Israel's auto-tech startups move up a gear

Argus Photo: PR

In the wake of the Mobileye exit, "Globes" reviews the candidates for the next major auto-tech acquisition.

Attitudes of investors to Israel's auto-tech industry can be divided into two eras - before Intel's $15.3 billion acquisition of driverless car systems developer Mobileye (NYSE: MBLY), and after. Long before Mobileye's exit, Israeli auto-tech companies were on the radar of global investors. Scouts seeking technologies in this sector have been here for nearly four years. Their search became more intensive after Mobileye's IPO on Wall Street and Google's $1 billion acquisition of traffic navigation app Waze, as well as the rapid penetration of Gett (formerly GetTaxi) and its rivals into the world taxi market.

Automakers sought, and still seek, "practical" technologies in Israel and components to install in their future vehicles to obtain a competitive advantage as soon as possible in the smart car era. Some of them, for example, General Motors have opened large and fully operational R&D centers here while others have made do with representative offices.

Major OEM and parts-suppliers for the car industry have also come here looking for exactly the same technologies in order to maintain their status in the global industry. They have been followed here by the chip and electronic companies looking for data transfer technologies, many of them veteran investors in Israel. Last but not least there are the venture capital funds.

The big investors are coming

To date, most of the major global investors have sufficed with a cautious review from afar of the Israeli auto-tech scene, and quiet behind the scenes feelers. Some of the big US investment houses still bear the scars from the collapse of failed electric car venture Better Place, which burned through more than a billion dollars of venture capital. That episode has made them suspicious about what is going on here.

But Mobileye's $15 billion exit, which yielded returns of hundreds of millions for investment of millions, has been a game changer for the world's big investors. Initial responses to the exit from key players indicate that the process has already begun. Heavy duty "task forces" are already being sent here by US, European and Japanese investors and investment banks with indirect connections to the car industry. That's not to mention the huge wave of Chinese investors from the car and electronics industries expected to arrive with enormous budgets from the Chinese government, which is investing in smart cars.

Whether supply will meet demand is the big question. There are an estimated 80 Israeli companies offering the "next big thing" in the smart car industry, not including a range of apps that could be relevant to the vehicle industry. Sectors that could provide the next Israeli exit worth hundreds of millions of dollar include cyber security for vehicles and advanced sensors for smart cars.

Cyber security for vehicles

This is a sector very urgently required by car makers and related industries such as electronic for vehicles, mapping companies, vehicle sharing and more, and security for the communications channels that are swiftly proliferating, particularly for driverless cars.

Over the past two years, we have already seen two exits. Harman International (itself recently acquired by Samsung) acquired Israeli car cyber security company TowerSec and iGo navigation software developer NNG acquired Arilou.

There are another seven Israeli companies in this sector and of these the major candidate for a big exit is Argus Cyber Security, which provides comprehensive cyber security solutions for critical automotive systems, like braking, steering and communications, which are integrated into the production lines of various vehicles. If the magic touch of some of Argus's investors like Zohar Zisapel and Gil Agmon is anything to go by, then the come is likely to attract a big spending buyer. The way Argus is building itself on global markets is also likely to impress an investor with hundreds of millions of dollars to spend. The company has close business and R&D contacts with most of the major players in the car industry and has some very senior former US and European car manufacturing company executives in key managerial positions. Argus has collaborations with the largest OEM parts suppliers such as Continental and Magna International as well as the main chip manufacturers for the car industry including Intel, Qualcomm, NXP, Infineon and others. One of its main customers is Daimler, which really spoke about its close cooperation with Argus.

Argus was also recently ranked in the prestigious Fast 100 listings as one of the most promising technologies of the year. All this indicates that any exit, if and when it comes, will be very significant. Argus has already turned down many concrete acquisitions offers but as Mobileye demonstrates, every company has its price.

Another company in this sector worth watching is Karamba Security, which is being supported and promoted by Yoav Leitersdorf's YL Ventures. Karamba has already developed many contacts with the Japanese and German car manufacturing industries and recently unveiled its systems at the CES exhibition where it featured in international headlines.

Remote sensors and visual machines

This is one of the most crowded sectors in Israel's auto-tech industry. The sector has sprouted from the huge data developed by the defense industry in such areas as radar, sensors, and algorithms able to interpret visual information in real time. This is of course the arena in which Mobileye emerged. It is a sector in which every Israel startup has to compete with large domestic rivals that have already succeeded in establishing extensive contacts with carmakers worldwide. They must also effectively block the entry of other technologies from Silicon Valley, Europe and Japan, and independent projects by vehicle manufacturers. All of them offer safety sensors based on lasers, cameras, radar, microwaves or combinations of all of them.

Among the Israeli companies that can be singled out in this sector are: Innoviz, in which the Zisapel-Agmon duo have also invested, which is developing a sensor based on lidar lasers; Brightway Vision, which provides an integrated lidar and camera solution; and Oryx, which recently came out of stealth by closing a $17 million financing round and has stirred up major interest in the car industry with its unique nano-antenna solution, which could become a cheaper and more effective solution than laser-based sensors.

Another Israeli company with a lidar-based solution is VayaVision and there is also of course Foresight Autonomous Holdings Ltd. (TASE: FRST), which has developed a very high resolution 3D visual system that has been warmly received by domestic car importers. Foresight is also one of the few companies that has taken practical steps in preparing for a Nasdaq IPO.

In addition there are Israeli companies operating in "niches within niches" such as sensors to detect driver error or fatigue. This is all just a small selection of the many promising Israeli auto-tech companies that could soon be in the headlines due to a major acquisition.

Published by Globes [online], Israel business news - www.globes-online.com - on March 15, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Argus Photo: PR
Argus Photo: PR
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