Jerusalem Report

Hi-tech founding father

Yossi Vardi has earned a reputation as Israel’s stellar start-up investor.


Yossi Vardi, the founding father of Israel’s renowned hi-tech industry and its de facto spokesman, is the most popular personality at the Presidential Conference in Jerusalem in June; every 30 seconds or so, someone new approaches him, seeking a meeting, a chance perhaps to secure financing for a new Internet start-up.

Vardi, now 70, and sitting on millions of dollars from his hi-tech investment successes, deals with each person politely, enjoying his role as one of the country’s most acclaimed rainmakers. Peripatetic, incorrigible, shrewd, as much a jester as a guru, he is constantly on the move, attending over 150 hi-tech conferences yearly.

Time is his worst enemy. To avoid wasting it, to ensure he can keep turning moneyless start-ups into multimillion dollar enterprises, the Tel Aviv-born Vardi seeks to limit the hours he spends with the start-up CEO wannabes.

As an angel investor – someone who makes early investments in high-risk firms – Vardi used to allow the CEOs to arrive at his office with their laptops, show him dozens of features of their new software product, and then have them wait impatiently to find out if he would invest in their product.

He grew weary of the often futile exercise.

“I had to look at them all and demonstrate enthusiasm, or else, they would say, ‘Vardi is an idiot’ or ‘He doesn’t understand what I am showing him,’ or ‘He is conceited,’” Vardi tells The Jerusalem Report. “But how many times can you demonstrate a fake orgasm? 1,000 times? 2,000 times? So now I say, ‘No laptops.’” But he has not yet said no to finding and investing in hi-tech start-ups, initiatives that have helped to give Israel its reputation as a world leader in the field.

Vardi’s personal reputation as a hi-tech mastermind lifted off in 1998, when he and his son, Arik, along with three of Arik’s friends, sold their Internet firm, Mirabilis, to America Online for $407 million. The stunning sum sparking the emergence of some 6,000 additional Israeli start-ups – a phenomenon the pundits called “the Mirabilis Effect.”

Mirabilis’s main product was ICQ, the earliest instant-messaging application on the Internet. With $75,000, Vardi was the founding investor. What made Mirabilis unique, apart from the huge selling price, was the fact that unlike previous hi-tech deal-makers who had worked for 10 or 15 years on their products, Arik Vardi and his friends sold their enterprise a mere 19 months after starting the company. “The sale to AOL was like a Cinderella story,” Vardi says.

When Arik approached his father for funding for ICQ, the latter felt compelled to accede to his son, out of guilt that he would not be spending money on his son’s higher education. “I believed,” observes Vardi, “that because my son didn’t finish high school, there must be something wrong with me.” Armed with the funds, Arik and his friends refused to reveal to Vardi what the product was all about. Then, notes Vardi, “after six weeks, they showed me the prototype and I was really stunned.”

Today, 15 years after the sale, Vardi winces when recalling how the negotiations could have gone sour and made him look like, in his words, “a moron.” At one point, AOL had offered to buy Mirabilis for $150 million; but, acting on behalf of his son and his son’s friends, he turned it down, believing that the purchase price should have been higher.

Hoping to invest in more Mirabilis-like start-ups, Vardi stuck to the Internet’s consumer segment, believing that was where the future lay for the web. The Mirabilis sale turned Vardi into a hi-tech megastar because, he says, “I made a lot of money, so I became very smart all of asudden, and tall and blond with blue eyes [he is in fact short and not blond], and people came to interview me about my roots.”

Mirabilis had a good run at AOL, which, in 2010, sold it to a Moscow-based firm, Digital Sky Technologies, for $187.5 million. ICQ remains popular today, mostly in Russia.

Since Mirabilis, Vardi’s track record has been superb. He has invested in 80 of those 6,000 Israeli start-ups, 22 of which have had successful exits, either by going public or by being sold to a larger firm. He has sold companies to Microsoft, Yahoo, AOL and eBay; five of the companies in which he invested have gone public. Vardi humbly notes that, in addition to his successes, he has an impressive list of failures, some of which were idiotic and/or embarrassing: “I am like Churchill. I made a great career moving from one failure to another failure,” he insists.

Among the 22 companies in which he has successfully invested or has helped to build are: Answers.com, which interactively answers all kinds of questions (the company went public); Gteko, which manufactures networking support software (and was sold to Microsoft for $110 million); Airlink, which sells Internet devices (and was sold to Sierra); Tivella, a provider of digital signage software sold to Cisco); and Foxytunes, a browser extension that allows users to control media players from the browser window (purchased by Yahoo!).

Vardi’s investment strategy is to search for talented, nimble, honest and frugal techies.

He’s not looking for the “next great idea,” because, he insists, he wouldn’t understand it. Today’s start-up entrepreneurs come from a demography to which he does not belong.

He likes to call himself a digital immigrant trolling among the natives.

For Vardi to take an interest in a project, the would-be techie must be fast, be focused on one idea, and be in the very early stages of developing a product. Vardi eschews business plans and PowerPoint presentations, branding them useless for indicating how start-ups will do. And anyone delivering these presentations will automatically be super-enthusiastic. Vardi likes early investing where risks are high but the valuation of the company is low.

