BloGiza

Groupon Takes Over the World

It seems that we are now well in the middle of the Third Great Wave of Internet development, with companies expanding on the Internet world that was created before them and tying it in to the “real” world: social applications (esp. games), location awareness, and real world commerce.

In other words, Zynga, Foursquare, and Groupon, the companies that currently look to be the ones on the verge of mass adoption and the ones that are defining the parameters of how the Internet will be evolving.

 From my little VC bubble it feels that of the three, Groupon lately has been defining more than anything else. We here often operate according to Auric Goldfinger’s dictum that, “Once is happenstance, twice is a coincidence, three times is enemy action.” Except replace “a trend” for “enemy action.”

And with these rules in mind it seems like half the startups that I’ve seen in the last couple of weeks have displayed some kind of social group buying component in their model.

Which makes sense if you look at Groupon’s phenomenal growth. The service has grown more than 1000% in the last year, has expanded into more than 200 markets in about 30 countries, and is reportedly doing $50M in revenues each month with a 50% margin. This is pretty much the closest thing I’ve seen to a startup whose model is actually printing money.

Two interesting thing to mention here: As big as Groupon is getting and as fast as it’s growing, it has barely managed to scratch the demand of businesses to utilize the service. And all this for a company that has almost zero real technology in a field where the barrier to entry doesn’t exist.

For example, in our teeny tiny little local market alone I know of at least 6 separate Groupon clones, which is pretty remarkable.

 Groupon is aware of this and is looking to expand its model with a self service solution that they are currently piloting. The idea here is to eventually let any business that wants to participate in the party, basically to turn the model into a distributed rather than a centralized one. This will help overcome the main limitation of the Groupon model, which is scale and the high cost of direct sales to get new businesses on board.

While this is a logical development from Groupon’s point of view, expanding and distributing the social group buying model opens up a number of interesting problems:

• Fraud and security issues – From the end-user perspective: once the process of recruiting new businesses leaves the control of Groupon’s sales staff, who monitors that the deals are legit and will actually be honored? From the retailer perspective – how do we control the problem of fake coupons?

• Types of businesses – Currently, Groupon and its clones appear to focus on specific types of businesses, mainly restaurants and spas. Some smaller retailers (in particular those with unique or artisanal products) have gotten into the act as well, but at the moment it is seems less useful for larger retailers, not to mention national ones who often run their promotions top-down. Nor has anyone figured out how to utilize this tool effectively for e-commerce sites and local service providers.

• Transitioning social shopping from a marketing tool to a CRM tool – This is tied into the previous post. Currently the classic use case for a Groupon solution is with a local business which is willing to take a loss on the coupon in order to bring people into their establishment physically in the hopes that a certain percentage convert into regular customers. This means that the Groupon solution is more geared to getting new customers than to retaining existing ones (since you can’t keep offering loss-leader deals to regulars). What other tools will a Groupon solution be able to offer a business to build and maintain relationships in the long run?

I predict that in the next year we will see a lot of activity around not only these issues but a host of other things that will be built on top of the Groupon platform. This will include everything from secondary coupon markets to systems that will allow for increased targeting and matching coupons to users.

 

Israel's Internet Scene Comes of Age

It’s been an interesting month here for Israeli Internet startups, at least when it comes to exits. After years of very few exits in the space, we’ve seen three in the past four weeks. 
In mid-September, Google made its second acquisition here in the Holy Land, snapping up Quiksee for a reported $10M. 

At the end of September, AOL announced it was buying 5min Media for a reported $50-65M.  And just last week we woke up to the news that Yahoo had bought Dapper for an undisclosed price (assumed to be in the several tens of millions). 

On the face of it, the acquisitions don’t have too much in common. Quiksee, a veteran company by local Internet standards, developed technology to create 3D video tours of places. This technology will be used to bolster Google’s Street View application, which might finally make its way here to Israel although I’m not necessarily counting on it.

5min has an extensive library of how-to videos and technology to match these videos to textual content on a website, thus increasing the amount of content available. The value here is both in the library of videos and the distribution network that 5min was able to put in place.

Dapper, meanwhile, has developed technology that can dynamically change display banners based on context and user targeting. Yahoo will use this technology to expand its advertising offerings. It appears that Yahoo wants to try and become a strong player again in the advertising game after having stepped back since it conceded all its search advertising to Microsoft last year. 

