.5bn), 35 percent of overseas sales. Israeli companies comprise the biggest non-US block on the Nasdaq exchange. And the country is home to R&D departments of some of the world's biggest tech companies, including Google, Microsoft, Oracle and Intel.
Israel's population of 7.5 million is highly educated and the country has a liberal attitude to the civilian use of military breakthroughs. But layered on top of that are two particularly local ingredients: a widespread respect for chutzpah; and the state's distinctive form of military service.
At 18, Israeli citizens typically begin two or three years in the Israel Defense Forces. Many end up in the paratroop or tank regiments, but the highest academic achievers are drafted into elite units such as Talpiot and 8200, where they undergo intense training in high technology and coding.
"You'll come across graduates of 8200 everywhere," says Index Ventures' Saul Klein, a veteran high-tech investor based in Israel and the UK. "By the time they enter the workforce they have real-world experience of some of the toughest technological and programming challenges." They also have a potent attitude to teamwork. "In the army, a unit will plan an operation together, act on it and then review how it went. I can think of no better description of a startup than that."
The army also provides a lifelong network of contacts. "Everyone is three degrees of separation away," says Yossi Vardi, a venture capitalist who is something of a guru to the country's high-tech sector. "If you want to get in touch with someone, you'll know someone who has a friend who was in their unit.
According to Klein, however, there is a problem. In his view, Israeli companies often lack two of the three Ds crucial for a successful tech startup: a developer, a designer and a distributor. "Israel's developers can program better than anyone, but you need a designer to perfect the user experience and a distributor to get the product out to market, and there it tends to fall down. However, he adds, "this is an big opportunity for joint ventures with the UK, which does both very well."
1. The Gifts Project
73 Rothschild boulevard
Ron Gura, 26, cofounder and CEO of The Gifts Project, is modest about why so many of his fellow startups describe his company as the country's Next Huge Thing. "What we do is simple, really: we take something that a lot of people like to do, but which can be hard to organise in the real world, and make it easy online."
The Gifts Project sells plug-ins, standalone sites and white-box software that allow people to chip in to buy a present for a friend online. A person chooses a gift and names the recipient, then invites others to contribute. Givers can pay with a credit card or use PayPal. Anyone can invite others to contribute and the gift can be up(or down-) graded according to how much money is raised. Once the money is in, the retail site sends the gift to the recipient with a card.
Founded by Gura (opposite page, second right), his sister Maya (left), Matan Bar (second left) and Erez Dickman (right) in December 2009, the company raised $100,000 in seed investment, and then $1m from Index and Gemini. It is making revenue from analytics, with retailers accessing details of several customers for every purchase. The software is also being used on US eBay under the branding eBay GroupGifts, and Gura says the company is going live on "a few UK brands soon", including notonthehighstreet.com.
62 Rothschild Boulevard
Face.com's founder and CEO, Gil Hirsh, 37, doesn't look like someone who has raised more than $5m of investment capital in less than three years. He prefers faded jeans and an old checked shirt to a corporate suit, and his offices, which he shares with the company's eight other employees (three more are in New York), are in need of a coat of paint. But, he says, "You spend the money where it makes a difference - on servers and on hiring the top talent in the market."
Face.com's applications take facerecognition software a step further than the traditional systems used in the security industry. Whereas devices such as automated passport gates require the user to look straight into the camera, Face.com's algorithms can tag a face in a photo even when it is turned away, half hidden, smiling inanely or wearing sunglasses - in other words, in the ways we usually appear in our social snaps.
"Our world," he says, "is the world of friends finding photos of friends. We are absolutely not in the security business." The company's first consumer product, PhotoTagger, allows Facebook users to automatically tag photos they upload. Running in the cloud, it hazards (very good) guesses as to who is in a picture, which the user then accepts or declines, giving the algorithm further information on which to base its next guess. (Hirsh won't comment on whether or not the company's technology is also behind Facebook's auto-tagging feature, which launched in June and does a similar thing.)
A second product, Photo Finder, currently in alpha, allows users to search the internet for photos of themselves and friends. As a kind of demo, Face.com has launched a celebrityonly version, CelebrityFindr, that scans stars' images on Twitter, but the full version will inevitably raise privacy concerns. Hirsh says the company takes privacy very seriously ("This is not a stalkers' tool," he says) but, with or without Photo Finder, it's hard to see how anyone could protect themselves from being identified in a third-party photo that is freely available online. Face.com started as a project at one of Tel Aviv's GarageGeeks events in 2007. A year later the company raised $200,000 from angel investors, and, in 2009, another $5.3 million in two separate funding rounds led by Israeli VC company Rhodium. Income comes from whitebox products developed using its API, and from revenue-sharing deals. Hirsh expects the company to turn profitable this year.
