The Start-up Hunter

Angel investor Esther Barak-Landes is the woman behind real estate tycoon Igal Ahouvi's high tech successes.

The U.S.-based market research giant Nielsen knows from consumers, and uses advanced information collection and analysis technologies to divide them into 60 segments, from "young digerati" in the city to "affluentials" such as "Beltway boomers" and "pools & patios." Now Nielsen is hunting for Israeli companies in the field. To that end it set up Nielsen Innovate as an incubator for Israeli startups, in partnership with real estate mogul Igal Ahouvi's Partam High-Tech venture capital fund. The incubator operates in collaboration with the Office of the Chief Scientist.

"Nielsen views Israel as a center for the development of technology and startups," says Nielsen Innovate CEO Esther Barak-Landes. "They understand its strength and appreciate it highly."

The incubator reestablishes Nielsen on Israel's technology front lines, after the company shut down its development center here in 2009.

Barak-Landes says Nielsen is looking for Israel companies that are developing cutting-edge technology for collecting and analyzing data in all types of media, along with technology to analyze both online and in-store retail purchases. Nielsen is also interested in tech companies for which data are a byproduct of their core products or services. Nielsen Innovate hopes to have six startups in the area of consumer behavior analysis under its wing by the end of the year.

In 2000, after practicing law for nine years, Barak-Landes, whose parents are the former Supreme Court President Aharon Barak and the former vice president of the National Labor Court, Elisheva Barak-Ussoskin, moved into the world of startups. She began as head of business development for Cash-U Mobile Technologies, which built game platforms for cellphones in the pre-smartphone era.

In 2005, after earning an M.B.A., Barak-Landes cofounded the Israel Angels investment club, together with Arik Peretz and Sahar Philosof. "One of the angels who approached us was Igal Ahouvi," recalls Barak-Landes. "He proposed that I come over and set up a company for him that would invest in high tech."

Since starting out in 2006, Partam High-Tech's portfolio has included 36 Israeli or Israel-connected companies, seven of which have been the object of takeovers. Barak-Landes won't reveal details, but says tens of million of dollars were invested and that the fund has generated profits. Most of its investments have been done at the early pre-seed, seed and first-round stages, sometimes as the initial investor. Partam's portfolio spans a wide range of fields including medical equipment, telecommunication, Internet and media, with investments ranging from $250,000 to $2 million.

But despite the free hand given her by Ahouvi, Barak-Landes still felt something lacking. "I was missing a connection to the companies' target markets," she says. "I think in order for a company to succeed it needs outstanding people who are good in their own right and know how to get along with employees as well as with shareholders - and this isn't a trifling matter. A good idea is also needed, along with a suitable market. But a connection with the market and to customers and industry are important even at the very early stages: It is critical."

A meeting with Itzhak Fisher, Nielsen's executive vice president for global business development, gave Barak-Landes the chance to make the change she sought. Fisher joined Nielsen after the company bought BuzzMetrics, a company he had cofounded, for more than $100 million in 2007. BuzzMetrics ceased operating in Israel in 2009, but Fisher stayed on to climb Nielsen's corporate ladder.

"I told [Fisher] about my idea of buying an incubator or bidding for a license to establish one, and he said he wanted to do the same thing for Nielsen and suggested we go in together," says Barak-Landes. "Through our contacts with the highest echelons at Nielsen we can help companies reach their target markets at the fastest speed there is and open all the possible doors with the partners, not just in the United States but throughout the world."

Some of the companies in the incubator will eventually be bought out by Nielsen. The company has a history of momentous acquisitions, the latest of which is the radio ratings company Arbitron, for $1.26 billion.

Zollo, whose self-named mobile application crowd-sources retail price comparisons in real time, was the first startup in the Nielsen Innovate portfolio.

"The best investor, from a company's perspective, is one that can invest from the outset, press forward with it and also help the company overcome its hardest ordeals," says Barak-Landes. "One of the most important missions I've seen in the companies I invested in was to help them through their later [funding] rounds."

Barak-Landes' approach aims to prevent a common problem in Silicon Valley, when a company that has raised money from seed investors is forced to close due to a shortage of ready capital after failing to make it through the first round of funding from institutional investors.

Nielsen Innovate is 51% owned by Nielsen and 49% by Ahouvi's Partam High-Tech, with all of Partam's activity now integrated into the jointly run company. The incubator's 800 square meters of office space in Caesarea features design elements such as bicycles and travel trailers, which are meant to evoke the journey that lies ahead for the startups. Since February, when the incubator opened its doors, the team has been searching for suitable companies; more than 100 potential candidates have been interviewed so far.

First joint venture

The companies will operate within the incubator for between nine months and two years. Nielsen Innovate will hold 25% to 50% of their shares, in accordance with Chief Scientist regulations.

Nielsen Innovate is Nielsen's first joint venture with a government tech aid agency. Going the route of the government technological incubators wasn't necessarily an obvious choice. The Chief Scientist's Office program has a poor reputation, and is associated with mediocre companies that failed to obtain follow-on funding. But over the past year the program has undergone a facelift in a bid to attract strategic investors with deep pockets.

Through its incubator program, the state encourages strong institutions in Israel and abroad to invest in fledgling high-risk startups. Meanwhile, it ensures an investment horizon for promising startups accepted into the incubators by opening them to tenders that have been won by the likes of Nielsen, Elbit Systems, Gitam BBDO and Jerusalem Venture Partners.

"I am pleased we're operating according to the incubator model, and not just because of the state's financial support," says Barak-Landes. "What's really nice about the program is the ecosystem we are required to create for the companies sitting with us in the offices. Also, interaction is generated between the companies which is supportive and is a plus mainly because the companies belong to the same general field."

But cuts to the Chief Scientist's budget hang like a cloud over the program's future and are already having an effect: Some tenders planned for the near future will be canceled, and four incubators are likely to close.

"When a foreign institution comes here it counts on a long-range relationship and doesn't want to formulate a new strategy every year according to the state budget," Barak-Landes says. "The state mustn't touch the Chief Scientist's programs. It causes real damage to Israel's economy and image."

In addition to the government funding, Nielsen's shareholders have committed to investing at least NIS 100 million over eight years into the incubator.

Eyal Toueg