‘Angels’ For Israeli Start-ups

When Warren Buffett plunked down $4 billion for an 80 percent stake in Israeli-based Iscar Metalworking in 2006, his first-ever foreign acquisition sent an unmistakable message that Israel’s industry is a good bet for foreign investors. Today, though Israel’s economy suffers from a growing income gap between rich and poor, foreign investment is up and Israeli high-tech start-ups are on the rise.

Now, for the first time, New York-area investors — many of them Israeli expatriates who have already made millions selling their own companies — are banding together to hunt for the next crop of Israeli start-ups that may one day pass Buffett’s muster.

“It’s a wonderful opportunity to work with the next generation of Israeli start-ups that are going to make it,” said Herb Zlotogorski, managing director at Saddlerock Advisors, who is a member of the newly formed Tevel Angel Club. “We’re growing [Israel’s] economy and creating a sustainable infrastructure with companies that thrive, create jobs and bring value.”

Make no mistake — Zlotogorski and fellow Tevel members are in it for the profits. “It’s not charity, and it shouldn’t be looked at that way,” he says. “There are business opportunities here.”

The Tevel Angel Club is the first New York-based not-for-profit “angel” investing club focused exclusively on Israeli start-ups. While the term “angel” may conjure up a host of images — from the pensive likeness of a Raphael painting to the golden, winged keruvim atop the Holy Ark in the Beit HaMikdash — Tevel’s “angels” are more earthly creatures. They’re wealthy investors who swoop down and provide hundreds of thousands of dollars in capital for small start-up companies. (The name “angel” was originally used to describe the first backers of Broadway shows, who seemed heaven sent at a time when few people were willing to risk their money on a long-shot production.)

Launched last spring by Oren Fuerst and Oren Heiman, Tevel, which means “world” in biblical Hebrew, connects Israeli entrepreneurs with U.S. investors who are more than happy to share their padded pockets and advice from years of experience, in exchange for a stake in the Israeli companies they fund.

“We looked for a name that reflects the global nature and worldwide value of early stage technology coming out of Israel, in life sciences, in telecom, in Internet and new media and in software,” Heiman says. “Also, the domain — Tevel.org — was available.”

Israeli Investment On The Rise

Foreign investment in Israel has increased in recent years. One indicator of that is the recent launch of Israel Opportunity Investor, a newsletter devoted to Israeli stocks trading on U.S. markets. Local and foreign venture capital funding for Israeli high-tech companies was up 8.5 percent in 2007, totaling $1.76 billion. This includes the 78 small Israeli start-ups (known as seed companies) that attracted close to $160 million from angel investors and venture capitalists, up 10 percent from 2006, according to Zeev Holtzman, chairman of the IVC Research Group.

And a Deloitte & Touche international survey indicated that 70 percent of venture capital managers rank Israel as the best opportunity for investment based on high-tech deal flow.

At the same time that investment in Israel is growing, angel investment clubs are popping up all over the world, with about 250 angel clubs in America, and at least 10 based in New York, according to David Rose, founding chairman of New York Angels, a group of wealthy individuals who make early-stage investments. Most angel clubs focus on a specific sector, as opposed to geographical area, he says. “Tevel is unique in that it is focused exclusively on Israel.”

Angel investment clubs in Israel are also on the rise; Holtzman estimates that there are 10 angel clubs currently active in Israel. “The angels are more sophisticated [than in the past]; we call them ‘industrial angels,’” he says.

Tevel In The Making

The two Orens met years ago, in the ‘90s. Fuerst, a former professor at Columbia Business School and Yale University’s School of Management, is the managing director of BioVance Medical LLC, which focuses on life sciences technology, and author of “Startup Companies and Venture Capital” (Tel Aviv University Press, 2001). Heiman, an attorney specializing in commercial law, is the managing partner of Shiboleth, Yisraeli, Roberts & Zisman LLP’s office here.

They claim that the Tevel Angel Club “created itself.” But shared personal tragedies and a strong desire to help Israel played important roles, too. The past two years were difficult for the Orens. Both spent a greater part of every month in Israel, where Fuerst’s mother and Heiman’s fiancé were suffering from cancer, a disease to which they both subsequently succumbed.

To keep himself occupied — “mental therapy,” he calls it — Fuerst met with many Israeli entrepreneurs while caring for his ill mother. At the time, the 2006 Lebanon war broke out, and the two were searching for ways to help Israel in a very real, tangible way. “We wanted to help Israel in a different way, something other than planting another tree,” Fuerst says. They also wanted to create a legacy for their loved ones, if not by name, then in spirit. The best way to do so, they agreed, was to boost the Israeli economy.

So the two prominent Israeli businessmen invited their well-connected friends and business partners to join Tevel, which they launched in spring 2007. They recruited 28 members, who pay between $900 and $1,500 to attend meetings every two months at the Harvard Club. More than 40 Israeli start-ups vie for the opportunity to present their business plan to the club, with the hope of securing much-needed funding and advice. Tevel’s mission: “Do well for yourself while doing good for Israel.”

The Tevel Angel Group has the feel of a men’s club (the lone female member is Shoshana Friedman, a partner at BioVance Medical) — in which the members are predominantly Israeli. A majority of the “angels” have founded and managed several successful technological companies. This past year, AOL acquired Tevel member Yaron Galai’s company, Quigo, Inc., for more than $350 million. Alon Geva sold his company, XMPie, to Xerox for approximately $55 million. And Nimrod Lev sold JCupid.com to Spark Networks PLC, which owns JDate, for around $10 million, and his online karaoke start-up, kSolo.com to Fox Interactive for more than $15 million. Galai, Geva and Lev are far from the exceptions.

Israeli companies seeking funding must first undergo a selective process and have their research-and-development operations based in Israel. A 17-member executive committee reviews their business plans and chooses four companies to present at each meeting. “We provide our members a 20-minute due diligence report that would have taken many hours and thousands of dollars” for individual investors to conduct on their own, Fuerst says.

At last Wednesday’s meeting, two medical device companies and one Web application company presented. Each meeting also features a representative from a nonprofit — in this case from Larger Than Life, an organization that funds trips to Disney World for kids with cancer — who solicits donations.

Although Tevel itself does not provide funding, the angel group connects entrepreneurs with the high-net-worth individuals who may. “Our main goal is to help companies reach financing,” says Heiman.