But I think what all these acquisitions have in common is that they show a certain maturing of the Israeli Internet scene. When I joined Giza a little over five years ago, Internet startups were still suffering from the aftereffects of the 2000 bubble. Most local VCs did not have anyone dedicated to Internet, and a lot of the partners I talked to at the time were utterly dismissive of the space in general.

Slowly, things started to change. Around the middle of 2006 we started seeing a crop of new Internet companies which flowered up into a full-fledged startup scene a year later. Dapper and 5min were both early entrants in this second wave of Israeli Internet startups. Of course, both started off with completely different concepts than what they ended up with. Dapper was originally a Yahoo Pipes-like technology to allow people to easily create mashups of different Web services; 5min originally wanted to create a destination site and produce their own how-to videos. They later changed their concepts around into what they are today.

So, what are the takeaways here? I can think of a couple:

• The local Internet scene is definitely maturing – One of the key signs that this has become a stable industry is these mid-size exits. Up till now the exits tended to be on the smaller end of the scale. The fact that they might be creeping upwards indicates that there is enough “meat” for larger companies in the world to take an interest.

• Technology rules the day, except when it doesn’t – One of the mantras that a lot of VCs here still subscribe to is that companies in the Internet space only have potential if they are tackling the more technological aspects of the industry. Otherwise, the feeling goes, companies in the Valley have a major advantage over the ones here. While there may be some truth to this idea, the recent round of exits doesn’t provide any clear results. 
  
  Dapper was certainly bought for its technology, but also the fact that it was a growing business. Quiksee was a technology exit, but a relatively small one. On the other hand, 5min was a classic business development exit, bought for the strength of its content agreements and distribution networks.

• Consumer plays are still a question mark. The big question mark as far as the Internet scene is concerned here remains B2C. We haven’t seen a major consumer-focused Internet company exit in the last four or five years. And there is a growing feeling that companies based in Israel cannot compete with their counterparts who are plugged into the Internet ecosystem in the Valley or the East Coast. The jury is still very much out on this question. I’d like to see this assumption proved wrong, although my feeling is that it will be difficult to do so.

And so, congratulations to the guys at Quiksee, Dapper, and 5min. Good work!

 

SemantiNet Heading Up the Jerusalem Post

Exciting news these days from SemantiNet. Over the past year, the company has been developing an application for online publishers based on its semantic web technology that will allow publishers to automatically enrich the content on their sites.

SemantiNet’s Headup for Sites has been running on several hundred blogs for the last six months. Now, SemantiNet has launched its first installation with a major publisher. They completed a successful implementation at the Jerusalem Post, which is currently running a wide-scale pilot.

So, how does it work?

Headup scans Web sites and builds up a database of significant entities (people, places, and things). It then automatically generates Topic Pages which combine articles from the site and enriches them with additional content from external sites such as Wikipedia. Finally, it goes through and annotates instances of those entities on the publisher page.

For example, here is an article from Jpost.com which has been annotated:

The user who hovers over the link (in this case, “Hosni Mubarak”) sees a popup snippet that provides some information about the entity and a link to its topic page. Clicking on the link brings up the Topic Page:

The Topic Page provides information about Mubarak taken from Wikipedia, alongside links to articles in the Jpost’s archives and its blog network which are relevant to the subject. In this way, the Jerusalem Post has been able to develop what it calls the JpostPedia, an authoritative source of information on a wide variety of topics relating to Israel and the Middle East.

Why is this important?

Online publishers, especially in the news world, face a major engagement problem. Studies have shown that users are keen to consume news online. In fact, it is a more popular online activity than shopping, watching videos, or social networking. However, user engagement on news sites is low and the bounce rate is high.

By utilizing Headup, news sites provide their readers with a more complete context as well as an easy way to consume additional content. By creating topic pages, publishers can essentially unearth archived material that users would generally not think to look for and present it to their users within a particular and more complete context. Users get more information about the articles they are reading and sites get more pageviews and provide a better user experience.

This is the reason that the biggest online news publishers such as the New York Times have also developed systems for creating topic-based directories of archived content.

The cool thing with Headup is that it allows publishers to develop these topic pages automatically. In addition, its semantic technology identifies and categorizes entities based on their context rather than on keywords. For example, it knows that stories mentioning “Benjamin Netanyahu”, “Bibi”, and “Prime Minister of Israel” all refer to the same thing and can organize topic pages containing all three.

