SAN FRANCISCO (j weekly) — Ronni Zehavi got quite a Chanukah present in December. On Dec. 11, he sold Contendo, a Web services company he co-founded in Israel four years ago, to Akamai, a major global high-tech player. Sale price: $268 million.
Score one for the startup nation.
Contendo provides Internet acceleration services for customers; that is, it helps make websites run faster.
It also exemplifies the stampeding success of Israel’s high-tech sector — sometimes called Silicon Wadi, drawing on the Arabic word for “valley” — over the last 20 years. Zehavi and his partners came up with a great idea, outhustled the competition and wound up with a quarter-billion-dollar fairy tale ending.
“We didn’t have any doubt,” Zehavi said with characteristic chutzpah, “not even 1 percent of doubt, that if we could identify [customer] problems, we could solve them. Our slogan was ‘can do.’ We always said to ourselves we can do whatever we want.”
Contendo benefited from Silicon Valley venture capital early on, exemplifying the close relationship between Israeli innovators and the Bay Area. The company, which has a research and development center in Netanya, Israel, has been headquartered in Sunnyvale since 2010.
That relationship is on the agenda of “Israel Through the High-Tech Lens,” a two-day conference last month at the University of California, Berkeley.
Zehavi is among the Israeli entrepreneurs, U.S.-based venture capitalists, academics and corporate executives listed on the conference schedule. He participated on a panel titled “The Israeli Start-Up Today, a View from the Ground.”
“Part of the idea of this conference is to look at Israel beyond politics, to learn more about its society and economy,” said Daniella Beinisch, director of the Berkeley Institute for Jewish Law and Israeli Law, Economy and Society, which hosted the event. “American companies are investing in Israel, and a lot of Israeli companies are moving here. All those connections feed this industry and keep it alive.”
Appropriately enough, Dan Senor, co-author of the 2009 best-seller “Start-Up Nation,” about Israel high-tech, delivered the keynote address. David Perlmutter, executive vice president of Intel, gave the closing keynote.
The conference, which will have more than 35 speakers and 10 sessions, is the biggest event yet for the institute, which launched last March under the auspices of Berkeley Law (formerly Boalt Hall). Other sponsors include the Berkeley Center for Law and Technology, Israel 21c and the California Israel Chamber of Commerce.
Christopher Edley, dean of Berkeley Law, said the conference was exciting “not only because we’re talking about an issue of vital importance to Israel, but because the lessons in Israel offer insights about Silicon Valley and its future.
“It’s one thing to sit on Wall Street and invent a new kind of derivative. It’s another thing to build the next generation of technology. Technology is inherently about optimism.”
Many explanations have been proffered to account for the Israeli startup phenomenon: the Israeli military’s culture of self-reliance and innovation; the influx of 1 million highly educated Russian immigrants; the Israeli personality itself, which can at times seem assertive and confident.
Whatever the reasons, Israel’s economic engine continues to hum, despite the global economic downturn.
According to a recent report in Bloomberg News, Israel has 64 companies on the Nasdaq Index, more than any nation after the United States and China. U.S. companies, such as the Silicon Valley-based Intel, Google and, most recently, Apple, have planted roots on Israeli soil.
That same report also noted that in the last quarter of 2011, there was an 18 percent drop in Israeli money invested in Israeli startups. Sounds like potential trouble, but the smart money in Silicon Valley doesn’t seem worried.
“It’s a natural cycle,” said Jacques Benkoski, a partner with U.S. Venture Partners, a venture capital firm in Menlo Park, Calif. “We’ve seen a bottoming out, with several Israeli [venture capital firms] showing very promising results and will continue [to do so]. Things have to right themselves in any industry or country.”
Though he is not an Israeli, Benkoski is a graduate of the Technion Institute in Haifa, speaks fluent Hebrew and has been bullish on Israeli high-tech for years. He also will speak at a conference panel about technology investments in Israel.
“The real uniqueness of Israel is that it is the closest possible replication of the Silicon Valley model,” Benkoski said. “The reason is due to what we call a talent density effect. It’s not just talent, but talent over small geography. If you put on a map the distance between Berkeley and San Jose, it’s the same as between Haifa and Tel Aviv.”
Add in world-class universities, research labs and prestigious companies such as Intel, Cisco and HP, located not too far from one another, and you have two parallel, compatible high-tech universes.
