Digital World: Keeping Israeli hi-tech right here at home

A key aspect of Israeli hi-tech dream these days is “the exit”: finding foreign (preferably US) company to buy your hi-tech idea or technology.

A key aspect of the Israeli hi-tech dream these days is “the exit” – finding a foreign (preferably American) company to buy your hi-tech idea or technology. For the owners, it really is a dream come true: stock options in a NASDAQ-traded company; maybe a vice presidency; a wad of cash and lots of trips (business class, of course) to and from “the coast,” either east or west. Ditto for the investors, who are happy to get their money back, and then some.
But there is another way – where a start-up company remains under local management, with the same management structure and staff. One way to do this is for two start-ups to join forces and forge new products for new markets. And it’s this path that two Israeli start-ups, Vringo and Zlango, have decided to take. In a deal that was closed last week, the two companies announced a merger, with $2.5 million in backing from venture-capital firms Benchmark Capital and DAG Ventures.
Technically, the deal is a buyout, with Vringo, which is traded on the AMEX, acquiring Zlango’s assets in exchange for 3 million shares of Vringo stock. But both companies look at the deal as a merger, says Zlango CEO Roni Haim.
“We’re both companies that work in the mobile space,” he says. “We share the same market and the same customers, and our products complement each other.
So it makes sense for us to work together on products and services.”
Vringo, for those who don’t know, is the pioneer of video ringtones for cellphones. Users sign up at the site and send video ringtones to their friends, who can then sign up for the service if they’re not members (viral distribution).
The content sent in “Vringos,” as the clips are called, can include promos for movies, music videos, TV commercials, etc., with the sponsor paying for placement.
Zlango, meanwhile, is an iconbased “language” (actually a platform for icon-based international communications) that integrates with your cellphone’s operating system (currently available for Android and Symbian phones) for use in SMS and other text-based apps. Each icon is accompanied by the text it represents as a caption, so the message is accessible even to users who aren’t iconsavvy, and Zlango messages can be received as regular text messages by any phone.
Both companies are very active abroad. Vringo works with numerous cellphone service providers in Europe, the UK, Malaysia and the Middle East.
Zlango is very active in the Far East, Poland, Portugal, Switzerland and many other countries.
Both have some presence in the United States, but with the merger, marketing there (as well as in the other big wireless prize, China) will be infinitely easier, and cheaper, Haim says.
“One immediate benefit of the merger is that we will be able to work with service providers as a team, making it easier and more efficient to reach potential customers,” he says. “It will also help us each get into new markets more quickly, since we can use each other’s contacts to meet new customers.”
In the US, the “synergy between us,” as Haim calls it, will help both companies reach more users.
“Right now we are both appealing directly to users in the US, without going through a specific service provider,” he says. “We will be able to offer new and more sophisticated services by leveraging our capabilities and abilities.”
Culture, too, plays an important role in the decision to merge instead of sell, Haim says.
“Both Vringo and Zlango are Israeli start-ups that now work on a large scale and whose R&D is still in Israel,” he says. “So we have a common culture, we understand where the other group is coming from, and now we will have a common infrastructure here in Israel for development, which will make the work that much easier and more efficient.”
Without the need to spend valuable energy learning how to adjust to an American-style corporate culture, workers of the new merged company will be able to dedicate all their energy to developing new products and services that the technologies of the newly merged companies bring to the table, Haim says.
And finally, he says, there is his own personal view on the matter of selling out.
“Zlango is my fourth start-up,” Haim says (he was a major force in 4G network technology company Alvarion for over a decade), “and I always preferred to continue building and growing, creating a company that will stand on its own. And that’s what I feel we have done here. Benchmark and DAG Ventures are doing something unique in financing this deal, and I am sure they, and we, will be pleased with the results.”
Vringo CEO Jon Medved has similar thoughts.
“We are thrilled to announce this investment from Benchmark and DAG, along with our letter of intent to acquire and merge operations with Zlango,” he says. “The financing led by Benchmark Capital and DAG Ventures is a significant vote of confidence in Vringo. We believe Zlango’s exciting messaging platform will allow us to enter the massive mobile-messaging market, which ranks second in mobile revenue only to voice.
This additional funding and the Zlango transaction will be highly beneficial as we continue to grow our business.”
Ultimately, all four parties to the deal have a vision.
“Benchmark, DAG Ventures, Jon and I are all on the same page on this,” Haim says. “We all have a vision: that one plus one will equal far more than two. I know we are right.”