Israel – Deal(s) of the Month (August 2007)

By Danny Cohen, Guest Author

After taking some time off (and as such, skipping the July report), I am taking another shot at reviewing important deals that happened in the Israeli market. Like in Europe and the US, Israel slows down during the summer time. However, a few important deals were announced. A few deals that are worth mentioning: Virgin Fuel (and Gemini) investing in Metrolight, Pitango and Battery investing in Anobit, and Carmel ventures leading a round in Kontera. I will focus on the 2 most important deals.

Metacafe announced their third venture financing, lead by DAG and Highland. The total new money in the company is $30M (!). This deal is interesting for 2 different reasons. First of all, it’s a strong validation to the Israeli web scene. Clearly, the new investors have high expectations for Metacafe, and they don’t see the Israeli R&D as an inhibitor for a potential acquisition. In the past, there were rumors about Yahoo acquiring the company. In addition, it’s amazing to see the strong appetite in the market for video sites. Metacafe is not the strongest brand out there (See Venture Beat), and is clearly lagging behind YouTube. It seems there is still a strong belief in the ability to create a leader in the video space. The Metacafe deal was announced just a few weeks after Lionsgate invested in Break.com. It’s interesting that the valuation rumors for Metacafe are much higher than Break.com, yet both have a similar market share.

On the “exit” side, Voltaire went public on July 26th. The initial PPS was $9, but since the IPO the stock went down to $6 per share. The Voltaire story represents a typical Israeli public offering. On one hand, this it’s a good ending for an heroic adventure. The company was founded in the late 90’s and went through a lot of business model changes before finding their “Infiniband niche” way back in 2001 (!). Since then, the company has been working hard, growing steadily, and reaching some excellent results. Back in 2001, few investors would have seen an IPO happening for this company. In 2007, it was no surprise. Unfortunately, similar to other Israeli public companies (Saifun, Allot, Scopus, Bigband) the stock price fell post trading. This is not an Israeli phenomenon, but rather typical for small cap IPOs. In recent years, Israel produced only small IPOs and did not manage to produce a Riverbed comparable. As a result, the Israeli VCs are constantly talking about “patience”, and “company growing”. Hopefully, we will see the big Israeli IPOs appearing in late 2007 and 2008.