In addition, the technology recognizes related linkages between entities and can then present the user with even more content around a general subject. For example, the same topic page on Netanyahu could lead to material on Knesset Members or Ehud Barak or even Sayeret Matkal.

SemantiNet believes that the future lies in bringing new levels of meaning to the content in the online world. Headup is a significant step in that direction.

The Government Rides to the Rescue (?)

The last couple of years have not been particularly kind to the local high-tech industry. Although Israel was spared the worst effects of the global crisis, the local economy and especially the local tech-based economy has had to deal with knock-on effects of the general meltdown.

Specifically, we have seen a dramatic reduction in capital available for both VC funds and startups. Since the beginning of 2009, only one VC in the local market has managed to raise a new fund, and this was Sequoia Israel who could leverage Sequoia’s international positioning.  Many of the local VCs who had managed to raise new capital prior to the crisis are working with smaller-than-planned funds.

Unsurprisingly, this has affected that amount of new money flowing into startups here, which is at one of its lowest points in a decade.

Over the past few weeks, the Government has unveiled a number of new initiatives which Prime Minister Netanyahu and Finance Minister Yuval Steinitz hope will help save Israel’s high-tech economy. Steinitz, working with his Director-General, Avi Shani, and a Knesset subcommittee dedicated to the issue have come up with a number of ideas designed to address the problems of Israel’s high-tech sector at all levels.

The measures that have been announced are: 

1. Encouraging local institutionals to invest in VC funds instead by providing a financial safety net
2. Provide tax benefits and breaks for investors in seed-stage companies (the so-called “Angel Law”)
3. Attempt to establish Israel as a leading center for the development of technology geared towards the global financial sector, in the same way that Israeli high-tech companies became leading players in the Communications space over the last 15 years
4. As part of this repositioning, encouraging multinational financial institutions to establish R&D centers for financial technology within the framework of the CSO
5. Encourage Israeli companies to grow instead of selling themselves out early. The idea is to provide tax incentives for medium- and large-size local tech companies to acquire smaller tech companies and in this way to establish themselves as large growing concerns.
6. Create additional exit opportunities by encouraging companies to go public on the Tel Aviv Stock Exchange
7. Focus government R&D spending towards specific areas of interest
8. Improve the quality of science and technology teaching at the high-school levels by creating programs to train teachers in these subjects, re-training ex-high tech employees as teachers, and encouraging current high-tech employees to teach on a part-time basis in the schools
9. Encourage additional sectors of society (e.g. the ultra-orthodox and Israeli Arabs) to participate in the high-tech economy by subsidizing part of their salaries in high-tech companies
10. Encourage academics who have left Israel to return by providing tax breaks from future earnings based on technology that they develop

It’s an ambitious plan and one that addresses a lot – if not all – of the main problems facing Israel’s high tech sector. Whether or not it will work is another question.

My gut feeling is that the plan will be only partially successful at best. Without going into a point-by-point critique, some thoughts:
 
Regarding incentives for local institutional investors to invest in Israeli VC, this is one of these “yes, but…” things. On the one hand, Israeli institutionals are indeed an untapped source of LP potential. This is increasingly important, since institutionals in the US and Europe are both more hesitant to invest money in the asset class and more inclined to put their money in funds targeting other emerging markets such as India and China.

However, the local pension and insurance funds are not currently geared for significant investments in VC and it would take significant incentivization on the part of the Government to get them there. Even then, the amount of money that they could theoretically put into the asset class is limited. This by itself won’t solve the funding crisis for local VCs looking to raise new funds.

Regarding the re-focusing of Israel’s R&D efforts towards financial technology, again “yes, but…”. Other emerging countries, for example Taiwan, have had success in steering their high-tech industries towards government-defined areas of interest such as semiconductors and biotech. I have two issues here, one philosophical and one practical.

On the philosophical side, one of Israel’s great strengths as a high-tech superpower has been in the creativity of our entrepreneurs and technologists. If a large portion of government and specifically OCS funding is directed towards financial technology, might that not stifle a lot of this creativity that might lead to other large opportunities?

On the practical side, encouraging the establishment of R&D centers, as well as the other components of the plan based on providing tax breaks and benefits are all great in theory. However, they all have a good chance of falling apart in the execution phase especially if the tax authorities are not re-tooled to handle these changes.

After all, the government already provides tax incentives for high-tech today but it makes companies and investors go through 12 levels of bureaucratic hell in order to enjoy them. If this continues to be the case, will multinational financial institutions feel that it is worth the hassle of setting up R&D centers here?
 
