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Why Index believes Israel is about to have its moment

Bobbie Johnson — Tue, 23 Aug 2011 10:19:15 +0000

By any stretch, Saul Klein is one of Europe’s most high profile venture capitalists. Index, the company where he’s a partner since 2007, has been one of the most active and successful investors around the continent over the past decade. It’s had big hits like Skype and MySQL, and remains very busy; for example, it has backed seven of the startups listed in our GigaOM Euro 20.

Given all that, it is not exactly surprising when we met at Index’s offices in London’s posh Mayfair district, and he wanted to put aside all the interminable talk of Europe versus Silicon Valley. Just look at what’s important, he says: Europe is on the verge of a breakthrough. Take a city like London, which is full of companies — huge companies — that are only now really starting to understand what has happened since the first website went online 20 years ago. That represents a huge chance.

“In telecoms you’ve got BT, Vodafone and O2. In banking, you’ve got Lloyd’s or HSBC,” he says. “I think it’s going to be interesting as a lot of these big European companies start to open up to innovation. It’s going to really set a light under the startup community: the number of opportunities that exist for technology today, for applications and services of technology, is legion.”

He’s not just talking about online businesses as we know them. What about commerce? There’s so much more to do there. What about power companies? Ripe for change. What about telecoms infrastructure? The ripples of innovation that have hit the web are only now starting to build up into a powerful wave that the old guard cannot ignore. And when the revolution really starts to happen, he believes, it will be most powerful in places that have real cultures to latch on to — regardless of what continent or what country that is.

“These are the big opportunities for places like London and New York,” he says. “If you are in cities where you can listen both to the companies and the consumers of those services, as an entrepreneur you have very, very significant opportunities.”

But although Klein is closely associated with London, that’s not actually where he’s spending most of his time these days. Instead, he’s betting on another place as the next real innovation hub: Israel. In fact, he’s so convinced that last year he took the plunge shipped out and moved his family to Tel Aviv to explore the opportunities there.

Mixed heritage

“I’d made two investments in Israel before going out there,” he points out. “And one was in MyHeritage, which is by any stretch of the imagination a big consumer web business — it’s got 60 million registered users, 700 million profiles, 32 languages, millions of dollars in monthly subscription revenues. But it’s a total anomaly in the Israeli market.”

That’s true. The consumer web that’s typified by Google, Facebook, Amazon and others has, by and large, passed Israel by. The country has a great reputation for homegrown innovation in areas like computer security, infrastructure and enterprise — the profitable but unglamorous areas of the market. But it’s struggled to keep up in some of the more user-focused areas, which has made building big, public-facing online businesses hard.

“There’s not a deep heritage of UI and design, it’s a very technology-led and centric culture,” he says. “But it’s an incredibly entrepreneurial society that punches well above its weight in terms of the ability to solve problems, the ambition. The raw materials for creating great global businesses are there.”

In the past plenty of Israeli entrepreneurs headed for the U.S., but now the substrate is allowing companies headquartered in Israel to develop while sticking to the same principles as their rivals in Silicon Valley or elsewhere.

“There is a wave building now, with companies like BillGuard and Fiverr, plus business-to-business services like Wix or Soluto.”

But why now? Interestingly, he suggests that it is not simply that Israel now has some direction that was previously missing — but that a neglected group of entrepreneurs have finally reached maturity, and the mainstream.

Success in the shadows

“In the background, there’s something that most Israelis don’t want to acknowledge: this shady foundation,” he says. “The gaming industry, some of the biggest porn businesses in the world, toolbar businesses.”

They might not be tasteful, he says, but in their own way they have created a pool of Israeli entrepreneurs who actually know how to make products the public wants and uses.

“These are people who have figured out how to produce, at scale, highly monetized consumer web businesses,” he says. “So from a talent pool perspective, there’s a lot of people who understand how to monetize traffic there. My view of Israel is that the next wave on entrepreneurship there is going to be around consumer web and mobile.”

There’s plenty to be skeptical about here. Of course, Israel has always produced plenty of web entrepreneurs — but the reality is that, like many others, most of them have moved to the U.S. to build out their companies. Can a home market of just 7 million people ever be big enough to support multinational internet businesses? Is Israel, which exists in its own political and geographical bubble, able to play host to all this?

That’s yet to be seen. Still, Klein suggests with a wry smile, it’s not as if it’s all or nothing.

“The other thing is that Israel is still strong in areas it’s always been strong in; infrastructure, big data, security, enterprise applications,” he says. “Watch this space.”

Photograph used under Creative Commons license courtesy of Joi Ito

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Skype Sold for $2.75 Billion

Om Malik — Tue, 01 Sep 2009 14:58:05 +0000

Word just came in — the deal is official. eBay is selling Skype in a deal that values the Internet calling service at $2.75 billion. eBay will get $1.9 billion in cash, a $125 million note, and will give up 65 percent of the company to the buying consortium led by Silver Lake that includes Index Ventures, Andreessen Horowitz and the Canada Pension Plan (CPP) Investment Board. eBay gets to keep 35 percent of Skype. The transaction, which is not subject to a financing condition, is expected to close in the fourth quarter of 2009. And it looks like the current CEO, Josh Silverman, is going to keep running the service, which is actually good news.

