Facebook is buying its first Israeli start-up - Snaptu, a company that develops applications for lower tech mobile phones
Snaptu and Facebook confirmed the news yesterday afternoon after it was publicized by TheMarker. While they did not say how much Facebook would be paying for the acquisition, which is expected to be finalized within the next few weeks, market sources estimate that it's between $60 million and $70 million.
Snaptu will become the second non-U.S. company to be purchased by Facebook, following a Malaysian company last year.
Snaptu's investors will also be turning an excellent profit: The company had raised only $9 million in venture capital, including $5 million from Sequoia Capital and $3 million from Carmel Ventures.
Snaptu develops applications for people with so-called feature phones, which are less advanced than smartphones but more sophisticated than the most basic cell phones. They currently make up most of the cell phone market: an estimated 80% of cell phones around the globe. These phones can run some applications, although they do not have all the functionality of a smartphone.
A few months ago, Snaptu announced that it was partnering with Facebook with an application that let people access their accounts via feature phones.
"It's a great feeling. Our initial vision was to bring Snaptu to everyone who had a cell phone, whether American or Chinese, without a smartphone," said founder and CEO Ram Makavy. "There is no better partner than Facebook, which will enable us to reach everyone in the world.
"It's very exciting. We've been working with them closely for several months and we know the people. They think like us. They have similar aspirations. I don't consider this the end, it's just the beginning. My first mission is to ensure that the merger succeeds," Makavy added.
The venture capitalists have first dibs on the money, because they hold preferential shares. Carmel invested nine months ago and reportedly will be getting tens of millions of dollars; Sequoia will probably receive more than six times what it invested. After they've taken their portion, Makavy and the other founders - VP Engineering Micha Berdichevsky, CTO Barak Naveh and VP Business Development Lior Tal - stand to take homes millions of dollars each.
The company's investors include former MK Naomi Blumenthal.
"I don't think this will change me," said Makavy. "I'll still drive a Mazda 2. The money will be kept in the bank and I'll continue working as usual at Facebook."
Founded by friends
Snaptu was founded in 2007 by a group of long-time friends, Makavy explained. He and Tal went to high school together; Berdichevsky and Naveh served with him in the army, and Berdichevsky later worked with him at Check Point, he said.
The company has offices in London, Tel Aviv and Silicon Valley. Its advantage is that its applications work on phones that are simpler than smartphones, but gives them the kind of Web access that smartphones have.
The company's first problem was addressing the fact that different applications would have to be developed for each phone model.
"We made an alpha product - a browser of sorts that gave you access to Picasa's website. Within a month we had 100,000 users," said Makavy.
Snaptu is compatible with about 2,500 phone models, and its application gives users complete access to their Facebook accounts from their mobile phone, and also synchronizes their phone contacts with their Facebook friends list. Soon, Snaptu plans to enable users to upload photos taken with their cell phone cameras, too.
Snaptu currently has 30 million users, and it offers access to about 30 different Web services, including networking site LinkedIn, photo site Picasa and short message platform Twitter. Snaptu signed a cooperation agreement with LinkedIn last week.
Phone manufacturers that offer Snaptu to their customers include Airtel, Vodaphone, Nokia (through the Web store OVI ), Blackberry and Sony Ericsson. It is also available through the independent app store GetJar.
Facebook acquires relatively few companies compared to competitors of similar size, and when it does, the companies tend to move to Palo Alto, California. Some of Snaptu's 25 employees will be moving, while others will be staying in Israel. This means Facebook will be getting its first development center in Israel.
"I don't know what Facebook's long-term plans are," said Makavy. "I'm moving to Palo Alto in any case - we'd been planning to open an office there."
Facebook had made overtures to another Israeli start-up in the past, Face.com, but the latter ultimately rejected the company's offer.
Competitor Google also made its first two Israeli acquisitions last year, the company LabPixies, for which it paid $25 million, and later Quiksee for $12.5 million.
Makavy says he got the idea for Snaptu because he was frustrated that most applications didn't work properly with his Nokia 6500. "I'd try to install an application, but it never would work. It would either be too slow or it would use up all the memory. It was very disappointing," he said.
The company didn't have a business model with an obvious view to profits, and it was turned down by 20 venture capitalists before Sequoia agreed to invest in it.
"Google, Twitter and Facebook didn't make money in the first stage, either," Makavy noted. "It took them a while until they started making money."
At this point, Snaptu has revenues from both selling ads as well as from selling mobile phone applications through its own online store.