Google Inc. (GOOG:US)’s acquisition of mobile map developer Waze Inc. marks one of the most lucrative outcomes for an Israeli technology startup, and is poised to fuel a wave of investment and entrepreneurship in the country.
Waze was bought for about $1.1 billion, a person familiar with the transaction said earlier this week, making it one of a handful of companies with roots in Israel to fetch more than $1 billion. The company has offices in Ra’anana, Israel, where it was founded, and Palo Alto, California.
Israel has rallied around Waze, a service initially built and funded by locals and used by millions of its residents. The company’s success is helping to validate the rise of Silicon Wadi, the technology community that takes its name from an Arabic term for valley. The injection of Google’s money could trickle down to the next generation of startups in the country, said Izhar Shay, a general partner at Canaan Partners.
“People who worked at this company will go out to invest and create their own companies, and will help mentor other entrepreneurs,” Shay, who is based in Herzliya Pituach, Israel, said in an interview. “It will also help attract additional venture money into Israel.”
Waze will keep its product-development team in Israel, Google said yesterday in a blog post. The company didn’t disclose terms of the deal. Nate Tyler, a spokesman for Google, and Julie Mossler, a spokeswoman for Waze, declined to comment on the price.
Notable acquisitions of companies with large Israeli operations include Lucent Technologies Inc.’s 2000 purchase of Chromatis Networks Inc. for more than $4 billion, and Cisco’s deal to buy NDS Group Ltd. last year for $5 billion.
The biggest previous acquisition of a startup with headquarters in Israel was Cisco Systems Inc.’s $475 million acquisition of Intucell Ltd., announced in January, according to data from the National Venture Capital Association. That’s followed by Medtronic Inc. (MDT:US)’s $325 million purchase of Ventor Technologies Ltd. in 2009.
Young companies in Israel often get acquired before they become large and mature enough to hold an initial public offering, Yoav Leitersdorf, managing partner at YL Ventures GP Ltd., said in an interview.
“IPOs are very rare for Israeli venture-backed companies, so M&A is really important,” said Leitersdorf, whose San Francisco-based firm mainly invests in Israeli startups.
Waze was founded in 2008 by Ehud Shabtai, Amir Shinar and Uri Levine, who aimed to offer online maps that were constantly updated and improved by user feedback. In 2009, they hired Noam Bardin, an Israeli serial entrepreneur, as chief executive officer, and raised $12 million from venture capitalists including local firms Magma Venture Partners and Vertex Venture Capital.
As the company expanded and became one of the most popular mapping applications for Apple (AAPL:US) Inc.’s iPhone, it raised an additional $55 million from investors including Kleiner Perkins Caufield & Byers, and opened its Palo Alto offices. Microsoft Corp. (MSFT:US) is also an investor, people familiar with the matter said last month.
Waze’s mobile app solicits input from almost 50 million users to improve directions and display traffic and road-hazard details. While Google said the service would operate separately “for now,” Waze eventually could be used to improve the Internet search giant’s own navigation tool and help the company extend its dominance in maps over rival Apple.
Bardin, who previously ran online-video startup Intercast Networks and co-founded online-calling service Deltathree Inc. (DDDC:US), has increased his presence in the Israeli startup scene in recent years, speaking at conferences and appearing at technology-industry events.
Tel Aviv, which has a population of about 400,000, is home to as many as 700 early stage startups, according to city data. While about 50 percent of Silicon Valley startup founders are foreign-born, businesses in Tel Aviv are mostly started by Israelis, Avner Warner, the city’s director of International Economic Development, said last month.
Venture capitalists invested $899.2 million in Israeli companies last year, a 41 percent increase from the previous year, according to the NVCA.
The success of Waze may encourage more Israeli entrepreneurs to pursue consumer-focused applications, a domain mostly bypassed by local startups in favor of data-driven companies that target large enterprises, Leitersdorf said.
“In the future, it will not look like an outlier,” Leitersdorf said. “We are seeing a new wave of companies that follow that direction, the direction of content and digital media, application-based companies that build significant value.” He cited closely held Israeli Web startups such as Conduit Ltd. and Wix.com Inc., which picked JPMorgan Chase & Co. to lead its initial public offering, two people familiar with the matter said in February.
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