The relative lack of large-scale local tech companies has been a key concern for the better part of a decade. We have talked endlessly about whether Israel needs or can establish more “Israeli Nokias” to stand alongside Amdocs and Teva, and the complexities involved. I’m not sure the current plan offers strong enough incentives to do so.

The idea that you can encourage medium size Israeli tech companies to grow into large size tech companies, and large companies into global leaders all by helping them acquire smaller companies is at the very least out-of-the-box thinking. However, it still doesn’t address the main reasons that lead medium-large companies to and M&A exit before they can become large.

Companies usually sell out because they have funding concerns. Either they start to run into cash-flow problems or else are need a relatively large amount of financing in order to ramp up into major-size IPO-able international leaders.

The current government plan as formulated does not provide real solutions to this issue. Encouraging more IPOs on the TASE is nice. However, the TASE is a relatively small exchange with some liquidity issues. The plan might help companies that would ordinarily be sold for the low tens of millions IPO for mid-ten to millions. But in order to IPO in a manner that can establish a large sustainable company, you need to go public on NASDAQ.

Which brings us right back to the funding issue. As Giza’s Managing Partner Ori Kirshner noted in this piece on The Marker TV, one of the real problems facing Israeli VCs and startups is the lack of available late-stage funding. Israeli funds are relatively small in global terms, and those funds who have the capital to invest will look just as actively at investments in India and China.

The issues of reversing the brain drain and improving the quality of technical education in the schools are both good ones, but they will struggle if not handled in the broader context of problems facing Israel’s education system as a whole. (Which is a whole other blog post, if not a series of blog posts). Short version: in order to provide a more educated and effective high-tech workforce, it’s not enough to concentrate on high-school science training. Israeli students need much better training in math, science, and English from the elementary school level onwards.

I’m not saying the government plan is a wash. It addresses a number of key social concerns (especially the low participation of large sections of the work force) in a logical manner. And, if the plan doesn’t get mired in a bureaucratic morass, stands to introduce a bit more flexibility into the local high-tech market and perhaps even end up as a net gain for the Israeli economy.

But without a significant increase in the amount of capital flowing in from overseas – both from LPs and global venture funds – the local high tech industry will continue to face serious challenges, despite the best intentions of the government.

Soluto Takes Tech Crunch Disrupt

We are very proud that Soluto, one of Giza’s portfolio companies, took home first prize at Tech Crunch Disrupt which was held this week in New York. Disrupt was an unusual event, a web conference/startup-competition geared at companies providing disruptive technologies.

Soluto emerged victorious out of a pack of 20 competitors and garnered the support of much of the audience.



Soluto is pioneering what they term as “anti-frustration software”. They are developing a solution to tackle the myriad annoyances that are a daily part of the PC experience: slow boots, freezes, blue screens, etc. The team has an intricate knowledge of the workings of the PC OS and they are leveraging a crowdsourcing approach to see how different processes clash with each other in order to resolve them.

The win at TC Disrupt is at the same time surprising but also a natural, depending on how you look at things. I say surprising since it flies in the face of a lot of conventional wisdom that Israeli startups simply “cannot do” consumer products for whatever reason.

But it seems to me more of a natural win. Compared to some of the other competitors at the event, Soluto comes with a very clear value proposition which answers a very real and very widespread pain. And that is the real definition of a winner.

Beyond Good and Evil

 

Once upon a time, a group of early Google employees got together to try and codify the company’s core values. What they came up with was the company’s snappy unofficial motto:“Don’t Be Evil.”

Although unsaid, it was pretty clear who the Evil entity was that Google intended to set itself apart from. “Evil” on the Internet, and in the world of computing in general, resided in Redmond. Microsoft had for years gained a reputation for its aggressive practices, leveraging its monopoly position on desktops to strong-arm developers and trample potential competitors such as Netscape.

How far we’ve come in less a decade.

Looking around at the state of the contemporary Internet world turns up a number of major players, all of whom – in the Google motto sense of the word – could be described as “evil”.

Let’s start with Google itself. Whether or not the company believes in its old motto, it became clear years ago that nobody else buys it. Probably about the time that Google first acquiesced to the Chinese government’s censorious policy with regards to the Internet.

GOOG has become “evil” in the eyes of its detractors by becoming the Internet’s resident mega-octopus: huge, with a hand in just about anything that moves. Whether it be search, online advertising, video, or Web-based email, Google pwns major chunks of the 21st century online economy. Additionally it has a stake in a vast gamut of other things from mobile handsets to DNA testing.

