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The Israeli Connection

Gary LaFever Got the Fever for Innovative Israeli Ideas...
He's Not the Only One.

Northern Virginia native Gary LaFever flew to Israel in mid-January intrigued but not overwhelmingly excited. A bunch of computer engineers had offered him a job as CEO of yet another tech startup. The Wall Street investors backing the company, Citigroup Investments and ING Barings, were impressive, but its main product - a technology that alerts email users to incoming messages when a computer is offline - didn't exactly scream success. Furthermore, the name of the company seemed like a total dud: NetGong. For the 40-year-old LaFever, a lifelong resident of the United States, the name conjured up images of a bad game show from the pre-Internet era.

Fortunately for the new company, LaFever had a flash of revelation, a defining moment in which the smart Israeli engineers and the savvy American salesman from Northern Virginia finally connected.

A 10-year veteran of the white-shoe Washington law firm Hogan & Hartson, LaFever sat in the conference room of the company, located on in a five-story office building in Haifa, Israel's main port and third-largest city. It was also a Sunday, the furious beginning of the workweek in the Jewish state, which takes Fridays and Saturdays off for the Sabbath. And it was swelteringly hot and sunny outside, but well air-conditioned inside. So LaFever watched intently as an Israeli engineer performed a PowerPoint presentation about NetGong's technology.

The engineer, Kobi Grudka, unaware that he was briefing a CEO candidate, repeatedly left the room to ask his supervisors whether he could answer LaFever's many questions about NetGong's proprietary technology. "I looked at it with some horror," recalls LaFever, who served as Chief Operating Officer at the Virginia-based womenCONNECT.com, a website for women in business. "As a user it was very confusing, unless you were an engineer."

Grudka clicked past a slide that duplicated a screen shot of the software. It had a button buried in the corner that read, "Launch Application." LaFever told him to go back. "What does that mean?" the American asked. Grudka explained that NetGong's product could alert a user to an incoming email, open an Internet connection, and fire up the user's email application, all in one fell swoop.

The concept, LaFever realized immediately, would remedy a basic shortcoming of the Internet. To know whether an email is waiting to be read, a user must be online and inside an email program. The Internet, in short, is like a telephone that does not ring, but relies on the user to pick up the receiver every so often to check if someone happens to be calling.

LaFever then had his eureka moment. "So you're saying that you can grab a device that is offline, bring it online and open an application?" he asked incredulously. Grudka was nonplussed. "But of course," he replied.

That's when the idea for the company - but not the name - was born. "Gong" is the technical term for the ringer in a telephone, so NetGong, (for an engineer anyway), evoked a similar concept for the Internet: it told users to get online and gave them the tools to accomplish the task. But the Israeli's esoteric presentation had obscured the technology's potential for use in cell phones, personal organizers and all the other devices that are becoming the nodes of an increasingly networked society. "When an engineer explains technology to someone, it is very different than if a salesman explains it," concedes a sheepish Gideon Lefeber, himself an engineer and the co-founding chairman of the company.

So LaFever, who was by then mesmerized by the technology, set to work that evening in his hotel room overlooking Haifa harbor to find the right name for the company. Surfing the Web on his laptop, LaFever, not yet a company employee, hopped onto the website for the Herndon-based domain registrar Network Solutions, and used his own American Express card to reserve dozens of names for the firm.

Well into the night, he hit on the perfect name for the Chantilly, VA-based company he was to join as president and CEO in February. It was a moniker that summed up the virtues of the engineers' technology in a way that "NetGong" didn't: Internet2Anywhere, or In2a. LaFever remains obsessed with his company's new name. The Internet address appears not only on his business card, but also on the license plate of his gray Volkswagen Passat: IN2A.

LaFever's experience illustrates the central reason why the technology industries of Israel and Greater Washington are finding common ground like never before: Israel has an abundance of engineering talent developing new and exciting ideas in telecommunications and the Internet. And the Americans - especially those in Northern Virginia - have the sales and marketing chutzpah to bring the Israelis' products to the world.

"The growth in business between this area and Israel has been modest so far, but it is getting ready to explode," said Emanuel "Manny" Friedman, the chairman of the Arlington, VA-based financial services firm Friedman Billings Ramsey. "We are probably adding one Israeli company per week, and it's like the law of additional returns: Success feeds itself."

The "modest" growth to which Friedman refers isn't so modest at all: There are roughly 50 Israeli companies with some significant presence in the region. And recently, three acquisitions made Northern Virginia especially attractive in the Israeli business community - a community that had previously thought primarily of Silicon Valley and New York when it thought of American technology centers.

In 1998, America Online purchased Mirabilis, the Israeli inventor of the "ICQ" instant messaging software, for $407 million. The sale made folk heroes out of Yossi Vardi and his two sons, who wrote the software and whose company, in true Internet start-up fashion, never racked up more than $30,000 in revenue. "This acquisition created a Mirabilis effect in Israel," says Vardi, who is now widely regarded as Israel's very own Steve Case (and AOL's eyes and ears in the Middle East). "It put Northern Virginia on the map, and opened the eyes of Israeli youth to Internet-related technologies."

Israel's Gilat Satellite Networks, a manufacturer of satellite communications equipment, had an answer for AOL's shopping spree in Israel. In 1999, it snapped up McLean, VA-based Spacenet, a satellite service provider, for $238 million from none other than U.S. industrial behemoth General Electric, which in turn took a sizable stake in Gilat.

