From Modu's Ashes, a Phoenix of More Than a Dozen Startups

Apple crushed the innovative cellphone maker, but former employees went on to create their own companies.

Every few years Israel's tech sector has a "big bang," in which an important company disintegrates and its employees, founders and executives scatter in all directions. For the founders and investors it's a nasty shock, while for the employees who are rudely thrust back into the job market it means beginning a new chapter in their lives.

Sometimes the trauma ends up being of immense value to the entrepreneurial environment.

One of the most notable events in the history of Israeli high-tech was the disbanding of the Lavi aircraft project 1987, which unleashed hundreds of engineers into the job market and became the foundation for the high-tech surge of the 1990s. As it turns out, the meteoric rise and high-profile crash of Modu, Dov Moran's cellphone company, was another seminal event.

Moran was already renowned as the inventor of the USB flash drive (Disk-on-Key) and for selling his company M-Systems to SanDisk for $1.6 billion seven years ago. At its peak Modu was a niche player in the global cellphone market, with its innovative tiny modular handsets. But the resounding success of Apple's iPhone in late 2010 transformed the entire industry, and Modu was forced into receivership.

Since its January 2007 founding, Modu burned through more than $120 million of its investors' cash. But the money didn't go completely to waste: At its peak the company had 130 people on its payroll, many of whom went on to hold senior positions in the industry.

Many more used the knowledge and skills they acquired at Modu to launch startups of their own. At least 15 startups have been founded by former Modu employees, according to a survey by TheMarker. They include Internet and mobile companies such as Onavo, Interlude and Flayvr. Moran, a diehard entrepreneur, played a key role in the formation of another 15 companies including Comigo, a platform for broadcasting television content over a range of devices, as well as Sherut.Net and KeyView. These companies in turn employ many Modu alumni.

"Comigo emerged from a group of people who worked at Modu and who, as soon as the company closed down, said they wanted to work with me," says Moran.

Eight former Modu employees were involved in starting Comigo, most of whose 30-plus employees had worked at Modu and M-Systems.

Others at Modu went on to key management positions at some of the largest tech companies in Israel and around the world. It is interesting to note that around 20 Modu veterans ended up at another visionary company, Better Place, which recently went belly-up.

The stories of Modu and Better Place are comparable despite the differing circumstances behind each's failure. Only weeks after the developer of electric vehicle refueling stations filed for bankruptcy, former employees of Better Place veterans are already founding innovative enterprises, some based on specialized knowledge in the automotive and recharging fields.

'I believed in Dov Moran and the Modu concept'

"I believed in Dov Moran and in the Modu concept," says one engineer who worked at both companies and asked not to be identified.

"I joined [Modu] at an early stage and tried to do the maximum, right to the end. When the company's liquidation was announced it was hard, but I'm not a person who takes things to heart. The important thing is to try. On the other hand, when Better Place folded I didn't feel too great a loss. I'm a believer in electric vehicles, but I'm not as upset as I was after Modu closed. I wasn't a big fan of [Better Place founder and first CEO] Shai Agassi. I saw plenty of money being wasted in the company. When I came to Better Place it had been going for over two years and was a monster, with 500 employees."

Complicated products

As a company engaged in an unusual area for Israel, developing a consumer electronic product, Modu served as an incubator for fields that were relatively undeveloped in Israel.