A-hunting They Will Go ... for Hot New Israeli Technology

High-tech scouts are employed by foreign multinationals to find Israeli startups with innovative ideas and business models.

They are the modern version of the traditional hunter. Like their forbears, they work alone and quietly aim to bring home the biggest prizes. But these hunters aren't looking for blood. They are called scouts, and they work for multinational companies on the lookout for new Israeli technology to acquire and turn into products.

The world's leading telecom and technology companies are scouring the world to identify new and groundbreaking technologies, something that will give them a competitive edge and solve problems in their existing products or services. It could be something that reduces the load on their networks or an application with high entertainment value.

The advantage of buying the technology from an Israeli startup, however, only happens when the multinational decides it's more cost effective than developing the same thing in house. But the large presence of scouts here in the Holy Land reflects the concentration of attractive opportunities – more than opportunities anywhere but in Silicon Valley itself.

Alongside the scouts, a more recent development is the establishment of innovation centers designed to test and evaluate up-and-coming technology. AT&T kicked off the trend in Israel, launching a center in July with Israeli company Amdocs. More recently, SingTel, the Singapore-based telecommunications group, and Sprint of the United States have set up centers, too. But for most multinationals, scouts serve as their ear to Silicon Wadi.

Today around 10 to 15 scouts are working in Israel representing multinational companies like SingTel, Spain's Telefonica, Deutsche Telekom, South Korea's Samsung, and Qualcom, EMC and General Electric of the United States. Even media companies like Comcast and ESPN employ local scouts. "It seems that suddenly everyone has read the book 'Start-up Nation,'" says one scout who requested anonymity.

Because their employers have strict rules about speaking publicly, most refuse to talk on the record, but a few agreed to speak with TheMarker.

"In all of Alcatel-Lucent there are four people engaged in scouting – one in the United States, one in Europe, one in Silicon Valley and one in Israel," says Liat Sverdlov, who works for the telecom infrastructure company as its Israel scout. "We're actively searching for what's new and keep our hand on the pulse. We see a lot of companies, and if we find something interesting we get to know the company and I report back directly to the chief technology officer."

According to another scout, who asked not to be identified, "I work for a very large company for which anything connected to electricity is relevant – from iPhone applications to fiber optics. Smart homes interest us a lot, as do electronic health services and remote monitoring …. We're also interested in network, storage and compression developments. We're looking for the next big thing, something that no one else has thought of back at home – but that already exists here."

A lonely life

The outsize presence of scouts in Israel reflects the country's innovation. SingTel's innovation center, which it operates with Amdocs, is only one of four the company has around the world. The three others are in Singapore, Silicon Valley and the Massachusetts Institute of Technology.

The American cable television company Comcast doesn't operate an innovation center in Israel but does employ Daniel Chertok, a scout who has closed several deals with Israeli startups. Comcast recently acquired NBC for $16 billion, so Chertok's brief has widened, starting with iPhone applications and media solutions. Chertok helped expand Comcast's venture-capital-fund operations to Israel, where it has made two investments in startups called Compass and ConteXtream.

The startups themselves benefit from the scouts present in Israel, who have two major tasks, namely to raise capital and land their first sale. For capital, they have lots of options, from venture capital funds to angel investors and government aid such as the Office of the Chief Scientist. But to get that critical first customer, there are few partners around who can help you. Scouts can help open the door to major global customers.

The scout's life entails a lot of hard work. One says he visited 200 startups in the 10 months since he began working. He speaks at least once a week by video conference with his supervisor.

Scouts work alone. If the multinational that employs a scout has an office in Israel, as Telefonica does, the scout spends little time there. If not, he or she is entirely alone.

"I have no office," says one scout for an American company known for keeping abreast of the Israeli high-tech scene. "I talk to venture funds and with accelerators, and I read the newspapers. I've found a lot of companies by reading newspaper stories."

According to Sverdlov, "I travel constantly. It's important to me to be in the office to keep connections, but I also sit a lot in the Arcaffe in Herzliya because I encounter lots of interesting things there. When I meet with startup representatives, I prefer to do it at their office. That way I get an impression not just of their technology, but of their work."

Gil Goren, who scouts for the U.S. data storage company EMC in Israel, says: "Do you know what the kilometer limit on a leased car is? Well, I exceed that by two and a half every month, even though most companies come to me. Sometimes, if they have something I need to see, I also like to get a look at the dynamics of the company team, so I travel to them."

Keeping it simple

Guy Horowitz, a scout for Deutsche Telekom (his official title is head of corporate business development in Israel) says that after a successful first meeting he'll spend months analyzing the technology and its market.

Only a few companies are chosen to move to the proof-of-concept stage, where they demonstrate their technology's feasibility and enter the commercialization stage. Horowitz says telecom companies like his are trying to simplify the process.

"I have the right to sign business deals, and the contract is short and simple. Even a layman can read it. We give constructive feedback to companies. That's maybe the most important thing we know how to give," he says.

"There are conferences where it's comfortable to mingle and to meet investors. The scouts also talk among themselves. Generally, everyone is looking for more or less the same things, and everyone wants to advance the local industry. We're Zionists first. Most of the [multinational] companies don't operate in the same fields as we do, but even if they do, I'm happy that an Israeli startup is working with other players."

In fact, Israeli scouts have their own parliament. "We have a roundtable of scouts, invite guests and trade ideas," he says.

Horowitz got his current job after holding positions in telecoms, venture capital and high-tech at Microsoft, Followap, Mudu and Gemini Partners. Most scouts have traveled a similar route of technology and finance.

"I have a background both in technology and business," says Sverdlov. "While I was involved in business I met the CTO of Alcatel-Lucent, who was looking for someone to fill the job in Israel – someone who understands the business culture and speaks Hebrew – and I was hired. Before that, I was overseas for 11 years, and because of this job I came back."

Multinational companies feel they need a presence in Israel so they don't miss opportunities for investment and cooperation, as well as to keep up with technology developments here. For instance, AT&T's presence here enables it to integrate billing on its digital video network with the Israeli company SundaySky.

Big companies have learned from the successful experience of Apple and Google's Android, which rely on outside developers for applications, that they can't keep complete control over innovation.

"SingTel has adopted a new strategy and it refuses to be a classic cell-phone operator anymore. It wants to be a media and services company, but it's clear we can’t do it ourselves," says Irad Dor, SingTel's scout in Israel.

"So we want to expand our innovation centers …. SingTel has a new division whose goal is to test out different things that come to it from outside the company. For them it's fine that I'm bringing in things from outside their agenda. The goal is try a lot of things quickly and commercialize what's successful. It's also okay to fail."

Bloomberg
David Bachar
Haaretz
Dan Keinan