Bitesize Monday: eToro, Covertix, Iway, Tawkon, Grouper….

Bitesize Monday on VC Cafe- the headlines that make the startup nation what it is today…

Israeli startups funding rounds

eToro has announced an $8.3 million round of investment led by Spark Capital, Social Leverage (who also backed Yaron Samid’s Bill Guard) and other existing investors. The proceeds of this round will be used to expand internationally and continue the development of eToro’s social investment platform. See previous coverage of eToro on VC Cafe. eToro raised about $20 million to date, including this round.

Playcast Media received a $10 million B round led by Jerusalem Venture Partners (JVP) and MK Capital and joined by existing investors Xenia Venture Capital and C.Mer Industries .Playcast develops a games-on-demand system for cable and IPTV operators, converts a standard set-top box into a powerful games console – using technology which eliminates any latency concerns.

Omek Interactive raises second round of undisclosed sum from a group of international private investors, in a motion detection market awakened by PrimeSense and the Kinnect. From the company’s press release: Omek Interactive, the leading provider of software for gesture recognition and full body tracking, today announced the appointments of gaming and technology industry executives Jonathan Epstein as president and Jon Grande as executive vice president, publishing. The company also announced the closing of a series B round of funding from an international group of private investors.

Covertix, an information security firm has raised an undiclosed amount in its second round led by Kima Ventures. Covertix is enjoying the momentum of Wikileaks as organizations become more wary of their data security. Chief Executive Officer Alon Samia said: “Organizations should not have to worry about their confidential documents being publicly disclosed and enterprises should have the business agility to securely share sensitive information internally and externally.” Read more

SohoOS raised $1.75 million from Mangrove Partners. As a result of the round, Michael Jackson, previously COO of Skype (not the singer :-) ), will join the company’s board. SohoOS develops a suite of business tools for SMBs and freelancers, which includes a unified contact system, payment processing and invoicing, social business community, marketing tools and analytics. Since inception a year ago, SohoOs has signed over 23,000 customers. The service is given for free. See video intro below and read more on TC.

Israeli startup acquisitions

A bit old but still very relevant – Questions asked about Groupon’s acquisition of Israel’s Grouper for an estimated $8 to $15 million. What did they pay so much for? Groupon is not planning to user Grouper’s previous list of subscribers – old members of the Grouper had to re-resgister to the system by creating a Groupon account. I’ve posted the question on Quora – and received an interesting answer from Etai Raz, founder of another Groupon clone in Israel named Groupli:

It’s all rumors. The amount is not really confirmed. I’ve heard numbers ranging between $8M and 8M shekels (~$2M).

Why they paid for Grouper instead of just barging in and conquering the market is a good question.
There are plenty of examples showing that in the Israeli market people would actually prefer an international brand over a local one, even if the local one was there first (see MacDonald vs. Burger-Ranch, for instance).
On the other hand, while Israelis tend to immediately adopt international brands (see the lines outside of H&M on opening day), they also tend to eventually stick around only with those businesses that actually deliver on the promise (see MacDonalds, vs. Starbucks or Dunkin Donuts). It would therefore make sense, in the long run, for Groupon to grab a team of people who already know how to run a local coupons business.

Is it worth $2M ? Could they have done it for cheaper if they were to recruit people and open a local branch from scratch? Perhaps…. how much money would they have saved? Who knows… For sake of argument let’s say 50%. Is it worth the risk, when the alternative means starting with a working infrastructure? I don’t think so, especially when Groupon can most certainly afford it…

All in all, good choice on Groupon’s behalf most probably (despite making me envy-green)

Other Israeli Groupon clones include Yemama,Baligam, and Buy2.

Notable Israeli startups

Tawkon debuts its mobile phone radiation app on the Samsun Nexus S. The app provides users with specific absorption rate (SAR) of their device and has proven to be fairly controversial, as it was rejected by Apple several times.  The timing of this launch is fortunate – starting next month, the City of San Francisco’s cell phone right-to-know ordinance (PDF) goes into effect, requiring retailers to disclose Specific Absorption Rate values for cell phones, says TechCrunch.

Watch this space

Israeli start-up Iway Mobile and cellphone provider Cellcom brought to market the first in-car Internet navigation system –  The Comodo.  As Endgadget describes it, “The Comodo looks like an iPhone on a stick, and sports a 4.3-inch touchscreen, rear camera for easy reversing, GPS antenna and a cellular modem for consistent connections. Predictably, there’s also 3D navigation, an MP3 player, and functionality in 30 different languages”. Iway founder and Chief Executive Danny Knafou said the first countries to offer the product would likely be France, Russia and China.

Macro News

Foreign direct investment in Israel – Caught between the need to raise interest rates to cool an overheating domestic economy and the threat that rate hikes will attract more foreign “hot money”, the Bank of Israel—like many of its counterparts in South America and elsewhere—is now trying capital controls.

A new report by PricewaterhouseCoopers LLP (PwC), entitled Medical Technology Innovation Scorecard: The race for global leadership,  says that emerging economies are breathing down Israel’s neck and may have already passed it, but Israel, despite its small size, ranks near the level of the European nations, a reflection of its strong capacity to foster innovation.