The flood of rumors over the possible acquisition of Waze Ltd. ebbed a bit this week. A synopsis of the speculation is as follows: Apple Inc. (Nasdaq: AAPL) expressed an interest in acquiring the company, but its CEO was unaware of it, or it never happened; Facebook Inc. (Nasdaq: FB) was in advanced talks to acquire the company, but withdrew its intentions because of Waze management's insistence on keep its development center in Israel; and Google Inc. (Nasdaq: GOOG) has not yet made up its mind. The latest price tag attached to Waze, according to Israeli media reports, is between $500 million and $1 billion.
According to IVC, Waze has raised $67 million to date in three financing rounds from venture capital funds and strategic investors. Two Israeli funds are involved in Waze: Magma Venture Partners and Vertex Venture Capital; all the other investors are foreign. If we take into account the fact (regrettable in itself) that Israeli venture capital funds are also mainly financed by foreign investors, the decisive majority of the money invested in Waze came from foreigner investors. Now, according to the market rumor mill, Waze's management faces a decision whether to give a hefty return on investment to the foreign investors who have given it their trust, or to insist on remaining an Israeli company.
I find it hard to buy this story. More precisely, I struggle to believe that Waze's management, its directors, and investors' representatives can sign a deal to sell the company for hundreds of millions of dollars, and that the only reason they haven’t done so is stubbornness that Waze will continue to develop its products in Israel.
If there was really a genuine offer on the table, there must have been other reasons for the refusal, such as fear that the buyer would harm Waze's ability to continue developing a high-quality and winning product, or the threat that such an acquisition was being made to eliminate the outstanding service that Waze provides its customers, in order to pave the way for another product by a different company. Foreign investors can somehow understand and accept these reasons.
But what will these investors, who could have had a fantastic return on their investment in an innovative and special Israeli company, but lost the profits because it because it was more important to the Israelis to protect the homeboys, say?
As a proud Israeli patriot, I obviously would be happy to see Waze remain in Israel as a big and independent company, which employs thousands of local people and continues to serve millions of customers worldwide. But as a high-tech Israeli, who understands that the people who invested tens of billions of dollars (!) into Israeli high tech since 2000 are almost all foreign investors, I must accept the fact that these investors need to make a return on their investments here.
If they don’t, they will channel their investments elsewhere. And that is not good, not for Israeli high tech or for the Israeli economy, even if this sounds a bit less patriotic than to reject a tempting offer.
The author is a general partner at Canaan Partners, managing its Israeli operations.
Published by Globes [online], Israel business news - www.globes-online.com - on June 5, 2013
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