Israel's Silicon Wadi web-whizzes take on the world

By Phil Reeves in Jerusalem

By Phil Reeves in Jerusalem

31 October 1999

WHEN IT comes to turf, Israelis are usually good with maps, knowing precisely where to pinpoint the battle lines and disputed occupation zones. But here's a place they are not so sure about.

Some say its inhabitants live on a flat stretch along the Mediterranean coast running north from Tel Aviv to Herzliya. Others say it is a long, thin triangle, which stretches out from these centres up into the soft slopes of Jerusalem.

They are, perhaps, both right. For Silicon Wadi, as it is called, is not so much about geography as an economic phenomenon - namely, the evolution of their high-tech industry to become second only to the Californian valley after which it is named.

The computer industry in Israel is on fire, fuelled by a stream of well-educated young recruits, equipped with expertise from time spent in the Israeli army's intelligence and engineering corps, and aided by a tide of venture capital, drawn in by the whiff of crisp new cyber-dollars. The result is a collection of mouthwatering rags-to-squillions stories. For example: when it was founded in 1991, CommTouch, an e-mail services company, comprised three people operating out of a farmstead north of Tel Aviv; today it is a public company, with 200 employees, and a valuation of $500m (£312m).

Co-founder Nahum Shafman, 52, whose career has taken him from Israel army paratrooper, university lecturer, and programmer to multimillionaire entrepreneur, went on to set up an electronic commerce company, DealTime.com.

Although just 18 months old, it has 100 employees and has attracted $25m in venture capital. Next month it will launch in Europe. "This is only the beginning," says Mr Shafman.

This performance is more than matched by Check Point Software, founded six years ago by three young men who, fresh out of military intelligence, began by getting together in their basement near Tel Aviv for brainstorming sessions. The result was an internet security company, which is in the top 80 of the world's largest software companies.

Then there is Mirabilis, whose instant-message internet chat system was founded by four hippy-ish young men in 1996. Last year - after its ICQ site had become the most visited website (after Yahoo! Netscape and Microsoft), they sold to America Online (AOL) for $400m.

AOL was not sure whether it would make any profits from this acquisition; it did know, though, that ICQ had what the trade calls "eyeballs" - namely, 12 million users.

"Israelis have compensated for the country's small size, hostile surroundings, and intense atmosphere with an incredible propensity for travel," marvelled the Jerusalem Post, at the time. "The borderless anonymity of the internet has been another natural outlet for Israeli wanderlust."

The more fertile the Silicon Wadi has become, the more money it has attracted, generating still more start-ups, still more shekels. "Ten years ago, there was only one venture-capital company in Israel," said Michael Eisenberg, of Israel Seed Partners in Jerusalem. "Getting in to see them was like climbing Mount Rushmore."

But in the last five years, venture capitalists have flocked in, bees to the techno-honeypot. So far this year, they have invested $300m in Israeli high-tech companies. "And we are going up, up, up," said Mr Eisenberg. "We have huge amounts to go."

Some of Israel's aptitude for computers has been put to more exotic use than the mere pursuit of lucre. Earlier this year Nir Zigdon, 14, a schoolboy from Tel Aviv, became an Israeli hero after wiping out an Iraqi site on the internet, claiming it contained "horrible statements about Jews".

He did so by sending the Iraqis an e-mail in which he claimed to be a Palestinian who had produced a virus that could wipe out Israeli websites. This idea so appealed to the Iraqis - so the story goes in Israel - that they were lured into opening an infected electronic attachment which young Nir had sent with his message. This contained a site-gobbling virus.

At the time, his exploits even overshadowed those of another brilliant young Israeli cyber-delinquent - 18-year-old Ehud Tenenbaum, otherwise known as The Analyzer - who sparked a worldwide FBI hunt by hacking a path into the Pentagon, Nasa, and the US Navy's research centre on submarine warfare.