Yossi Vardi

"INNOVATION? ITS IN OUR CULTURAL DNA"

High-tech guru Yossi Vardi, whose own story has inspired a generation of Israeli internet entrepreneurs, talks about what makes the Startup Nation tick

Yossi Vardi is a household name of high-tech Israel, widely acknowledged as the founding grandfather of the Startup Nation. Vardi has invested in over 80 companies over a five-decade long career since he started TEKEM Advanced Technology, one of Israels first and largest software houses, in 1969. But he is still remembered best for his 1996 seed round in a then unknown company called Mirabilis, headed by Vardis son Arik.

Yossi Vardi
Vardi: "I don’t look at ideas in business plans anymore –they’re overrated and irrelevant"Wikimedia Commons / TechCrunch

Mirabilis developed ICQ, the first instant messaging system for the Internet. What was more important for Vardi and the burgeoning Israeli Internet scene: When AOL bought the company for $400 million just 19 months later, it launched what was dubbed the Mirabilis Effect to describe, as Forbes put it, the phenomenon of young Israeli entrepreneurs yearn[ing] to copy the companys success.

The ICQ founders became cultural heroes in the Israeli saga, Vardi said in 2013. They redefined the meaning of achievement and inspired a whole generation of Internet entrepreneurs.

Indeed, it was that year that mobile navigation app Waze was acquired by Google for over $1 billion, demonstrating that the cycle kick-started by Vardi 14 years earlier shows no signs of slowing down. In 2015, there were 104 exits by Israeli high-tech companies generating over $9 billion in proceeds.

Vardi didnt stop with Mirabilis. Other multimillion-dollar deals hes been involved in include The Gifts Project, acquired by eBay in 2011; media player browser extension FoxyTunes, bought by Yahoo in 2008; automated technical support platform Gteko (picked up by Microsoft in 2006 for between $100-$120 million); and Internet toolbar maker Wibiya, acquired by Conduit in 2013 for $45 million.

The Mirabilis Effect existed before that company, Vardi says. But after that, it became overwhelming. And now we see it occurring at higher frequency.

Haaretz sat down with the 74-year-old Vardi, who also chairs the annual DLD Tel Aviv Innovation Festival, to talk about his favorite subject: What makes Israelis so innovative.

Israel used to be known for its pioneering agriculture. Now its known for its silicon chips. Is that a change or is there a fundamental similarity?

We have always been very good at seeding, whether in agriculture with tomatoes or high-tech. We excel in the early stages of the life of a company. Then we let other people do the scaling. We are like the yeast of the industry. Its very contagious. Thousands of people are coming to Israel these days to be inspired, to copy and to invest. We now have hundreds of multinationals, the best and the brightest, creating centers for excellence in Israel.

How is whats happening in Israel different than entrepreneurship and innovation in, say, Silicon Valley?

You have companies establishing R&D centers and scouting for talent in Silicon Valley, too, but the offshore sourcing of entrepreneurship we see now in Israel – where companies are looking overseas for creativity, for the madness in the eyes of the Israeli – is a phenomenon that has no parallel in any other country.

What drives that entrepreneurial madness?

Its as much of a social phenomenon as a financial or economic one. People are always trying to explain what the reason is for all of this. Its the technology, they say. No, its government policy. Its the education system. Its the army. All of that is true, but these parameters exist in other countries and we dont see the intensity of what we have here. I think that the underlying ecosystem, the spirit of the people, is somehow part of our genetic and cultural DNA.

Cultural DNAyou mean like Israeli chutzpah?

Its much more than just chutzpah. Israelis are very competitive. Everyone has a Jewish mother asking, after all I have done for you, is asking for one Nobel Prize too much? If your mother is telling you all the time that you have to be independent and you have to go and study, this becomes part of the value system.

You also have in Israel a culture where people want to help each other. When we have a war in Israel, people dont rush to leave the country. Just the opposite – people will sleep on the floor of an El Al flight in the race to get back to protect their homes. That doesnt come from public policy. Its something you learn in your parents home. We dont have to preach it. Its part of a very long tradition of collaboration.

In the 2014 Global Innovation Index, Israel was ranked 15. In 2015, Israel dropped to 22 and stayed there for the latest index too. Has Israel peaked?

Ask me again in 10 years and Ill tell you if 2016 was a peak. Seriously, I think all in all were doing pretty well. We cant take things for granted, of course. We are a paranoid people. When we say we want to conquer the world, we also ask what may go wrong. Thats another cultural component that makes us innovate.

And things do go wrong

I invested in 86 startups and 30 died, collapsed, evaporated. I have a very impressive list of failures. Some of them were idiotic. Some of them were embarrassing. The business of high-tech is not like an insurance company.

But the average Israeli is not deterred by loss. Hes like a mountain climber. [His attitude is:] Today I tried to reach the peak but I didnt so Ill return to the base camp and try again tomorrow. Hes not apologetic. For an Israeli, risk is when he hears a red alert that Hamas missiles are coming. Risk is not losing money and having to start again. Its not pleasant, but its not the end of ones career. If you cant stomach the risk, this isnt the game for you.

Is risk-taking unique to Israel?

Theres a similar attitude in Silicon Valley. But it cannot happen in Japan, for example. And in Germany, to fail is an embarrassment.

You once commented that, business plans are like sausages. Only people who dont know how they are made are willing to eat them. What did you mean by that?

I dont look at ideas in business plans anymore – theyre overrated and irrelevant. Its all about execution. You need talent, of course. Without that, an entrepreneur will execute mediocrely. You also need positive personal virtues. If youre not a team player, it will affect your ability to do anything. Plus who wants to be associated with such people? Finally, you need to be financially responsible, frugal, especially in the early stages when the investment money is the most expensive.

Israel is a microcosm of whats happening elsewhere in the world – the Internet of Things, autonomous driving, development of new drug treatments. In some areas, we go a bit further, like with cybersecurity or drones. Thats because of the defense industry.

The Chinese certainly seem to be interested.

Its not just interest – theyre flocking here. They are massively investing. The long-term question is, will we be able to come up with products that cater to their domestic market? Penetrating China is not trivial.

 

The author is a freelance writer who specializes in technology, startups and the entrepreneurs behind them. More at www.bluminteractivemedia.com.