Why This Israeli Startup Rejected an Offer From Google – but Not $300 Million From McDonald's

Dynamic Yield's Liad Agmon tells TheMarker why the burger giant’s acquisition isn’t your typical high-tech hype

Liad Agmon and Omri Mendellevich pose for a photo at Dynamic Yield offices in Tel Aviv, June 23, 2019.
Eyal Toueg

In April 2018, Liad Agmon, the CEO and co-founder of the startup Dynamic Yield, received an email asking for a meeting at  McDonald’s headquarters in Chicago. The message was unexpected because six months had passed since the last meeting between the two sides and the startup wasn’t expecting much.

“We launched a process with McDonald’s for a pilot project in Miami, and 30 companies were reduced to eight and then four, not including us, and we didn’t hear anything. And suddenly an email arrived Thursday, and they told us they wanted a meeting Monday,” Agmon says.

“I was in Israel, I told myself that I wouldn’t fly to such a meeting; they weren’t treating me seriously enough to give me time to prepare, they probably wanted to have the discussion so they could check it off their list. I stayed at the office in a T-shirt, joined a video conference – and realized that there were 30 people in the room.”

That discussion ended three months ago with the most surprising exit in Israeli high-tech this year: The world’s most famous fast-food company acquired a tech startup for more than $300 million – the fast food chain’s biggest acquisition in 20 years.

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Agmon, 42, and his partner Omri Mendellevich, 39, began thinking about the idea behind Dynamic Yield at the end of 2011. The theory was simple: All people are different, but they receive the internet the same way.

“If today I go on TheMarker website I’ll get the same home page as you – it’s crazy, it’s an incorrect use of such expensive real estate, certainly on a phone,” Agmon says. “If I’ve never read a certain section, I would expect that after seven years consistently using the website without reading that section, it would be dropped from my home page. It’s so logical to do that.”

Agmon and Mendellevich developed a system that helps news sites, and later e-commerce sites, adapt for the reader. Their customers today include Urban Outfitters, the Sephora cosmetics chain, Barnes and Noble and even the Liverpool soccer club.

Looked to spend a morning in Seattle – and found McDonald's

McDonald’s has kept Dynamic Yield as an independent firm. It plans to use the company’s technology at its drive-thru restaurants to adapt the menu screens based on customers’ preferences, and later also on the app and at the sit-down restaurants.

Co-founder & CEO of Dynamic Yield Liad Agmon at a conference in Tel Aviv, June 19, 2019.
Tomer Appelbaum

The connection to McDonald’s began almost by chance when in 2017 Agmon flew to Seattle for meetings and was looking for a way to spend the morning. He decided to send an email to a partner at the McKinsey management consulting firm with whom he had a superficial online acquaintance.

The two met for breakfast, and at the end the partner mentioned that McKinsey was competing for a project at one of the largest retailers in the United States, and maybe Dynamic Yield would like to join the effort. That project succeeded, and eventually it was McKinsey that introduced Agmon to Bob Rupczynski, vice president  for global media and digital merchandising at McDonald’s.

“In the startup business there are so many coincidences, and our goal as entrepreneurs is to increase the possibility that these coincidences will be to our benefit,” Agmon says. “If you throw a die and you need a six, throw it once and your chances are one in six, but if you throw it 100 times, the chances that you’ll get a 6 at least once are excellent. Your objective as an entrepreneur is to throw the die as many times as possible.

“We prepared for the meeting with McDonald’s like crazy. Other firms came with a presentation, I came with an app that we wrote for an iPad that simulated a sale at a McDonald’s kiosk, and I showed them how I had personalized it for all the sales channels I thought they had.

“When McDonald’s said ‘Maybe we’ll buy you,’ even I thought it was bizarre. I said to them – ‘Why do you have to buy? Be customers.’ But sometimes you need luck – the CEO was excited about buying a tech company. He wanted to come out with an announcement: McDonald’s is buying a tech company as part of its investment in its digital vision.

Liad Agmon and Omri Mendellevich pose for a photo at Dynamic Yield offices in Tel Aviv, June 23, 2019.
Eyal Toueg

Paying $300 million is a lot for PR.

“It’s not for PR, they bought a winning company. I believe in something called knowledge arbitrage – in other words, they realized that they had knowledge gaps that we could fill, that we know about optimizing the customer service experience. And it’s not about a product, it’s about creating an entire solution that includes technology, people and ongoing work processes. 

