By Ariel Blum
It used to be known as “the Nokia syndrome” – Israel, a high-tech powerhouse, has never produced an international technology leader like Nokia. The Finnish phone giant’s spiral downward at the hands of the iPhone notwithstanding, the entire concept of a “syndrome” no longer applies, says Nir Tarlovski, co-founder of the Tel Aviv-based business incubator TheTime.
You don’t need to be a huge company with offices around the world to succeed today, Tarlovski explains. With the advent of the Internet, “there are no products on shelves at retailers. The companies we focus on have only digital products or services, no hardware.” As a result, an Israeli company can grow rapidly without ever even needing to pick up the phone. “There is no disadvantage to sitting in Israel anymore,” he adds.
To wit: An Internet-only company like Conduit, which makes toolbars for websites, has annual revenues of more than $500 million. TheTime portfolio company Matomy Media Group, which specializes in affiliate marketing, has revenues surpassing $100 million a year.
"There are at least 40 Israeli companies today in the Internet space that exceed $10 million in revenue,” Tarlovski claims. With friends like that, who needs Nokia anyway?
TIME: Telecom, Internet, media, entertainment
TheTime is carving out a unique spot among Israeli incubators – organizations licensed and supported by the Israeli Chief Scientist’s Office to help startups flourish. The Chief Scientist’s Office named it Israel’s best incubator in both 2010 and 2011.
Its focus is in the name: “TIME” is an acronym for telecomm, Internet, media and entertainment. Other incubators tend to invest in hardware and medical breakthrough devices, although Jerusalem’s JVP Labs has a similar digital media specific focus to TheTime.
TheTime was founded by Tarlovski, Ilan Shiloach, Israel’s chairman of advertising giant McCann Erickson; and the group’s CEO Uri Weinheber. The McCann connection is important – the company just invested $4 million in TheTime – but so is Tarlovski’s background. He got into the tech business in 1994 when he started RSL Communications in New York with Ronald Lauder and Itzhak Fisher.
Tarlovski did well enough to be able to return to Israel three years later as an angel investor. When the dot.com bubble burst in 2000, he found a niche buying distressed telecom companies, turning them around and selling them.
When the market came back a few years later, Tarlovski built on his experience in the telecom world -- but this time with a positive spin. In many cases, he invests his own money along with TheTime’s, so he has personal skin in the game.
35 portfolio companies
Tarlovski says that TheTime can offer excellent co-investment opportunities for other angels. “Valuations are a fraction of what they are in the US – up to 75 percent less than on the West Coast.”
TheTime invests between $500,000 and $2 million in its companies. Typically, a first investment will be on the low end, but the incubator is committed to seeing a company through financially, so that it gains sufficient traction to attract real venture capital money.
“There is a huge vacuum between a seed investment and a VC ‘A’ round,” Tarlovski adds. This is part of TheTime’s key added value.
TheTime now has 35 portfolio companies ranging from very early-stage firms to those with 10 or more staffers. The smaller companies get office space in TheTime’s 15,000-square-foot headquarters in Tel Aviv’s swanky Ramat HaHayal neighborhood. Co-locating allows them to share strategies and success stories.
Tarlovski prefers to invest in companies demonstrating a new Israeli marketing savvy to go with their tech expertise.
“Marketing today is based on “number crunching, about figuring out how much and where to buy advertising online. What results in a conversion. How to conduct A/B testing on two versions of a product simultaneously. Everything is measurable, from the graphics to the text. Online marketing is really about mathematics. And Israelis are very good at that,” he says.
TheTime’s portfolio reflects that belief, with companies including audience and ad verification technology ADagoo; video sharing, search engine marketing and statistical analysis platform StartCut; and Corrigon, an intellectual property tracking and visual search service, among others.
So, has Israel finally broken free of the Nokia syndrome through the expansive opportunities of digital marketing? As Nir Tarlovski might say, only Time will tell.