As Rumors Of A $1BN Exit Swirl Around Waze, What Effect Will It Have On Israel?

Last week we reported that Facebook is in advanced
talks to buy Israel-born social traffic and mapping app
Waze for up to $1 billion, but that there were still
some questions over whether Waze’s R&D efforts
would remain in their home country, or move to
Facebook’s HQ in California. Haaretz has now advanced the story, saying that the current deal has it
that Waze’s R&D will stay in Israel, where it will also
continue to be a registered, tax-paying company,
while Waze’s Palo Alto office will move over to
Facebook and Menlo Park. While reports are now
swirling that Apple could still come into the negotiating room again (if you believe Apple was ever
there in the first place), the deal raises some
interesting details and debate about what is
happening in the Israeli startup scene currently. Consumer apps In a country more renowned for its B2B and technical
exits — Cisco’s $5 billion NDS deal being one
example from last year, but so are Facebook’s two
previous Israeli acquisitions, feature phone interface
designer Snaptu and facial recognition company
Face.com — this is one of the first big consumer tech exits in Israel. Yaron Samid, founder of the Israeli
tech startup network TechAviv and himself a serial
entrepreneur, notes that this is in fact the first $1
billion exit for such a company. Waze’s rapid rise
over the last couple of years, he notes, has already
been having an impact on the community, with the exit being the final flourish. “The inspiration has already taken hold like wildfire
among the countless Israeli founders who’ve been
told that they can’t produce a billion-dollar consumer
Internet/Mobile company – and now know that they all
can,” he writes. (He also takes the opportunity for a
little self promotion, claiming that he’d been one of those suggesting current CEO Noam Bardin after he
couldn’t take the job himself.) There are numerous Israeli Startups that could get a
lift from the ‘new order’ where consumer startups, not
just B2B and enterprise, can emerge from the
country. These could include Wix, GetTaxi, Fiverr,
Bizzabo, MyHeritage, Wishi and Mobli, among others. Facebook Israel foothold The other interesting development here is that this
could give Facebook a foothold into the Israeli tech
world. Unlike Google, Facebook does not have an
operation in Israel, which could well create useful
‘boots on the ground’ in a nation renowned for its
engineering talent. This would make it the second Facebook development arm outside the U.S., after
London. But the suggestion so far is that Waze will remain an
independent company operating in Israel, with R&D
staying in Israel, while the business side, including
CEO Noam Bardin, is expected to move over to
Facebook U.S. HQ. But, there is a cultural clash on the horizon here. Some local players are already coming out against
this idea. Local VC and TechCrunch contributor Roi
Carthy says he would like to see Facebook shutter
Waze’s local presence, and relocate the tech
personnel to Palo Alto. Why? Because, he says, although the Waze R&D center
could be a beach-head for a full-blown Facebook R&D
shop, and thus good for Facebook, “it could have
catastrophic effects upon local early stage startups’
ability to compete on salaries and benefits.” His argument is that if a big company like Facebook
stays away, then the Israeli tech ecosystem is more
likely to be able to “push more innovation” towards
Silicon Valley, which would be in the “best interest of
both the local startup industry and Facebook.” Certainly, such a large acquisition inside such a
relatively small country could well change the
successful dynamics of the Israeli eco-system. If it
became a mere engineering centre for Facebook,
Apple and Google, the implication is that we might not
see quite the same levels of startup activity as we’ve seen emerge in the past from Israel. That is almost certainly overstating the ‘problem’. It’s
more likely that the experience of being inside these
big tech companies in Israel is more likely to create a
virtuous circle of new entrepreneurs, spin-outs and
new projects. Plus, more eyes and ears on the ground
for potential acquisitions. Haaretz is also reporting some details about the
financial terms of the deal. Anywhere from 40 percent
to 60 percent of the $1 billion price (the current offer)
will be in Facebook shares, with the rest in cash.
Israeli investors woud prefer more cash; others prefer
Facebook shares. Specific investors like Li Ka-Shing will land $116 million from the deal after investing $30
million via the Horizon Ventures Fund along with
Kleiner Perkins less than two years ago. Microsoft
will pull in $102 million after investing of $25 million in
December 2010.