Benkoski cites his experience with the Israeli startup Dune Networks as the highlight of his career. With investment coming in from Silicon Valley, the company was able to take its innovative semiconductor business to the next level — and eventually it was acquired by Broadcom for more than $200 million.
Jerome Engel, an adjunct professor at UC-Berkeley’s Haas School of Business and a specialist in entrepreneurship, sat on a conference panel that addressed the question of whether Israel can maintain its position as a high-tech leader.
His answer, in a word: yes. Engel, who has been studying Israeli startups since the 1980s, sees success stories like those of Dune Networks and Contendo as examples of what he calls a “covalent bond” between individuals and companies in both Israel and Silicon Valley.
He borrowed the term from chemistry, which describes the phenomenon of two atoms that share an electron.
“A funny thing happens,” Engel said. “Each atom thinks it’s whole. That electron ever-present in both is a covalent bond. So I think when these [company acquisitions] happen, because they are transnational you create these transnational bonds. It’s a stabilizing thing.”
Typically when an Israeli high-tech entrepreneur sells a company to a major conglomerate, he or she may go home to Israel, launch a new company and start the process over again, launching new startups and often seeding other companies, as well.
“This bridge between the two economies gets formed,” Engel added. “Yes, when you sell, [the company] is gone, but you’re putting another girder in the bridge. Those planks are very important. It breeds this transnational entrepreneurship. It creates a global citizen.”
Israeli lawyer Omer Tene fits the “global citizen” description, straddling the two communities as he does. He is an associate professor at the College of Management School of Law in Rishon LeZion, Israel, and an affiliate scholar at the Stanford Center for Internet and Society.
He will spend the next several months as a visiting fellow at the Berkeley Institute for Jewish Law and was a featured panelist at the conference.
The Israeli government, Fortune 100 companies and startups have consulted him on matters related to privacy, data protection, and law and technology issues. He talked about those issues at the conference, but he also speaks expansively about the general outlook of Israeli high-tech.
“This has been a very important development for the Israeli society,” he said, “and definitely the engine of the Israeli economy, which has been very resilient these past years. One of the big challenges for Israel is to perpetuate this, and regenerate this miracle for the next generation.”
He believes the Israeli people have a predisposition to make that happen.
“The entire country is like a startup,” Tene said. “It’s a young country. Its growth rate has been really immense. There’s this entrepreneurial spirit and a strong [research and development] climate.”
That’s the good part. On the flip side, some aspects of Israel’s legal culture pose impediments to the U.S.-Israel business relationship.
He says once startups reach the M&A (mergers and acquisitions) stage, that’s when the lawyers often get involved.
Israeli society, he noted, “is very litigious, much like the United States. We have the highest lawyer-to-population ratio in the world. Companies engaged in M&A transactions almost always find themselves involved in litigation in Israel.”
The threat of litigation hasn’t scared off Isaac “Yitz” Applbaum, an Oakland venture capitalist and general partner with Opus Capital who has been investing in Israeli companies for more than a dozen years.
Applbaum chaired a conference panel on the future of investing in Israel. He believes one of the most exciting changes he’s seen in recent years has been the movement toward increased U.S. investment in Israel.
“It’s a fantastic place to make money,” Applbaum said. But, he added, he and other Jewish American investors often have more than profit in mind when they put money into Israeli companies. “I do much of my investing there because I love Israel.”
Contendo’s Zehavi loves his country, too, and he found his company’s success beneficial not only for his employees and investors, but also for Israel and its standing in the world.
“We are very still proud of being an Israeli company,” Zehavi said. “It was very important to understand the impact of the company regarding Israel. Whenever we invited [potential investors] to visit, we took them to Jerusalem and explained the complexity of living in Israel. We had very emotional discussions. Of course, we are biased.”
Despite the Israeli economic miracle, investors know that Israel is and always will be a small country. But for shrewd investors, the key is to see opportunity when others only see problems.
“The Israeli startup market is fairly narrow,” said Benkoski, the venture capitalist. “For all the attention created by [“Start-Up Nation”], it is, after all, still a small country, despite a higher startup rate than anywhere else. But that’s one of our advantages. We know just about everybody in [Israel’s startup community], something we couldn’t do in China.”
