Israeli Web Scene – Ready for Phase III

This week was a big conference week, with Techcrunch 50 in San Francisco, and Demo in San Diego. I couldn't attend both (too many board meetings…), but I still have some comments post TC50. Ouriel (General Manager of the Lightspeed Gemini Internet lab) wrote about all the Israeli companies. Roi Carthy also summerized the strong Israeli showing. Overall, it was a strong showing. Out of 51 companies (including the Demo Pit winner), there were 8 Israeli companies: Personalria, Alfabetic, Tweegee, Mytopia, Devunity, Playce, Videosurf, and Iamnews. That's 16% of the overall list – clearly top geographical representation outside Silicon Valley.

If we look at the Israeli Web Scene in the past 5 years, I think it can be divided into 2 phases:

1. Phase I: The re-emergence of the industry. Post 2001, there were 0 web startups in Israel. The 1^st one to emerge post bubble was Metacafe (2003-4) and the rest of the companies emerged in 2005. Till 2006 it was all about the re-creation of the local Israeli scene.
2. Phase II: Establish quality: The initial wave of startups was ok, not great. Some winners emerged (Metacafe, Gigya, Fixya, and others), but the quality level was overall mediocore. The entrperners (and VCs!!) needed to putt a lot of effort in reaching the Silicon Valley web quality and experience.

With so many Israeli companies appearing in the big leagues, it's clear phase II is over. We can create quality internet companies, and we are proving it. I think it's time for phase III: Establish winners. Create exits. Hopefully by 2010 we will talk about the Israeli Skype and the Israeli YouTube.

Comments

[Jeff Katz]

Phase III really needs to also really include not just companies with exit strategies - yes, I am aware of you what do for a living :-) - but companies that can grow to be the next Mercury Interactive or such.

They were not only a global player in their space for many years, but many of their brightest are the ones who came out of there to lead Phase I and Phase II start-ups.

[Arik]

Phase III means that Israel(is) understand that an internet company is first a service. Then the fist key success factor in the service industry is to answer/ create customer needs.
The technological innovation, the israeli speciality, is a secondary key success factor.

Look at facebook. Technologically, it's very poor.

The issue in service industry is that it's either a local business (germans don't have the same needs than amercians) or starting from a global market is important to reach the critical size (ebay, amazon...).

Israel is very good in B2B business...but seems to be limited for B2C...unless leaders in Israel start to use the gold mine they are sitted on: the melting pot country with the well educated european/american aliyah!!

Once the service is designed, Israel can be confident that it's talented engineers will use their creativity to find technical solutions to support the service!

[Arik]

Jeff, your remark reminds me a aricle red in Harvard Business Review that explains that when the success is here, an enrepreneur as to choose between money (sell and cash immediatly few millions) & power (keep your company and follow your dream, with the risk to loose everything).

In psychology, we're talking about personal alignement and scale.
As a human, what do you want to achieve in your life?
Is your playground your neigborhood or the entire world?

As an investor, I would definitly try to judge the scale of the entrepreneur in front of me. Is his goal to buy his dreamt house in Herzliya Pituach or to "change the world" with his innovation?

Tipically, one of the european problem the past decades was the probem of scale. People are happy with their local life.

Arik