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Israeli autotech industry has shifted into drive

By Josh Mitnick, VCJ correspondent

Israel’s experience making automobiles hasn’t been wildly successful, to put it politely.

Autocars, its first car manufacturer, folded in 1971 after 13 years and managed to sell only several thousand sedans. In 2013, Better Place, a startup that raised $700 million to sell cars made by Renault that ran on switchable batteries, ended up in bankruptcy.

But just a few years after the demise of Better Place, the engine of Israel’s automotive tech venture ecosystem is humming. In the first half of 2019, $426 million was raised by autotech startups developing autonomous vehicle testing systems, mobile cybersecurity and car radar lasers, according to Start Up Nation Central, which tracks venture investment in Israel technology. That figure puts Israeli auto tech startups on track to surpass the record of $527 million set in 2017.

So how exactly did Israel go from an automotive backwater to a hot spot for mobility investments? The answer, said Yaniv Golan, a general partner at Israeli venture firm Lool Ventures, involves an acceleration of innovation among the worldwide transportation industry.

Growing anticipation of a shift to autonomous and connected cars powered by alternative energy has prompted the automakers to look for solutions in Israel. More broadly, Israeli tech entrepreneurs are also working on solutions to improve mobility within cities, such as “micro” transportation of two miles or less.

And over the last few years, the industry has transformed from focusing on the mechanics to realizing that it’s becoming more of a software platform in a sense.

“A car is becoming more and more laden with software and technology,’’ Golan said. “And that’s where Israel shines. That’s where our tech industry is able to have an impact, when things are based on software, algorithmic innovation and scientific innovation, and not just from the ability to create scalable manufacturing processes.”

In the last six years, two notable acquisitions of Israeli technology companies caught the attention of automobile companies and investors. In 2013 Google bought car navigation app Waze for about $1 billion. And two years ago, Intel acquired Mobileye, a maker of computer vision technology used for autonomous driving, for $15 billion.

Today the country boasts some 600 startups in autotech and smart mobility, according to EcoMotion, a nonprofit backed by the Israeli government’s Innovation Authority. And more than 20 international automakers have an office or an investment representative in Israel.

And despite the high-profile collapse of Better Place, the failed startup nonetheless inspired other Israeli entrepreneurs to focus on autotech. It also helped seed Israel’s mobility companies with experienced executives. “Many people say that Better Place was an ignition for the mobility startup cascade in Israel that quickly followed its demise,” said Michael Granoff, a former investor in Better Place. “On an average day, I probably interact, both personally and professionally, with a half-dozen former Better Place colleagues still tilling in the fields of mobility.”

Granoff is the founder and managing partner at Israeli based venture investor, Maniv Mobility, which recently announced the closing of its second fund in three years.

Granoff

In July, Maniv announced that it had finished its second fund of $100 million, with such investors as BMW, Hyundai, and Lear Corp. Granoff described raising the first fund as an “organic” process, with the initial backing coming from individuals and family offices. In 2017 Maniv raised just $40 million. “With fund two, right from the beginning, there was a tremendous outpouring of interest from strategic investors,’’ he said.

Maniv, which has the largest number of autotech companies in its portfolio among Israeli venture firms, has invested in such companies as Ottonomo, which developed a cloud platform for data from autonomous vehicles, and Cognata, which developed an AI-system for simulating conditions for self-driving cars in different cities. “There’s a pretty wide breadth of mobility startups that are very relevant to the global industry,’’ Granoff said, “and we’re seeing investment interest from that community.”

Another deal in recent years that has gained the attention of the automotive industry was the 2017 acquisition of Argus Cyber Security by German auto manufacturer Continental AG. Argus, a maker of cyber security for automobiles founded in 2014, was purchased for a reported $450 million.

It was an Israeli autotech company, Innoviz, that completed one of the larger venture rounds of any local start up this year. Innoviz specializes in radar sensors that measure the distance to target objects. Known as “lidar,” the technology is a vital component for some autonomous vehicles. In March, Innoviz said it raised $132 million in a series C round led by China Merchants Capital. By June the company had raised an additional $38 million.

The startup was founded in 2016 by a group of army veterans who focused on electro-optics, signal processing and computer vision while in the Israeli military.

“The founders understood that lidar market suffers from very costly sensors, and that we can introduce to the market a new technology that would be maybe one-tenth of the cost of the current solution,’’ said Yakir Machluf, the mobility lead at OurCrowd, an Israeli venture firm that has invested in Innoviz. “So they went for it, and the industry reacted very positively.”

Machluf

After recognizing the shift in the auto industry to invest in new technologies, Israeli technology whizzes with experience in AI, data analytics and cybersecurity decided to put their expertise to work solving the future challenges of mobility, Machluf said. “If you take the number of startups and the number of R&D centers, you get that the entire industry is here in Israel and is having their problems catered to by Israeli solutions,’’ Machluf said. “So many OEMs have opened a front in Israel, that if you throw a rock, you hit one.”

Machluf said OurCrowd is interested in startups with solutions for traffic management or control centers in cities that help autonomous vehicles complete short-distance or “micro” trips.

Still, the autotech industry in Israel is young and most of the big manufacturers have their own in house R&D operations. What’s more, Israeli companies aren’t about to enter manufacturing: The next Tesla will not come from Israel.

Target Global, a Berlin-based venture firm with an office in Israel, is raising a fund in the hundreds of millions of dollars to focus on mobility, logistics and transportation. The firm has invested in Israel’s Cybellum, which develops equipment for manufacturers to test the security resilience of digital components.

Ben Kaminski, a partner at Target Global, says that while an automotive universe that is completely autonomous is still at least 10 years off, the digital transformation of transportation and the automobile industry is already well underway. Target Global is interested in startups focused on shared mobility, “last-mile” logistics and re-imagining vehicles to better suit transportation needs, which he calls the “unbundling of the car.”

He expects Israeli companies that make consumer facing apps to eventually seek IPOs once they prove their business model, but startups with “deep tech” innovation are likely to be snapped up in the immediate term, even before even generating significant revenue.

“I’m convinced we are going to see [M&A] exits,’’ Kaminski said, “because a lot of the deep tech that is being developed in Israel is mission critical.’’