U.S. ENTREPRENEUR MAKES ALIYAH SEEKING ‘NEXT BIG INVENTION’
By Haim Handwerker
Ha’aretz
Aug 23 2008
Israel
NEW YORK – Scott Tobin, a successful venture capitalist, rented his
house in the Boston suburbs, took his wife and four kids, boarded a
plane and moved to Israel last week. "We believe that the next big
invention will come from Israel," he explained before he left. "There
are not many places in the world where there is that kind of actual
innovation."
Tobin, 38, is a senior partner at Battery Ventures, which manages
investments totaling $3 billion. In 2006 Forbes Magazine ranked
him No. 47 on the Midas List of top technology deal-makers in the
world. In 2007 he had to settle for No. 50.
Venture capital funds and financial companies are not in the habit of
sending such high-ranking executives to live in Israel, much less with
their families. Israel is too far away, too dangerous. The companies
thus send personnel on work visits to Israel, or else employ former
Israelis who know their old homeland, or local workers.
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"I’m the only Jewish member of the general partners," Tobin
explains. "Battery’s top partners visited Israel last October and were
very impressed. It was four days packed with meetings and tours. We
were in the middle of debating where we should open offices, and
finally we settled on India and Israel, because of the research and the
high level of innovation there. People used to say that if you want to
make $1 million in Israel, you have to invest $5 million. Those days
are over. Israel has the best minds and the kind of innovation you
can’t find even in the foremost technology centers, such as Silicon
Valley. It’s a matter of business logic. We mean to make real money
in Israel. The fact that I am a Zionist is just icing on the cake."
Tobin knows that some people think he is crazy to be moving to Israel,
because of the security situation. "I’m not afraid," he declares. "I
already lived through a difficult time in Israel during the first Gulf
War, when I was studying at Hebrew University. It was not pleasant,
and I was afraid. But we survived. It’s part of life in Israel. I
have four boys, ages three, five, eight and 10. If I thought it were
dangerous, I would not do it.
"We bought a house in Ra’anana and got a pre-immigration visa, so
it’s not a move for a year or two. If I have to choose between Paris,
London and Israel, I go with Israel. I see it as a cosmopolitan
place, vibrant, lots of fun. Israelis appreciate good food and
a good time. But believe me, I’m not exactly planning on a wild
nightlife. Israel is a different country. People no longer ask me to
bring them Nikes."
In late 2005 Battery opened a two-man office in Herzliya, to develop
a better understanding of the local investment scene. "We found many
venture capitalists in Israel," Tobin says, "more than rabbis. We
studied the potential."
How much money are you planning to spend in Israel?
Tobin: "I’ll be happy if we invest $50-$100 million a year. Battery
reviews 7,000 potential deals a year, and we invest in only 12-20
of them."
Central player
Tobin himself has spearheaded around 20 deals so far, including the
purchase of the London International Financial Futures and Options
Exchange. Battery bought the Exchange in 2000 for $300 million, and
sold it 13 months later for some $1 billion: "In those days the theory
was that technology would wipe out the stock exchanges, and they would
disappear. Their prices dropped dramatically. But the exact opposite
happened: The stock exchanges in the world continued to thrive."
Tobin missed out on at least one good deal, however: When Mark
Zuckerberg began tossing around the idea of Facebook, he met with
Tobin in an effort to raise money. Tobin decided to pass.
Why didn’t you invest?
"I didn’t have a good feeling about it, and we didn’t make a good
connection. In my business sometimes you win, and sometimes you
lose. For every deal you make there are dozens and hundreds that
don’t happen."
You must regret your decision.
"Some people like to remind me of it, but I don’t see it as a
mistake. We’re in this business for the long term. Sometimes it works,
sometimes the fish gets away from you."
Tobin, who speaks basic Hebrew with an American accent, grew up
in Great Neck, New York – a middle-class town with a large Jewish
population, about an hour’s drive from Manhattan. His father is in
insurance, his mother is a homemaker and is also, her son says, a
"professional volunteer." He studied Islam and Middle Eastern history
at Brandeis University. As part of his program, he spent a year in
Israel, studying Middle Eastern history at Hebrew University. One of
his brothers is a lawyer living in Beit Shemesh.