When he finds such talent, he writes a check and then leaves the start-ups alone, not kibitzing, not sitting on their boards, not acting as their adviser.

Appreciating the influence he holds over the local hi-tech world, The Industry Standard, an American news website, named Vardi as one of the Most Influential International Executives; the Haaretz daily also cited him as one of the 50 Persons of the Decade for the first decade of the 2000s.

Interviewing Vardi is a challenge, but not because he is cold and unfriendly – quite the opposite. He is warm and gregarious. He injects so much humor into our conversation that it becomes difficult to figure out when he is joking and when he is not.

Our first scheduled appointment – at the Presidential Conference – was punctuated by so many money-seeking start-up people that we rescheduled and met in the cluttered basement office of his Tel Aviv home.

Hundreds of business cards lay stacked in piles on his desk, along with CDs and files.

Books lay heaped on the floor nearby. He was wearing what might have been pajamas or an outfit he picked up in Japan. It was hard to tell.

Vardi’s mother, Sara Viodavsky, who was born in Belarus and immigrated to Palestine in 1931, is often the target of his jokes.

Making it clear that his main motivation in life has been proving to his mother that he was not an idiot, Vardi comments half-jokingly, “My life started, as far as my mother was concerned, when I got my doctorate.”

However sarcastic he is about his mother, Vardi acknowledges that she instilled in him a need to learn. “She always encouraged me to study, which was a very big disappointment for her because I was not a good student,” he recalls. He also credits her and all Jewish mothers with being the main reason for Israel’s extraordinary and unlikely hi-tech success. Says Vardi, “All Israeli kids know that their mother will tell them, ‘After all that we’ve done for you, is asking for one Nobel Prize really too much?’” Vardi’s Polish-born father, Moshe Rosenboim, arrived in Palestine in 1923, changing the family name to Vardi in 1948.

For Moshe and Sara, life was hard. Moshe was a dental technician, a mason, and ended up running a restaurant on Sheinkin Street in Tel Aviv with his wife.

Vardi’s love of technology came from his childhood years; he describes himself then as “a geek, a nerd. I knew how to put radio tubes and antennas together in an amateur way. Instead of chasing girls, I was chasing vacuum tubes.” His heroes came from the communications world. “When my friends were playing football, I was reading about Thomas Alva Edison and Alexander Graham Bell,” he says.

Though lacking a clear-cut career goal, Vardi knew from childhood that he wanted to become an engineer, with radio technology his primary interest. After completing high school, he postponed his army service for a year so that he could attend the Israel Air Force’s Technical School in Haifa, where he studied electronics.

He studied at the Technion-Israel Institute of Technology and is the author of “Electric Energy Generation: Economics, Reliability and Rates” based on his doctorate. “The whole purpose of the book was to impress my mother,” he observes. “There were a lot of graphs and mathematical symbols. When I open it today, I don’t understand what I wrote.”

In 1969, after working for two years at Rafael Advanced Defense Systems, Vardi, then 26, and two childhood friends opened one of the earliest software houses in Israel, Advanced Technology. He subsequently sold the company to Tadiran, and today it is part of Ness Technologies.

Long before he acquired so stellar a reputation as a hi-tech aficionado, Vardi had a lengthy career in the Civil Service, including, at the age of 27, serving as director-general of the Ministry of Development. Later, he became chairman of Israel Chemicals; soon thereafter, he founded three companies, including Alon Oil.

With the sale of Mirabilis to AOL, Vardi had more money than he could have ever imagined. He refused, however, to let it change his life radically. “I am sitting in the same house that I had before Mirabilis,” he says. “I still drive a Nissan Maxima that I bought in 1999. Nothing fancy. Having money is comfortable. It doesn’t make you happy but it doesn’t make you miserable either. It allows you to do things that otherwise you would not have been able to do.”

One of those things – clearly a dream come true for Vardi – was to put much of the money he made from the Mirabilis deal into hi-tech start-ups.

As an unofficial spokesman for the hi-tech industry, Vardi has so often been asked why Israeli start-ups have been so successful that when I pose the question, he gives one of his many mischievous answers. “Bamba,” he offers, citing the popular peanut-based snack. “Don’t you know that it is the main thing that Israeli children all have in common,” he quips. Then, getting serious, he notes that what is unique among most Israelis is that they all have a Jewish mother.

“You grow up here with a family system that encourages you to learn and to be better than your cousins.”

Looking back on his career, Vardi realizes today how fortunate he was to get into the hi-tech world. “We now have the best brains engaged in this industry,” he says. “We now have people all over the world with accessibility to the Internet. The Internet changed the whole dynamics of innovation.”

When Vardi was growing up, innovation came from either government laboratories, the army or telephone companies. “Today, the computer is readily available. It’s enabling millions of young minds to develop things. What we see today is only the beginning,” he adds.

Where would he like to see hi-tech go over the next 50 years? Replies Vardi, “In Israel, too small a part of society shares the blessings of hi-tech. I would like to see more ultra-Orthodox people involved in it, more Arab Israelis, more people from the rural areas. This blessing is not equally distributed in Israeli society.”




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