“We’ve been working for the past six months with McDonald’s; they’ve never plumbed the depths of our product – they called 20 of our customers to ask if they were satisfied, made sure that we were telling them a reliable story and that the solution worked for them, and that’s what’s important. Companies don’t buy companies; people create partnerships with people.”

Agmon says McDonald’s didn’t want to publicize the size of the acquisition, but he insisted that they mention the sum.

“This is an acquisition that is so far from trivial, I didn’t want anyone to think they bought us because we’re weak,” Agmon says. “We have over 300 clients, and I wanted them to know that McDonald’s paid a handsome sum for the company and that it’s a high-quality asset.”

Agmon launched his first startup when he was 27, after completing a bachelor’s at Tel Aviv University with an unconventional combination – computer science and cinema. At the same time he worked as Avi Nesher’s assistant director in the Hebrew-language film “Turn Left at the End of the World.”

“I worked for the terrifying salary of 5,000 shekels [$1,410] a month, and I started writing jokes for famous comedians, who paid me by the joke,” Agmon laughs. “My roommate was a friend from the army, Ishay Green [who eventually started and sold the startup Soluto], and we sat on a balcony in Tel Aviv and thought about how to make a million dollars in two years.

'I brought McAfee to Israel'

“We served in the technology unit of Military Intelligence, and we thought maybe we’d do a project for a large defense organization. In the end we decided to start Onigma with a third partner, Amir Sadeh. Onigma developed a product that prevents information leaks at organizations. Today, when you say ‘I was in a technology unit and I do cybersecurity,’ you easily get $10 million, but back then, in 2004, it wasn’t popular and it was very hard to raise money.”

Onigma raised $3 million from angel investors and, at the end of 2006, was sold for $20 million to the anti-computer-virus company McAfee. Agmon is believed to have taken in between $2 million and $3 million from the sale, and McAfee set up a development center in Israel that is still active and employs about 200 people.

In 2007, Agmon started his second company, Delver, which developed a search engine that takes into account the preferences of users and their social networks, and sold it within two years to Sears.

Employees stand in McDonald's Chicago flagship restaurant, August 8, 2018.
Nam Y. Huh/AP

“I brought McAfee to Israel, as well as Sears and now McDonald’s, and I’m proud of those acquisitions, which are all strong brands. It’s not Microsoft buying yet another  company, it’s acquisitions that open the eyes of companies worldwide that never considered buying a company in Israel,” Agmon says. “The acquisition of a company brings in more venture capital to the Israeli high-tech industry, which fuels new startups.”

About $83 million has been invested in Dynamic Yield since its establishment. The capital has flowed from investors including Bessemer, Vertex, Union Tech, Viola and DTCP. Today the company is believed to be generating revenues of about $25 million annually, though it’s not yet profitable.

When the company started out, it received a tempting offer, Agmon says. They were three workers 10 months after starting out, and through connections they got to Neal Mohan, then a video ads leader at Google, today YouTube’s chief product officer.

“This is a man who became famous for being about to move to Twitter – and Google gave him a $100 million bonus in shares to stay. I met him to ask him to invest in us, but I didn’t have much – I sketched my vision on a whiteboard, and he told me it was interesting, but he was working on tangential fields at Google and preferred not to have conflicts.

“The next day I got a phone call from Google. ‘Neal was very impressed by you and said he wants you to develop this product at Google.’ I asked how exactly, and they said: ‘You’re only three workers, we’re willing to give you $8 million to $10 million.’ I said, ‘Wait a minute.’ I was with my wife in a secondhand store in Soho in New York, and I told her ‘Google is trying to buy us.’ She replied, ‘Hell, no.’

“So I said, ‘Let me think about it,’ and an hour later I called and said no. Years later I said to myself – what an idiot, after 10 months I would have gotten $5 million without any effort. I would have had to be a Google employee for four years, probably at a nice salary – but I didn’t even think about that at the time.”

What did you think about?

“There were two reasons for saying no. First, the acquisition of Onigma had already changed my life, and that fast money, even though it was very significant, was no longer a life-changing event. The second reason was that I already had a term sheet on a funding round  from Adam Fisher, the partner at Bessemer, and I was supposed to sign it the next day. I told myself that I would probably disappoint Adam, and he would think that I gave up too soon.

