Deconstructing Naftali Bennett: The Start-up Years

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Naftali Bennett's high-tech adventures started in 1999, at a park in Jerusalem. Four young people in their late twenties agreed to meet: Michal Tsur and Ben Enosh knew each other from their days at "Leyada" (the Hebrew University Secondary School ), and from swim-team practices. Enosh brought Bennett, whom he knew from the army, and Tsur brought Lior Golan, the only one of the four who had any technical training; Lior was her roommate. Thus was born Cyota, the company that would eventually earn Bennett millions of dollars.

At the outset, they wanted to create a start-up. Even if it wasn't entirely clear what product they would be developing, they knew who'd head up the company.

"It had to do with experience and with ego," recalls Tsur, by phone from New York, where she now lives. "It was obvious to Naftali that he would be the CEO, and evident to us as well because he was the most charismatic, spoke better than the rest of us, and could present things better than anyone. And he was a quick study when it came to picking up the skills to be a very good manager ... He is adept at tactical management, and also knows how to manage people.

"The thing that characterizes Naftali best is that he learns from his mistakes," Tsur continues. "When he is criticized or gets feedback, he internalizes it and then modifies his behavior."

The first product developed by Cyota was a single-use credit card for Internet purchases, but the company had a hard time finding a bank willing to bankroll the product.

"We realized that no one was willing to pay for it, but because we'd already begun to immerse ourselves in the world of credit cards, that was the field we went into: credit, Internet purcha ses, security and fraud," Tsur explains. "At some point, phishing became an issue - people getting emails that were ostensibly from their bank, but in actual fact it wasn't their bank sending the emails. We came along and developed a solution, and then came the really big bonanza: a solution that enhanced the level of security for anyone doing online banking ... In my opinion, all of the banks in the world now use it."

After the company was established, Bennett moved to New York, where he oversaw Cyota's corporate development. In a Markerweek interview a few months ago, Bennett described the rough years that ensued, albeit with the jocularity of someone who only knows in retrospect that he's won.

"We raised, in stages, $12 million for development of the first product, which totally failed. We found ourselves in a situation in which we had a company with 70 or 80 employees, an American CEO whom we'd brought in, and a product that had gone bust. We were living in a student apartment, scrounging to make ends meet to save the company. I lived in New York for four years, during which I did not know if I was going to make it to the end of the month," he said.

"We scraped through for two years," he added, "and that whole time continued to come up with new initiatives. Most failed. We ran out of money. At the end, there was a slight chance for survival. Some investors said that if we were able to raise a million dollars, they would bring in $2.5 million. We managed to raise $800,000, and then one of the partners raised the remaining $200,000 from his grandmother. From that point on, we no longer worried about the company, we no longer worried about the product. We only wanted to repay his grandmother."

Golan, Cyota's former chief technology officer, recalls persuading Bennett to make the change that put the company on the road to success and big money: "We managed to bring the company to a place where we already had significant sales, but then we got stuck again. We came out with a product we believed would achieve growth for us, but it didn't do well. Naftali was sitting in New York, I was in Israel, and then I had the idea for a different spin on the product which, given the dynamic of the market, could have led to the breakthrough we were hoping for. For a month or two we tried to nudge him via instant messaging, but he didn't have the time to listen.

"Finally, I flew to New York and asked him to go shopping with me ... He suddenly had time, and I told him about my idea - and his jaw just dropped. That is what led to the breakthrough, the idea that transformed Cyota. He is very focused in attaining his goal and sometimes doesn’t listen to what is happening around him. But when he does hear you, he is open to altering his way of thinking.”

In December 2005, Bennett and his partners sold Cyota, which by then had 140 employees, for $145 million to the American company RSA Security. “Naftali did a very good job handling the potential buyers,” Tsur recalls. “Essentially, there was another buyer who placed a bid on the table a few weeks before the sale. It much lower, but what was important to us was protecting the employees and also keeping Cyota in Israel. In retrospect, we made a mistake selling, because we sold too cheap. At the time, we had something like $10 million in sales, and now it’s nearly $200 million. But we had to decide if we were going to continue taking risks and growing the company, and we decided it was time to sell. Naftali led the negotiations and we pulled off a world-class maneuver. RSA was certain their direct competitor was about to buy us, so they put in a higher bid.”

Golan: “The deal nearly blew up because we insisted that $5 million would go to the employees as bonuses. The investors felt we were betraying their interests and didn’t like it. We explained to RSA that it was to their benefit.”

Soluto turning point

Following the exit, Bennett remained with Cyota for six more months, and then left, taking part in the Second Lebanon War as a reservist. Golan stayed on for another year and a half, to assist in the transition.

Golan and Bennett stayed in touch during the years in which Bennett served as Netanyahu’s bureau chief; when he left, Golan was finishing up at RSA. The two began investing on their own in high-tech companies and in young entrepreneurs. When they learned about a young company called Soluto, which was developing solutions for the automatic diagnosis and correction of computer problems, they decided to lend a hand.

