Mobileye’s Intel deal — the elephant in the room that Israeli VCs are ignoring
Share on Facebook
Share on Twitter
Share on Google+
Share on Reddit
Share on Email

The Old City of Jerusalem (Yerushalayim) with the Temple Mount's Dome of Rock in the background, circa 1999. (Photo By DEA / W. BUSS/De Agostini/Getty Images Israel)

Tel Aviv’s VC scene ignores Jerusalem startups at its peril, as Mobileye’s Intel deal now gives the holy city the three largest tech exits in Israeli history

Yesterday truly was a great day for Israeli tech. The acquisition of Mobileye by Intel for $15.3 billion has captured Israel’s attention and imagination. The largest acquisition in Israeli tech history was the top story on the national news for much of the day.

Yet amidst all the hubbub and hubris, I’d like to argue that not only wasn’t this the greatest transaction in Israeli tech history, this wasn’t even the greatest transaction in Mobileye’s history. I’d further argue that all the excitement over the deal so far has glossed over the “elephant in the room” of the Mobileye story. I’ll explain.

1. Mobileye’s 2014 initial public offering was the more amazing transaction

A few notable points about Mobileye’s IPO in the summer of 2014:

  • It was the largest Israeli tech IPO in US history, raising close to $900 million at a market cap of $7.6 billion.
  • Mobileye went public as Israel was at war with the Palestinians in Gaza and rocket fire was pounding civilian areas alcove the country.
  • At the time of the Mobileye IPO, the autonomous car industry was far less developed, nor was it well understood, and was still a ‘pipe dream’ to many.
  • At its IPO, Mobileye had less than $100 million in annual revenue.

I don’t recall as much self-congratulatory press or blogging in Israel at the time of the Mobileye IPO. The fact that Intel purchased Mobileye yesterday for more than twice Mobileye’s IPO value, in my opinion, doesn’t mean that the deal is twice as incredible as Mobileye’s IPO.

The Iron Dome air-defense system fires to intercept a rocket over the city of Ashdod on July 8, 2014, in Ashdod, Israel during Operation Protective Edge conducted against the Gaza Strip-based forces of Hamas (Photo by Ilia Yefimovich/Getty Images Israel)

Intel needed Mobileye badly. Having missed the mobile wave, it was not going to miss another paradigm shift in its industry and needed an answer to its archrival Qualcomm’s recent $47 billion acquisition of NXP and to NVIDIA’s rapid growth in self-driving cars.

While some may celebrate Mobileye’s acquisition as the result of its successful achievement of ‘scale,’ I’d say this deal was more about timing and technology. In a nascent but promising industry, Intel was the perfect, desperate, deep-pocketed buyer at the perfect time; Mobileye was in a position of sufficient strength to command a high exit value that far exceeded the value of its current size, revenue and ‘scale’ alone.

However, Mobileye clearly had even less ‘scale’ at its IPO and needed to convince a much broader — and more fickle — public market, with much less traction in its target market. That it was deemed worthy of a near-billion-dollar investment at a multi-billion dollar valuation at a time when its industry was far less understood and when a war was raging its its home country, is even more astounding. In my opinion, it must be seen as the more incredible transaction. The Mobileye management team has not received enough credit for pulling off that incredible success and milestone at that time.

2. The elephant in the room: Mobileye is from…. where?

Made in JLM co-founder and Cornerstone Venture Partners founder Hanan Brand pitches the crowd at HappyHourJLM in February 2017 (MadeinJLM)

What many don’t know about Israeli tech is that it’s very provincial. For the past decade or more, the “Startup Nation” has really been “Startup Tel Aviv.” The vast majority of startup activity and investment in Israel has been, and still is, centered in the Tel Aviv metropolitan area.

In the decade after the dot-com meltdown of 2001-02, Jerusalem’s startup scene was largely dormant, and left for dead by the Israeli VC establishment (even though it’s only about a 45-minute drive from Tel Aviv). By 2003, most of the large Jerusalem VC funds had wound down or left the capital for the country’s center. If nothing else this served as a strong signal to the rest of the world that nothing viable was going on in Jerusalem. Things got so bad that of the $2.3 billion in venture capital invested inside Israel in 2013, only about $40 million of it was invested in just a handful of Jerusalem startups.

Yet while the rest of the Jerusalem startup scene suffered its nuclear winter, a number of larger Jerusalem startups kept getting bigger.

Jerusalem’s Har Hotzvim technology district – home to Intel, Mobileye, and NDS (CC BY SA 3.0 Yonah baby via Wikimedia Commons)

Mobileye, founded in 1999, was able to weather the Jerusalem doldrums, though it had to pump wind into its sails in ways that were atypical and outside the traditional VC funding paths. Just down the street in Jerusalem’s Har Hotzvim Industrial Park, home-grown Jerusalem startup NDS did not attract traditional VC financing, yet grew to have hundreds of employees and achieved what is still Israel’s largest tech M&A exit ever, when it was acquired by Cisco for $5 billion in 2012 (also one of Cisco’s largest acquisitions, ever).

Ben Wiener of Jumpspeed Ventures (MadeinJLM)

As an investor who has literally bet the farm on Jerusalem tech, I have lost count of the number of Israeli investors who still look at me with quizzical expressions and ask, “You only invest in Jerusalem startups?” or “What’s come from Jerusalem lately?” I distinctly recall sitting with a partner at a well-respected Tel Aviv VC fund in the summer of 2014, overlooking the beach from his office high atop Rothschild Boulevard in Tel Aviv,  describing Jumpspeed’s hyper-focus on the re-emergent Jerusalem startup scene. “Are there really good companies in Jerusalem?” he asked as he peered at me over his lowered eyeglasses.

Mobileye had gone public the week before.

The cognitive dissonance in the Israeli investor community regarding the Jerusalem tech scene is astounding given the massive successful outcomes like Mobileye and NDS which individually trump any successful Tel Aviv exit. There’s plenty of bandwagon-jumping, celebration, and self-congratulation among the Israeli VC community today over Mobileye (“Look what ‘we’ can build here in Israel!” “Go ‘Sale-Up’ Nation!”) but I can’t recall the last time I saw a Tel Aviv VC at one of our many Made in Jerusalem community events looking for the next Mobileye among the now hundreds of active Jerusalem startups.

Of course, it’s not a competition, and Tel Aviv will always be a larger hub of activity, but perhaps it’s time for Jerusalem to get its due. And perhaps — if the trend continues — Jerusalem will be able to produce even more of these out-sized winners in the future.

Ben Wiener is the founder and managing partner of Jumpspeed Ventures in Jerusalem.

Share on:Share
Share on Facebook
Share on Twitter
Share on Google+
Share on Reddit
Share on Email
Ben Wiener

About Ben Wiener


I’m the Founder and Managing Partner of Jumpspeed Ventures, a Jerusalem-based micro-fund investing in early-stage startup companies, as well as the co-founder of a number of startups. I’m on twitter at @BeninJLM.

More Goodies From Ben Wiener


Industry

More Goodies From M&A


A $15 billion Israeli exit: How did it happen, and why Mobileye?

Intel buys Mobileye for reported $15 billion in massive self-driving car coup

Wix buys artistic social network DeviantArt for $36 million, planning integration between artists and design companies