Google’s gorilla status means that it can also quickly and effectively kill other companies. Companies that find themselves on the GOOG blacklist see a sudden sharp drop in revenues and face a protracted, often futile fight, to get back. Similarly, companies that live by online advertising can suffer tremendously every time that Google tweaks its ranking algorithm.

Second on the current Evil List is Apple. Yes, the same Apple that many felt embodied all that was good about high-tech: attractive devices coupled with software that works without a hitch.
I have a rather pronounced love-hate thing going on with Steve Jobs, so it’s been interesting to see him slide on over to the Dark Side lately. The case against Apple (laid out effectively here) can be summarized in one word: paternalism.

Apple offers a vision of a nice-looking, well-run world. But it’s a closed world that is getting closed-er by the day. Apple devices are locked down. You can’t tinker with the hardware and you can only use software that Apple approves of. So far so good. But since the release of the iPad, Jobs has taken the whole “closed garden” thing to the next level.

First, there was the SDK flap. It is now not enough that apps for the iPhone and iPad get Apple’s imprimatur. The new iPhone OS 4.0 SDK specifies the programming languages developers can use and, specifically, bans them from using cross-platform compilers. The new rules are part of Jobs’s crusade to wipe out Adobe’s Flash. But the end result is to piss off the developer community.

Also part of Jobs’s vision: ads. Ads controlled by Apple. Having bought Quattro, Apple plans to monetize online content running on its devices via a whole range of new types of advertising. These will include full-screen, non-blockable ads, that demand some kind of user interaction in order to make them go away.

As Slate’s Farhad Manjoo pointed out, “Apple has solved the problem of users finding today's small ads too annoying to click on by making it easier for developers to create bigger, more-interactive ads that we'll likely have no choice but to click on.” Yay!

Facebook is the third member of our revamped Axis of Evil. While Google tries to control the world and Apple stifles innovation, Facebook mucks about with the very essence of its users. As the platform of choice for transferring people’s real lives, interests, and relationships (not to mention drunken pictures) online, Facebook faces real challenges when it comes to privacy protection.

The recent announcement at the F8 Conference of its new Open Graph is both remarkable and not a little scary. For the first time, FB has opened its own walled garden to the rest of the Internet – or perhaps brought the rest of the Internet into its own walled garden – by allowing users to interact with websites, music, documents and other things while tying these interactions to users’ profiles.

There is, of course, a downside to all this. The new Open Graph encourages people to share more information. Which means an ever-growing issue of privacy. FB has not made life easy on privacy-minded users, changing its policy to opt-in all its users to having their data shared by default. Worse, their privacy policy does not make the implications of the new changes to the FB platform very clear. Nor is it very simple to change the default settings to increase privacy.

Facebook is playing a tricky game with its users, but clearly feels it can get away with pushing the privacy envelope for now. If they push it till it breaks, their evil quotient will rise spectacularly.

What’s most interesting about the Evil list is what company isn’t on it. Specifically, that same little outfit out of Redmond. Microsoft these days is viewed as a lot more benign, the company that puts out operating systems that are much better than they used to be and search engines that are not bad at all. Not to mention a company that generally plays nicely with others.

The whole notion that the Internet world is controlled by “evil” companies is less a reflection of the companies themselves and more to do with the Internet. The definition of “evil” here is really just large businesses acting like large businesses and trying to increase their revenue streams in the ways they think are best. In the end, it is a sign that the Internet has matured into a commercialized business sector rather than the province of amateurs

The State of Israel vs. the iPad

In the event that you missed the biggest local tech controversy last week, it appears that the iPad is currently illegal in Israel. Customs officials at Ben Gurion Airport have confiscated a dozen or so of the magic machines from Israelis returning from abroad. The iPads were confiscated on orders from the Ministry of Communications (MoC) and the devices will be held until further notice.

According to the Ministry of Communications, the iPads operate under a different WiFi standard than the European one which has been licensed for wireless devices working in Israel. An MoC spokesman went so far as to express concerns that the American-standard iPad would “overwhelm” local WiFi networks with its allegedly stronger signal.

The iPad ban quickly found its way to the foreign tech press, fostering a number of articles none of which made us look very good.

Although there has been lots of theorizing about shadowy business concerns standing behind the iPad ban, it strikes me more as a case of Israeli bureaucracy having its head stuck firmly up its backside.

