Start-up Nation

“If there is an Internet bubble in Israel, then Yossi Vardi is the bubble.”⁴ So says Google cofounder Sergey Brin, referring to Vardi’s role in helping to rebuild Israel’s Internet sector from the ashes of the global technology market crash of 2000. Vardi’s name has become synonymous with the world of Israeli Internet start-ups. He is best known for ICQ, the Internet chat program founded by his son Arik Vardi and three pals when they were in their early twenties. Isaac Applbaum of The Westly Group says that ICQ—once the world’s most popular chat program—was one of a handful of companies that “transformed technology forever,” along with Netscape, Google, Apple, Microsoft, and Intel.

ICQ (a play on “I seek you”) was introduced in November 1996, with seed funding from Vardi. It was the first program to allow Windows users to communicate with one another live. America Online (AOL) invented its own chat program, called Instant Messenger (AIM), at about the same time, but at first AOL’s program was available only to its subscribers.

The Israeli program spread much faster than AOL’s. By June 1997, close to half a year after ICQ’s launch—when only 22 percent of American homes had Internet access—ICQ had over a million users. In six months the number of users had jumped to 5 million, and ten months later to 20 million. By the end of 1999, ICQ had a total of 50 million registered users, making it the largest international online service. ICQ became the most downloaded program in the history of CNET.com, with 230 million downloads.

Back in mid-1998, when ICQ hit about 12 million users, AOL bought the start-up for what at the time was the largest amount paid for an Israeli tech company: $407 million. (They wisely insisted on taking all cash instead of stock.)

Though Israel was already well into its high-tech swing by then, the ICQ sale was a national phenomenon. It inspired many more Israelis to become entrepreneurs. The founders, after all, were a group of young hippies. Exhibiting the common Israeli response to all forms of success, many figured, If these guys did it, I can do it better. Further, the sale was a source of national pride, like winning a gold medal in the world’s technology Olympics. One local headline declared that Israel had become an Internet “superpower.”⁵

Vardi invests in Internet start-ups because he believes in them. But his dogged focus on the Internet when almost everyone else was in either classic “Israeli” sectors, such as communications and security, or hot new areas, like cleantech and biotech, is not attributable just to profit calculation. For one, Israel is his cluster, and he is conscious of his status as an “insider” in this community—a community that he wants to succeed. And with that commitment, he is also conscious of his role in sustaining this sector through a dry spell. Investing with a personal as well as a national purpose has been called “profitable patriotism,” and has been getting renewed attention of late.

More than a century ago, prominent banker J. P. Morgan almost single-handedly stabilized the U.S. economy during the Panic of 1907. At a time when there was no Federal Reserve, “Morgan was not only committing some of his own money but also organizing the entire financial community to join in the rescue,” said Ron Chernow, a business historian and biographer.⁶

When the crisis of 2008 hit, Warren Buffett seemed to play a similar role, pumping $8 billion into Goldman Sachs and General Electric over just two weeks. As the panic deepened, Buffett knew that his decision to make massive investments might signal to the market that he, America’s most respected investor, was not waiting for shares to plunge further and believed that the economy was not going to collapse.

Vardi’s interventions are not on nearly as large a scale, of course, but even so, he has had an impact on the mix of Israeli start-ups by playing a leadership role in keeping the Internet segment of the pie afloat. His mere presence and steadfastness in a sector that everyone was writing off helped turn it around.

At the 2008 TechCrunch, an influential conference that singled out the fifty-one most promising start-ups in the world, seven of them were Israeli, and many of those had raised capital from Yossi Vardi. TechCrunch founder Michael Arrington is a strong supporter of Vardi’s: “You [Israel] should build a statue of Yossi Vardi in Tel Aviv,” he says.⁷