“This is a great deal, unlocking both immediate and long-term value for eBay and tremendous potential for Skype,” said eBay Inc. President and CEO John Donahoe. “We’ve acted decisively on a deal that delivers a high valuation, gives us significant cash up-front and lets us retain a meaningful minority stake with talented partners. Skype is a strong standalone business, but it does not have synergies with our e-commerce and online payments businesses. As a separate company, we believe that Skype will have the focus required to compete effectively in online voice and video communications and accelerate its growth momentum.”

“This deal achieves our goal of delivering short- and long-term value to eBay and its stockholders, without the possible delays and market risk of an IPO,” Donahoe said. “Selling Skype now at this great valuation, while retaining an equity stake, makes sense for the company. And it allows us to focus all of our energies on the opportunities in front of PayPal and eBay.”

Some Skype Facts
Skype generated 43.4 billion minutes of free, Skype-to-Skype (computer-to-computer) traffic in 2007 and 65.5 billion minutes in 2008.
Skype users generated approximately 4.2 billion minutes of paid international traffic in 2008.
Skype also reported 5.6 billion minutes of paid, computer-to-telephone traffic in 2007, and 8.4 billion minutes in 2008.
TeleGeography estimates that approximately 33 billion minutes of Skype’s computer-to-computer traffic was international, up from 22 billion minutes in 2007.
Skype accounted for 8 percent of all international voice minutes in 2008, up from 6 percent in 2006
Skype is the largest provider of cross-border voice communications in the world.
Source: Telegeography

So Donahue gets to say that he got the higher valuation of Skype, got rid of a potential legal nightmare and can get any upside that comes with the initial public offering of the stock. Seems like a win-win, but that IPO — don’t count on it. To be honest, this deal makes much more sense compared to all the rumors that were floating around earlier.

If you think about it, what Donahoe just did was follow the golden rule of business: If you’ve got a problem, make it someone else’s problem. And the problem for the new buyers is that the legal issues of Skype are not going away. Some of my smart friends think that Skype can sidestep these problems by switching to a SIP-based infrastructure, but I won’t hold my breath.

Any SIP-based infrastructure would sharply increase the need for building a massive global infrastructure. It would also mean working with partners (that make Skype devices) to re-configure their products and getting 400 million-plus users to switch to a massive new model. In other words — like skating in the middle of a semi-frozen lake underneath a brightly shining sun.

So the new investor group will have no option but to settle with Niklas Zennstrom and Janus Friis if they want to use the new technology. For a nice piece of Skype, the duo would settle. And they will win again. Not that there’s anything wrong with that.

Photo courtesy of Casey Serin via Flickr through the good work of Phil Wolff.

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Former Joost CEO Mike Volpi Jumps to Index Ventures

Jordan Golson — Mon, 06 Jul 2009 16:27:39 +0000

Former Joost CEO Mike Volpi won’t be waiting in line at the unemployment office. He’s landed at Index Ventures — which invested in Joost two years ago. It seems they still believe in Volpi, even if his company did implode. Volpi will work out of Index’s London office, where, according to a press release, “he will lead early stage investments in the Internet, telecom/networking and media sectors and contribute to the firm’s later-stage growth fund.”

“I have background in networking so I will go back to my old stomping grounds,” he said during a phone conversation. He is also looking at enterprise infrastructure and related software opportunities. “Index has given me a fair range of flexibility.” Volpi has known Danny Rimer, the driving force behind Index Ventures for a long time and said that it was that relationship which helped him make the decision to join the venture fund.

He will also stay on as chairman at Joost, as the company transitions from it’s much-hyped video-streaming platform, to become a (yet another) white-label video provider. Volpi told AllThingsD’s Kara Swisher in an interview today that it’s a great time to be a VC: “In a market downturn, it is a good time to invest. There are a lot of great opportunities out there now.” I wonder if Joost’s backers said the same thing when they were pouring their money into the startup’s black hole?

Updated with comments from Volpi who talked with Om Malik.

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Amazingly slow day

Om Malik — Thu, 11 Nov 2004 23:03:48 +0000

I am suffering from a sense of lethargy which comes with lack of caffeine, and staying up late and playing around with a brand new toy which is on the wish list for pretty much every single geek in the Valley. You know what I am talking about. I have not been able to inspire myself today at all. Anyway was wondering if there was a good FeedDemon option – three columns, and posting with w.Bloggar – which is free.I am not sure I want to spend more money on blog tools.

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Have Gun, Will Work

Om Malik — Mon, 08 Nov 2004 19:03:34 +0000

Did you know that a new Oklahoma law says employees can bring guns to work, as long as they are kept in a locked vehicle. Suddenly no one wants to be the boss.

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