Although Israel has a bleeding-edge 21st century high-tech industry, it is regulated by government ministries whose mindset has not advanced much since the 1980s. Bureaucrats, like IT technicians and IDF quartermasters, tend to operate on the policy of “first say, ‘No’”. In this case they threw out what appears to be some half-understood mumbo jumbo about WiFi standards to bolster their case and will stand by it despite the fact that it’s all a bunch of rubbish.

Whatever the cause, the iPad for the moment remains certified un-kosher.

Adam Fisher at Bessemer points out that this is another example of “the shoemaker going barefoot” when it comes to Israeli tech. The Israeli tech industry is very good at inventing innovative technologies. And yet, the Israeli economy as a whole tends to lag behind when it comes to adopting and implementing new technologies on a large scale.

This is both doubly true and doubly puzzling when it comes to a lot of aspects of consumer technologies. Israelis are enthusiastic adopters when it comes to new gadgets. Israel had one of the fastest and most significant penetration rates for both Mobile phones and broadband. Similarly, the iPhone has taken off like crazy despite its super-premium price point.

And yet, it took more than two years for the iPhone to go on sale here officially, and nearly a year after it was being sold in Europe and other countries in the region. The same story goes for commercial WiFi, which only became available in 2004 after having been held up for several years due to IDF stonewalling, and is now extremely widespread

The tech lacunae here doubtlessly hamper the local hi-tech industry when it comes to developing compelling consumer applications. Besides the relative unavailability of iPhones over the last few years (one of the reasons, I’d argue, that we haven’t seen a lot of great app developers coming out of Israel), you could list issues as seemingly trivial as the fact that the Google Maps API renders Israel as one large undefined gray patch. This makes location-based services such as Foursquare virtually meaningless here.

I think this also helps answer a question I’ve had lately about one of the more compelling up-and-coming spaces in tech: augmented reality. On paper, at least, Israel should be leading the way with AR apps. The combination of location awareness and clever signal processing are both part of the Israeli skill set thanks to IDF technologies. And yet, I have seen almost no local startups in the space.

One of the drawbacks, it would seem, is lack of devices to work with. The iPad (assuming Jobs and his magical elves ever make the 3G model widely available to the world) should be one of the most logical platforms on which to run AR apps. But instead of pioneering the development, a lot of Israeli developers will first have to face the choice of sitting for months waiting for the iPad to work its way through bureaucratic hell or risk having their devices seized at the airport.

New Avenues in Seed-stage Fundraising

There is an old saying, many variations of which have appeared at various times, that goes, “One time is happenstance, twice is coincidence, three times is a pattern.” Based on this logic, I hereby declare the hot trend in the Israeli high-tech investment community to be organized very early-stage financing.  

Exhibit number one: a fascinating piece written by Bill Burnham called “The Great Abdication” in which he writes about the current challenge that Internet/Media/mobile apps startups face when trying to raise money these days.

“Anyone who has recently spent anytime fundraising for a consumer internet start-up in Silicon Valley quickly comes to an inescapable conclusion: there is effectively no Venture Capital available to Consumer Internet startups.”

To summarize his main points: There is a mismatch between the ever-shrinking cost of starting up a Web startup and the ever-growing size of VC funds who are looking to deploy larger – rather than smaller – investment sums   Many VCs don’t get the Internet/Media space and see success and failure as almost entirely random. (Not a joke – the number of times I’ve heard older VCs compare Internet investing to investing in movies)

Exhibit number two: IVC’s recent survey of investment activity in Israel (noted, among other places, here)  which shows a sharp drop in first-time investments by Israeli VCs from 2008 to 2009, albeit a slight increase in the number of seed-stage investments.  

The picture therefore is not necessarily a happy one if you are a very early-stage Israeli Internet startup, especially a B2C oriented one. Whether or not this is due to Israelis’ inability to create Internet success stories is a subject for a different blog post.  

So, what are the options for your average very-early stage Internet company? The obvious answer is angel investors, whether solo or as groups. This is your best bet to get enough money to develop your product/technology and get it to the proof of concept stage. The main drawback is that angels tend to make smaller investments, usually sub-$500K and may or may not bring any added value to your venture.  

Which brings us to Exhibit number 3: Robert Scoble has also noticed this trend and also notes the rise of organized groups such as Y Combinator and others which provide both investment, centralized services, and advice to puppy startups in order to get them to a point where they can raise a more substantial financing round.  

