Israel’s New Generation of High-tech Nouveaux Riches

Cybersecurity is among the sectors producing multimillionaires, whether on paper or after the sale of stakes.

Mobileye President & CEO Ziv Aviramon, CFO Ofer Maharshak, and Chairman Amnon Shashua, prepare to ring a ceremonial bell as their company's IPO begins trading, on the floor of the NYSE, Aug. 1, 2014.
AP

The past year has been good to Israeli high-tech. Financing rounds and exits including initial public offerings have created a new generation of Israelis putting millions of dollars in the bank — sometimes tens of millions.

There have been IPOs at maturing companies, exits by serial entrepreneurs, and young businesspeople who have sold firms that never needed outside financing. With cyber and information security firms making a lot of the headlines, there has also been hefty funding for startups that have managed to remain in private hands.

A good example of current trends is PayPal’s $65 million acquisition of the information security firm CyActive. The Be’er Sheva company, a member of perhaps the hottest segment of the Israeli startup sector, was sold less than two years after it was founded, following investments of around $2 million from Jerusalem Venture Partners and Germany’s Siemens.

Of course, it’s hard to estimate the value of startups because unlisted companies don’t have to publish earnings. So TheMarker enlisted the business research firm IVC and other industry sources to craft this article.

The initial public offering by Jerusalem-based Mobileye, which helps vehicles avoid collisions, was the main headline in the Israeli high-tech sector over the past year. The company began trading on the New York Stock Exchange at a valuation of about $5 billion and is now worth more than twice that. It is believed the IPO earned more than 200 people at least a million dollars, including a number of employees.

The main beneficiaries, of course, were the founders — Prof. Amnon Shashua and CEO Ziv Aviram — each of whom owns a 5.2% stake worth more than $600 million. Since the initial public offering, each has sold stock worth $250 million to $350 million. Other employees and private investors have also made a fortune.

Another welcome development in recent years has been the involvement of serial entrepreneurs, who return to the sector with more money and patience, usually to build a bigger company that will fulfill their fueled ambitions.

In 2000, Avigdor Willenz sold Galileo Technology to Marvell Technology for $2.7 billion. He was also the founder and chief executive of Annapurna Labs, which Amazon bought in January for about $360 million. In its early years, Annapurna’s operations were funded mainly by Willenz and other private investors, who put in $20 million. They were later joined by chip maker ARM.

Another serial entrepreneur, Moshe Yanai, raised $150 million in April to value his company Infinidat at $1.2 billion. The firm has taken in $230 million since its founding. Before the latest funding round it had been financed mainly by Yanai, who has chalked up $465 million from exits. As the major shareholder, Yanai’s stake is thought to be worth about a billion dollars.

Cyber is the watchword

Cybersecurity has created its own new generation of nouveaux riches in Israel. One mature company, CyberArk, conducted an initial public offering in September at a valuation of nearly half a billion dollars and is now trading on the Nasdaq at around $2 billion. In addition to Jerusalem Venture Partners’ stake, founder and CEO Udi Mokady has a 3.2% holding that’s now worth about $65 million.

Cybersecurity has also further enriched people such as Shlomo Kramer, a founder of Check Point Software and Imperva, who had already made a fortune in the sector. Kramer invested in three information security firms that have been sold this year, reaping him a sum thought to exceed $50 million. The companies are WatchDox, Hyperwise and Lacoon Security.

His colleague Mickey Boodaei, who was among the founders of Imperva and Trusteer, was a party to three exits worth a total of $365 million. Each time he was an early investor. The biggest headline was the November sale of Aorato to Microsoft for about $200 million.

Many Israelis would be happy to switch places with entrepreneurs who started the year with a mortgage and other financial worries and now can live in luxury. These people weren’t necessarily part of the largest exits of the year, but they were involved in young companies with little outside capital, so the founders reap the major benefits of an exit.

For example, Guy Weiss and Itay Itzhaki, both in their 20s, sold their company StuccoMedia to gambling software magnate Teddy Sagi for $43 million. Each of the sellers collected about $18 million (in cash and shares, and linked to certain milestones). The company never had outside funding; most of the firm was owned by the founders.

In addition to its purchase of Aoroto, in January Microsoft bought Rosh Ha’ayin-based Equivio for about $50 million. The initial investment had been less than a million dollars, putting a lot of money into the hands of founders Amir Milo, Warwick Sharp and Yiftach Ravid.

Over the past year a number of exits and Wall Street initial public offerings have buoyed venture capital funds, founders and chief executives alike. The list includes chip maker Wilocity, which Qualcomm bought in July for about $400 million. The company’s founders, CEO Tal Tamir, Dany Rettig, Gal Basson and Jorge Myszne, all former Intel engineers, each owned 6% stakes in Wilocity, which had hitherto raised $105 million.

Among high-tech players who have profited the most over the past year is David Gershon, the founder and chief executive of SuperDerivatives, which was sold to ICE for $350 million in cash. ICE runs the New York Stock Exchange. Gershon, who owned a stake of about 50%, made $170 million on the sale. The company’s employees made $40 million.

Photovoltaic firm SolarEdge staged its initial public offering in March at a company valuation of $685 million. Since then the firm’s market value has zoomed to $1.3 billion. Most of the company is owned by investment funds, but chief executive and cofounder Guy Sela, who owns a 2% stake, is worth about $30 million. The other founders held stakes below 2%.

Over the past year, Ilan Shiloah, a public relations executive, investor and main shareholder of Matomy Media Group has done well. The company conducted its initial public offering in London last July at a company value of $350 million.

In October, France’s Publicis bought a 25% stake in the company. Shiloah made $29 million and still has a 17% stake, but since the IPO, the company’s stock has plummeted more than 40%, putting the value of Shiloah’s stake at about $27 million.

Billion-dollar babies

A new target that many tech companies are setting is a billion-dollar value before an initial public offering. A batch of Israeli companies have reached this goal or are likely to get there soon, so the founders are already extremely wealthy, at least on paper.

Over the past year, the Israeli Internet firm IronSource has raised $103 million, the last $25 million of which was led by billionaire investor Leonard Blavatnik. IronSource is thought to have already topped the billion-dollar mark. The company’s founders still own about 75% of the firm, which has paid out about $30 million in dividends.

The Israeli website recommendation firm Taboola, which recommends sites that web surfers might like, raised $117 million in February at a company value of about $700 million. In May, the Chinese Internet giant Baidu invested several million dollars in Taboola. Some of the financing raised this year will be devoted to buying back Taboola shares owned by investors and employees.

Benny Landa, who has invested several million dollars in his Landa Digital Printing business, has now brought outside investors in. German specialty chemical company Altana has invested $100 million euros ($110 million) in the firm. Among the owners of other Israeli startups who have done well, at least on paper, is the public transportation app Moovit and the data storage firm Kaminario.