7 shalom Aleichem ramat hasharon
In May, one of Israel's tech giants, Conduit.com, bought Wibiya, a 17-person Tel Aviv startup less than three years old, for $45 million. This gave Wibiya'sbackers, including Primera Capital and Yossi Vardi, a very solid return on their $2.6 million investment. Wibiya was set up in 2008 by Dror Ceder and Daniel Tal, both currently 30 and joint CEOs, and Avi Smila, 37, CTO, to provide easy-to-install and easily customisable apps for website owners to add to their sites. Sold through Wibiya's Application Marketplace, these include ways of linking users to Facebook, Twitter and Foursquare; contactform and photo gallery generators; analytics tools; ecommerce systems; and online games.
"The idea," says Ceder, "is to provide you with an easy way to enrich your users' experience so they stay longer on your site and don't go off somewhere else."
By May this year, its 70-or-so apps were in use on 140,000 sites, with another 100 joining every day. "Our tools are seen by about 200 million unique users per month," says Ceder.
The acquisition by Conduit will be a cultural shift for Wibiya (currently based in Tal's parents' back garden) as well as scale, but it will give the company's technology greater exposure. Conduit, which is essentially in the same business, has 200 employees, apps on 260,000 sites and handles 2.14bn monthly interactions across its network. The first initiative to come out of the new partnership will be Wibiya's entry into the mobile market. Its first mobile apps were due to be released as Wired went to press.
Onavo, founded by Guy Rosen and Roi Tiger in 2010, markets smartphone apps that cut travellers' roaming fees by up to two thirds. It does this by compressing inbound data before it is sent down to their phone. Onavo has so far attracted $3m of VC funding, led by Sequoia Capital. onavo.com
Possibly the hottest startup in town, Billguard automatically scans customers' online credit-card and utility bills for errors, hidden fees, scams and fraud. Founded by Yaron Samid and Raphael Ouzan in 2010, and launched in May, it has already raised $3m, led by Bessemer Venture Partners.
Snaptu launched in 2009 with a service that turns internetenabled phones into smartphones by running apps in the cloud. Bought by Facebook for a rumoured $40$70m, it is currently developing Facebook's mobile presence.
Tel Aviv's most secretive startup has raised $1m (including from Eric Schmidt) and is expected to launch an app that will use voice recognition and semantic analysis to translate commands into actions. But no one will say when.
Founded in 2007, since when it has raised $7.8m, Soluto uses crowdsourcing to improve PC performance. A small client program uses anonymous technical information gathered from other Soluto users to diagnose problems. soluto.com
Boxee markets a £200 rival to the Apple TV that relays rich media from the internet and a user's home collection to their television. To date the company has raised $26.5 million in VC funding and has offices in Tel Aviv, New York and London.
Taykey is a business-to-business provider that tracks internet trends in real-time, giving advertisers more accurate data about their customers' interests at any specific time. The latest funding round raised $11m from several sources.
Based in Jerusalem and New York, Mayer Reich's Rank Above provides large-scale search-engine optimisation for companies whose websites extend to thousands or millions of pages. It is tight-lipped about its funding and finances.
Where to meet
Israel is a small country -- it takes just 50 minutes to drive from Jerusalem to Tel Aviv -- which allows startups and established tech companies to choose office space on cost rather than location. That said, there are clusters of high-tech industry in the town of Herzliya, north of Tel Aviv, and in Ramat Gan and Ramat Hachayal in the city's northern suburbs.
But the real buzz can be found in the cafés of Tel Aviv's Rothschild Boulevard. Stretching from Neve Tzedek in the south roughly to midtown, Rothschild is an elegant, treelined avenue popular with pedestrians, cyclists and rollerbladers enjoying the city's almost unending sunshine. On the pedestrian walkway that runs down its centre, a strip of hip, outdoor cafés is home to creative types on their laptops, thanks in no little part to the city's free, widespread Wi-Fi network.
"Rothschild is a mashup of everything," says The Gifts Project's Ron Gura, whose offices overlook the street. "You can find artists, coders, musicians, investors, marketeers, all hanging out together."
The country has a thriving tech-camp scene. TechAviv, a startup founders' club, has 2,000 members and meets monthly in Tel Aviv, New York, Silicon Valley and Boston, to showcase new work.
But the daily contact happens much more informally, which is why so many startups are attracted by Rothschild. "It's all here," says Gura. "If I need to find someone, I just step into the street."