A Conversation with Yossi Vardi

Israel's legendary startup guru and tech investor explains what he looks for in a new business and how he assesses an entrepreneur's potential

by Stacy Perman

Yossi Vardi is known as Israel's startup guru. For nearly 40 years he has helped to found and nurture over 60 companies in industries that include software, Internet, telecommunications, and energy. At 26, in 1969, he co-founded his first business, Tekem, one of the first software firms in Israel. Vardi was also the founding investor in Mirabilis, which created ICQ, the first Internet-wide instant messaging program. The company was launched in 1996 by his son, Arik, and three friends, and sold to AOL (TWX) in 1998 for about $400 million. The sale helped open the floodgates for numerous Israeli entrepreneurs.

Today Vardi remains active in investing and building startups, including Answers.com; Gteko, which was sold to Microsoft (MSFT); Airlink, which was sold to Sierra (SW.TO); and Tivella, which was sold to Cisco (CSCO). His expertise has been sought by companies all over the world. He has been an adviser to the chairmen of AOL, Siemens (SI), and Amazon (AMZN), among others.

Recently, staff writer Stacy Perman spoke with Vardi about places that foster entrepreneurship, what he looks for in a startup, and how he assesses an entrepreneur's potential. Edited excerpts of their conversation follow:

Why is Israel such a hotbed of entrepreneurial activity, particularly in high tech?

It's not about technology. Technology is like a piano. You need to have it to create music but you really need the pianist. The entrepreneur is to technology as the pianist is to the piano. This is why we see countries with great technologies like those in Western Europe that don't have great entrepreneurs. Western Europe has great companies but not a vibrant startup environment. There is this culture in places like Israel and Silicon Valley where there is a certain energy, where people are willing to take chances and risks and fight for new ideas. It is at a totally different level.

A number of companies, including Google (GOOG), Microsoft, and Intel (INTC) have set up research and development centers here. More are in development.

What do big multinationals see in Israel's small startups?

U.S. multinationals do more R&D here than any other country in the world, more than in China and India, which are known for their manufacturing and software [respectively]. We are in the role much earlier in the food chain. This is a 'startup country,' socially and culturally, it is in our heritage, our ethos. It all started with the kibbutz that started a new way of life in agriculture. The country is constantly renewing itself all the time.

This question often comes up: Is entrepreneurship something that can be learned? Where do you stand in this debate?

No. It can be honed but not learned. Either you have it or you don't. You can learn to write a business plan or to develop software. After ICQ exploded and was downloaded millions of times, I asked myself what was the secret attraction. If you look up ICQ on Google there are 675 million mentions. It is a huge brand. I spent three years trying to figure out why it was so compelling as a product and at the end of the day my conclusion was that it was just something brilliant. It is like Spielberg at the movies or a great painter, you can't learn to be a genius. Either you are or you aren't. The question is: Can you teach someone to be talented? Being an entrepreneur and being talented, those are God's gifts.