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U.S. Entrepreneur Makes Aliyah Seeking 'Next Big Invention'

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  • U.S. Entrepreneur Makes Aliyah Seeking 'Next Big Invention'

    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."
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