As of yet, Israel lags behind our friends in the States, lacking both an established Y Combinator and dedicated early stage funds such as Union Square Ventures or First Round Capital.  

The good news is that we are beginning to see a little bit of movement in this direction. In recent weeks we have heard of three different types of fund, all of which are geared towards helping out very early stage companies:

• Platonix Joint Ventures - Platonix offers business and technological development for entrepreneurs with interesting ideas in the world of software. Platonix works on the “sweat equity” model, offering their services in return for equity rather than directly making investments
• Yatir VC - Set up by Avi Domoshevizki (late of Battery Ventures) and Sani Sanilevich they offer technological and business mentoring as well as early stage financing
• Kima Ventures - Set up by Jeremie Berrebi and others, Kima is a Y Combinator-type micro fund looking to invest small amounts of capital in many early stage startups in Israel and Europe

I should take the opportunity here to mention Giza’s Ofek Program as well. Although we are looking for more developed companies than early-early stage, Giza is looking to invest sums in the $500K range as well as looking to syndicate with other investors for larger rounds in early stage companies.

Other funds have their own takes on early stage investing. We shall see where things develop.

Enter the iPad

Steve Jobs is the greatest product marketer of the last 30 years. By now, this much should be almost inarguable. And I say this despite the fact that no one can accuse me of being an Apple fanboy.

Time after time, Apple utilizes the same technique for rolling out new products:

1. Maintain an absolute code of silence, which by now is an integral part of Apple’s corporate culture

2. Make sure to announce new product launches at specified times each year, thus creating an annual ritual akin to a religious ceremony

3. Leverage a rabid fan base and generally Apple-friendly tech journalism community to ensure maximum expectation and coverage

4. Voila, each product launch becomes a front-page event

Amazingly, the technique works each time.

Behold last week’s unveiling of the iPad. For months preceding the launch, the tech community buzzed with rumors about Apple unveiling a tablet computer. What would it look like? How powerful would it be? What features? How much would it cost?

And finally, last Wednesday, the Anointed One came down from Mt. Cupertino like a contemporary Moses in a black turtleneck bearing … a really large iPhone. Sorry, a really large iPhone that isn’t actually a phone.

I’ll give Jobs this much: He took everyone by surprise. Instead of creating a competitor in the tablet PC space, Apple has created a new product category – something between a smartphone and a netbook. Now the big question is whether this will be successful or not.

The case against the iPad runs something like this: It doesn’t have a camera, which means you can’t do Skype video calls or utilize augmented reality apps. It doesn’t support Flash, which will lead to a denigrated Web browsing experience. It doesn’t support HD video, which makes it an imperfect PC-TV. It utilizes a touchpad keyboard, making it an imperfect tool for working or sending long emails. It’s unclear how it will function as an eBook reader.

In short, what is this thing actually good for?

The case for the iPad goes: It benefits from Apple’s core strength of developing things that work well. It has an “instant on” feature, which makes it better than netbooks. It is more user-friendly and much less crash-prone than PCs, making it better for unsophisticated computer users. It looks cool, of course. It has a big screen, making it perfect for playing iPhone games. It may very well become the main competitor to the Kindle in the eBook reader market.

In short, it’s a cool new entertainment device rather than a serious work machine.The question is whether users will choose to spend significantly more on this entertainment device or continue to buy cheaper netbooks to achieve the same things.

If the latter, then the iPad will become Apple’s first major flop in the last 15 years; if the former, then Jobs is very much a genius.

Personally, the iPad strikes me as the ultimate example of a “wait for the next version” product, which presumably will come with a camera and, say, USB support. What do you guys think?

Heading up the blog

You may notice a new feature here on the Giza Blog. We have implemented the Headup application, developed by SemantiNet.

So, what exactly is Headup? Headup is a semantic web widget service that enables online publishers to expand the range of information that users can access directly from their sites. Publishers can install the widget quickly and easily (it works with all major blogging platforms). Once installed, Headup identifies names and terms on a page and marks them.

For example, if I was talking about Tel Aviv, users who are looking for more information on our fair city could mouse over the term. Headup opens a popup window that provides information about Tel Aviv, along with news, pictures, videos, and tweets. This allows publishers to increase their time-on-site, as readers no longer have to click back to Google or Wikipedia to get more info.

The Headup widget is available now, gratis, from the Headup site. I invite all bloggers out there to give it a try and let us know what  you think.