And what was the everyday situation like at the startup in the next six years?

“Seven years of constant pressure and fears that didn’t let up. There’s no free time emotionally. I would sit at the Friday night meal with the family, but my mind was busy with analyses, thoughts, plans, crises, employees and customers who had left, and raising money from investors. Everyone’s eyes are on the CEO, and he’s expected to convey constant optimism, even when you have a lot of doubts inside.

Jeff Bezos speaks during the JFK Space Summit, Boston, Massachusetts, June 19, 2019.
Katherine Taylor/Reuters

“And my family paid a high price. Shaily was forced to leave her television show because I had to move to New York to promote the company. To ask your wife to stop her career for you and your company – that’s no trivial thing. That’s why I see this as a family success.

“Now they’re writing about the fact that Jeff Bezos, the founder of Amazon, was forced to part with half his wealth because of the divorce. Come on, they were a couple even before he started Amazon; maybe the success is actually thanks to her?

Media management

After more than 10 years and three startups, Agmon has a lot of experience with the media, and plenty of criticism. Asked why he agreed to be interviewed he says frankly: “Because I have to maintain contact with journalists to recruit workers; that’s part of the give-and-take.”

What bothers you about high-tech journalism?

“They’re preoccupied with how much money people have made, with lists and selections of ‘promising’ startups, which creates unnecessary hype that isn’t necessarily based on facts – and often makes the coverage superficial. For example, I read that the Israeli startup Houseparty [a social video app] was sold to Epic Games. According to TheMarker it was sold for tens of millions of dollars, and less than the sum invested in it – $70 million.

“But instead of writing that it’s a failure, that the investors lost a lot of money and the entrepreneurs didn’t fulfill their dream, the article creates the impression that it’s a good conclusion – because they sold the startup to a great company that developed Fortnite.”

A startup that invented itself four times, failed, rose again and raised millions in a battle against giants like Facebook, Snapchat and Twitter, and in the end was sold to the most desirable game maker in the world – what’s better, to frame it negatively or give credit for what it experienced?

“If you bought an apartment for 10 million shekels and six years later sold it for 4 million, do you care about the experience you had during those six years?”

An apartment is an asset that can’t disappear completely as a company can. So you’re saying that an ending of this kind has no element of success?

“No, none. Not even for the entrepreneur who invested six years of his life on an initiative that failed. As a CEO you have a commitment to give back as much of the money as you can to the investors, to preserve the employees’ jobs. Yes, it’s not a total failure, but it’s still a failure.

“The true story in many transactions like this is an entrepreneur who had a week left before closing shop and laying off all the workers, and over the weekend managed to impress someone at the acquiring company to sew up a deal and return a little money to the investors; that’s the story I want to read in the newspaper.”

Do you prefer us to write about failures so some people won’t try to become entrepreneurs?

“Of course. All these lies create a type of FOMO [fear of missing out]. There’s too much culture of successful people here, but after all, most startups fail, and if there’s a company that for years manages to create PR and be seen as a huge promise, like Houseparty, then there’s room to talk and explain its failure too.

“What’s much more interesting and important is an honest in-depth discussion with the entrepreneurs about what they learned along the way, where they made decisions that in hindsight turned out to be wrong. I admit that these are discussions that they don’t always want to conduct with the media.”

What about Delver, your second startup, which raised about $4 million and was sold for a million – is it a failure?

“Delver was also a financial failure, which was caused by the fall of a fundraising round that resulted from the collapse of Lehman Brothers. But in January 2009, when the entire financial and high-tech world almost ground to a halt, and employees who were laid off didn’t find work for a long time, I’m proud that I was able within two weeks to sew up a deal that brought Sears to Israel, and we started a development center here that at its height employed 200 people. So I look at it as a minor success in the context of one of the greatest financial crises in history.”

Is the sale of Dynamic Yield a kind of correction?

“I don’t walk around on a daily basis feeling proud and successful; in my experience it’s a mediocre transaction. On Shabbat I was at dinner with[Mellanox founder] Eyal Waldman, who sold a company for $7 billion. Gil Shwed, my second cousin, built a company [Checkpoint] that’s trading at $20 billion – they’re my reference points for success. The personal experience is a story you tell yourself. I don’t get up in the morning and say to myself, ‘Wow, I did something amazing here.’ I get the children ready for preschool and go to work like everybody else.”