Tobin’s first big success, it might be argued, came through his Israeli
connection. During his time at Hebrew University, a friend introduced
him to Danny Lewin. When Lewin went on to study at the Massachusetts
Institute of Technology, they met again. Eventually Lewin founded
Akamai with one of his professors. He pitched the idea to Tobin, who
had then begun to work at Battery. Battery was Akamai’s first investor,
giving the company some $10 million. Akamai then became one of the
meteors of the Internet world, surviving even the collapse of the
high-tech bubble. Battery made a big profit from its investment – $200
million, according to Tobin, for whom the deal was a career-booster.
Danny Lewin died in the September 11 attacks on the Twin Towers,
aboard the American Airlines flight to Los Angeles. In late 2000
Tobin began to work with Michael Lewin, Danny’s brother, who lives in
Israel. Lewin pitched some ideas for high-tech projects, and Tobin
came in at an early stage. He arranged meetings for Lewin and his
partners in the United States, and was involved in formulating the
concept for a data-storage security company named Kashya.
"Battery invested over $10 million in Kashya," explains Tobin. "The
company was sold two years ago to the EMC data storage corporation
for $153 million. Battery made some $65 million off the investment."
Lewin is now working with Tobin on another project, about which he
refuses to elaborate. "Scott’s move to Israel upgrades the local
venture capital field," he says. "He is very experienced and plugged
into the American venture capital world. He understands well how
a company penetrates the American and international market, and he
has a profound understanding of the Israeli side. There is no other
American venture capitalist of his stature in Israel today. When one
venture capital firm sends such a central player here, others might
do the same.
"I think Scott’s move could help us cope with one of the biggest
challenges of Israeli high-tech. We develop companies and sell them,
and the challenge is to establish mega-corporations like Teva and
Comverse."
Battery has investments in five Israeli companies: Anobit Technologies,
cVidya, Freshpoint, Neocleus, and a fifth company whose name has not
yet been revealed. The overall investment is $50 million. In the near
future the company will be hiring seven Israeli staff members. Tobin
says that Battery intends to invest in different areas, not only
in high-tech.
"You have to remember that in Israel there are large companies
with excellent international reputations, such as Ormat, Keter and
Netafim," he says. "Venture capital funds usually don’t go in these
directions. I intend to invest even in areas that are unusual for
venture capitalists. We may well invest in public companies as well,
and maybe make them private. I promise to spend many hours out of
the office doing field work."
The vision
Scott Tobin has a vision: "If you look at Israel’s human capital in
mathematics and computer science, combined with government reforms,
it seems likely that Israel will someday play a central role in the
international world of finance. The world is changing, and financial
centers will expand beyond New York, London and Hong Kong. There is
no reason why Israel will not become a center of financial trade.
"It’s been a long time since Israel produced a revolutionary
invention like ICQ. In general, there are no revolutions in technology
today. Changes are more evolutionary, but Israel shows more impressive
innovation than other high-tech areas in the world, including the
United States. Many high-tech companies copy others or miniaturize
existing inventions, but there are no huge new inventions. Companies
like Microsoft, IBM or Cisco invest funds in Israel because they
realize that they have to be active here."
Where will you be looking for ideas in Israel?
"The biggest incubator for ideas in Israel is the army, and there is
nothing like it anywhere else in the world. In Israeli academia there
are some brilliant minds, but for some reason it has not done as well
as MIT or the California Institute of Technology, even though it is
the universities’ job to promote the commercialization of ideas. We
have to find a way to increase the motivation to make their ideas
commercial. Therefore I plan to spend some time on Israeli campuses."
Some would claim that Israelis have good brains, but that it’s hard
to do business here.
"And doing business in China or India is easy? I met an Armenian
businessman who told me that it’s very hard to do business with
Armenians, because they are so tough. But everyone is tough in
business. So it’s hard to do business with Israelis, too. I think
these are stereotypes.
"When we built Kashya, everyone told us we were wrong to use a local
CEO and team. But the fact is that a giant like [software developer]
EMC was willing to pay a lot of money for the company. EMC made
a good deal, because they are now selling many products based on
Israeli knowledge. Believe me, I’m coming to Israel with my eyes open."
Aren’t you afraid that your position will be compromised if you live
far from Battery’s head offices?
"Absolutely not. Our world is becoming smaller. In the past I lived
in Boston and flew to Israel, and now I’ll be living in Israel and
coming to Boston to visit."
When we met Tobin he told us that before leaving for Israel,
he intended to take his kids to Niagra Falls and the Statue of
Liberty. "Israeli friends who come to visit the States always go there,
so I thought it was a good idea for our children to visit those places
before they go to Israel."