But the biggest U.S.-Israeli deal came in May, when Lucent Technologies grabbed Chromatis Networks, a manufacturer of fiber optic networking equipment, for $4.8 billion, far and away the largest acquisition in Israeli history. Chromatis, though based in Herndon, had a research facility in Israel.

Silicon Valley might still capture the public's imagination as the epicenter of the digital universe, but the links between the Washington area and Israel are expanding as Israeli interest in other regions of the United States rises for reasons that have to do with technology, geography, history and, well, connections. "What's really driving this trend are the wireless and broadband Internet industries in the Washington area," says Stuart Anolik, a senior manager at Deloitte & Touche in Tysons Corner, VA. "In this area, we are looking for engineering talent. And Israel has a massive research and development capacity."

Israel's advantage, as Internet2Anywhere demonstrates, is in engineering. The Israeli military not only defends the tiny nation but also - along with several top-flight universities - trains engineers. A lot of them.

The best known of the engineering battalions is Mamram, a part of the Israeli Air Force, but there are also other top-secret groups associated with military intelligence. And beginning in the early 1990s, well-educated immigrants from the former Soviet Union also boosted the engineering capacity of Israel.

In both hardware and software, these engineers have made Israel a world leader in areas like data security, commercial data management software, infrastructure equipment for high-speed Internet connections and biotechnology. Israelis speak enthusiastically of the "Silicon Wadi," using the Arabic word for "valley." It's a self-branding sentiment that residents of the Washington area's "Digital Capital" surely can understand.

Still, why Greater Washington? For one thing, the region is three time zones closer to Israel than is Silicon Valley, making trans-Atlantic travel much easier. And the culture of Israel's technology industry, with the strong government influence that has spilled into the private sector, is a familiar story to Greater Washingtonians.

"When we look at Israel, we are reminded of Northern Virginia only ten years ago," says George Abraham, chairman of the U.S.-Israel Business Exchange, a year-old Washington-based association for businesses from both countries. The pattern that has emerged over the last few years has been for Israeli companies to leave their R&D in Israel, but set up major operations, or even their headquarters, in the United States, which they view as their single most important market. Already, there are more Israeli companies - roughly 100 - that have tapped the Nasdaq for capital than from any other non-U.S. country except Canada.

But the Israelis also need local know-how - people like Gary LaFever - to bring their products to market. "Israel has great technology, but the companies are not as savvy as the Americans in sales and marketing," says Harry Glazer, a lawyer with Greenberg Traurig in Tysons Corner who has worked on U.S.-Israeli deals.

Israel has also taken to seed-stage venture capital investing - still overwhelmingly an American institution - with a gusto that outshines bigger and richer countries like Germany or Japan. The nation's focus on Internet and telecommunications technologies makes the recipe for cooperation with Northern Virginians a no-brainer: mine the American experience in growing small companies into big ones.

In August, Friedman Billings Ramsey announced a deal with an Israeli industrial giant and a prominent venture capital fund for a new business that will meld the Israelis' local intelligence with the Americans' experience in growing small companies. And AOL Investments, the Internet giant's venture capital arm, has recently invested in several Israeli funds and backed a number of companies directly. Overall, industry insiders expect new Israeli companies to soak up over $2 billion in venture capital this year.

"It is a culture that realizes that you really have to invest in the future," said Philip Garfinkle, president of Yazam, a firm with offices in Reston that helps startups hit their stride faster than they would working alone. "And the Israelis know the value of elbow grease." Yazam - named for the Hebrew word for entrepreneur - demonstrates how tight the connections between this area and Israel have become. Garfinkle is a veteran of Greater Washington, having founded PictureVision, a Herndon, VA-based firm that relied on Israeli engineering to develop a way to share photos over the Internet. PictureVision has since been bought by Eastman Kodak. Yazam, though officially headquartered in New York, is headed by a founder of Jerusalem Global Ventures, an Israeli technology finance group. The company even won financial backing from The Carlyle Group, Washington's own well-connected private bank chaired by former Secretary of Defense Frank Carlucci.

In an effort to speed up the growth, business leaders from this area and Israel are building a dense web of associations to network companies in Israel and the Washington area. In addition to the Maryland-Israel Development Center, there is the Virginia-Israel Advisory Board and the fast-growing U.S.-Israel Business Exchange. Once part of the Israeli embassy, US-IBEX became a freestanding organization at the beginning of this month, and hopes to facilitate market entry in both directions.

"This region still hasn't fully penetrated the consciousness of Israeli companies," said Daniel Epstein, the group's executive director. "We are at the beginning."

But the new alliance has some harsh critics in Israel, who fear that the country will end up with a hollowed-out industry that sees Americans and Europeans reap the rewards - and create the jobs - that come from applying Israeli ideas in the wider world.

"If Israel provides most of the value-added, but the companies all go to Europe and the United States, then we will have failed as a nation," frets Avishay Braverman, president of Israel's Ben-Gurion University of the Negev.

But for now, precisely that formula is broadening the Washington-Israel business links at a blistering pace. No serious player in international business believes that globalization is a zero-sum game. "It's not a competition we're in," says Deloitte & Touche's Anolik. "It's a mutually beneficial relationship."

People close to the deals believe that Israel will profit tremendously from its relationship with this area as Israelis gain valuable experience understanding how their technical knowledge plays in the global market. Northern Virginia, they hope, will tap Israeli expertise as it helps to create a new economy that spins with dizzying speed on an axis stretching from the shores of the Mediterranean to the banks of the Potomac.