In November 2009, Soluto embarked on a second round of raising investment funds, and approached Bessemer and Giza, two Israeli venture capital funds. “We liked Soluto, and Naftali was so excited he even offered to be CEO. We tried to help them get money from Bessemer, and their condition was that Naftali come in as CEO,” Golan recalls. Bessemer and Giza knew Bennett because they had invested in Cyota. For the purposes of the deal, Tomer Dvir − who had built Soluto together with Ishay Green − was removed as CEO and Bennett took over. But in early February 2010, Bennett announced he was leaving to become the director general of the Yesha Council.

Adam Fisher, a partner at Bessemer, was not pleased. “He was part of the main reason we invested,” Fisher says. “We tend to believe entrepreneurs with whom we’ve had past success. After three months, he upped and left. We were surprised and angry. It’s incredibly hard for an investor who thinks in dollar terms to think of anything that goes beyond that ... When your money is out there, it hurts.

“Deep down,” he adds, “we respect someone who says, ‘I’ve done enough on the business side and now I want to contribute,’ even if you don’t identify with the direction he’s taking. But if we had known he was casting about for a political option, we wouldn’t have taken him on. We invested large sums of money and it was unpleasant.”

Roee Adler was ‏(and remains‏) chief product officer at Soluto during Bennett’s tenure. “[Bennett] is an extraordinarily brilliant, talented, smart person. Until recently I would consult with him on business matters on a daily basis. He helped us a great deal; he contributed to the company. As a business person, one of his strongest focuses was to do the minimum required to achieve a maximum result − and then move on to the next minimum. He is very efficient, very much the doer. There are greater idols than him in the high-tech field, but he’s a real pistol. I am only sad that this is the political direction he has taken.”

Soluto cofounder Green also says he is not angry about the way Bennett left: “As soon as he saw we were getting along without him, he pulled the cord on his parachute. Thanks to him, we got the money. We will also make him a little richer someday, because he still has holdings in Soluto.

“When he left, he said he had to fulfill his own ideals, that he was awfully concerned about the way Likud was being run. He said he could no longer wait, and that he had to start influencing.”

“There are a lot of people who registered as members of Habayit Hayehudi so that he would be made chairman,” Green continues. “I’d never listened to anyone from the right wing before I met Naftali. As head of the Yesha Council, he gave us a tour. I don’t remember which settlements we saw, but it was a shock for me. We saw there were cafes there and people making wine and, most of all, we saw nature. He tried to explain that the solution to our housing problem is there. That is how he linked high tech to the settlements.”

Neil Cohen and Michael Eisenberg, former partners in the VC fund Israel Seed Ventures, invested in Cyota and also contributed toward Bennett’s campaign in the primary. Cohen says he actually tried to dissuade Bennett from going into politics, but is happy he did: “I met with him after Cyota was sold, asked him what was next and he said, ‘Something in the public realm.’ I argued that he could contribute more if he built another Cyota. I tried to persuade him that he would best serve Israel by building another company and creating even more jobs, but he was determined ...

“Seven years ago, I thought he should stay in high tech, but now the facts speak for themselves ... If I were asked today, I’d no longer advise him to build another high-tech company, because he is capable of much more. Now I want him to bring his abilities to the political arena, and hope all of the people of Israel will benefit.”

‘Global but Zionist’

“His dream was to reenact in politics what he did at Cyota − which was a team working in unison toward a certain goal, without internal politics, for mutual success,” Golan says. “If he were center or even moderate right, maybe I would vote for him. He is not necessarily very religious, but he is very right-wing. Settlement in the territories is a strong, heartfelt belief. But I consider him an inadvertent sinner who doesn’t know better. His party absolutely represents his opinions in the national realm.”

“What concerns me are irrational forces, and forces with impure interests,” Tsur adds. “Naftali does not have any dark sides. I know him well enough to say that. But people with him on the slate worry me. Naftali is a smart and rational person, I hope that will stay with him and that he will use his talents properly. But you see that a lot of smart and rational people, due to politics, are unable to make the right decisions.”

Uri Rivner, one of the first employees recruited to Cyota, knows about organized canvassing efforts on Bennett’s behalf in the high-tech world, but says now that there are simply individuals who are impressed by him.

“I think there are people who became members of Habayit Hayehudi to vote for him,” Rivner says. “I know a lot of people whose political perspective is center-left and don’t like his political program, but who are still voting for him because they are impressed with his capabilities. There are people who, in utter contrast to their political beliefs, want him in the government.”

Fisher, however, is worried about the image Bennett’s success might give Israeli high tech around the world. “People from abroad are asking us if everyone in Israeli high-tech shares his opinions. The world doesn’t know what Israelis think. So now they think Bennett is representative of Israeli high tech. Maybe [Labor-affiliated entrepreneur and venture capitalist] Erel Margalit will represent the other side.

“I hope there will be other high-tech people who go into politics. High tech is Israel’s best business sector, one that is completely independent, one that is global but still Zionist. It is very inclusive and brings in everyone, Jews and Arabs. Lots of international corporations. The people who emerged from high tech succeeded on their own and understand what it means to excel, and not only in a single endeavor. Lots of people can identify with that.”

Bennett, second from left in bottom row, and other Cyota co-founders.Credit: Courtesy of Cyota

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