4. 5. 2017
FORBES: APART FROM CRUDE OIL AND LOTTERIES, KAREL KOMÁREK IS FOCUSING ON SMART TECHNOLOGIES AND STARTUPS TO BUILD A NEW PILLAR OF HIS BUSINESS EMPIRE.
A narrow stairway leads from the sun-heated street to a cool basement that ends in a wide tunnel with an arched ceiling. If Tel Aviv had a subway, this could easily be one of its stations. Here, directly beneath the Sarona central market, the Knights Templar once upon a time had their wine cellars. More recently, the structure was used by agents of Israel’s Mossad secret service. Today, it is the home of the Whiskey Bar & Museum, which offers more than a thousand of bottles and first-class ribeye steaks made from cattle bred on the Golan Heights.
Matanel Shalom raises a glass of single malt, smells it, and delights in a sip. He is wearing a light blue shirt and a yarmulke covers his head. This underground establishment is like his home: he is one of the owners and uses the premises to hold business meetings. His muscular shoulders bear witness to 11 years he spent in the Israeli Army’s Special Forces.
Now, however, Shalom has a completely different job. He manages the Shell Capital investment fund, and operates as the Israeli connection for Czech entrepreneur Karel Komárek and his Springtide Ventures risk capital fund. His intimate knowledge of the local startup scene helps Komárek’s people find high-potential companies for investment purposes.
Startups and technology firms are attracting more and more attention from the fourth most affluent Czech. At present, Komárek’s KKCG Group relies on two strong business segments – oil and gas production and lotteries. In addition, Komárek sees high potential in up-and-coming companies in the IT, biotechnology, and cloud segments, and wants to make new technologies another pillar of his empire.
To date, however, investments made into the above segments amount to slightly over one billion crowns, which is a negligible amount compared to KKCG’s main business. This year, Forbes appraised the value of Komárek’s assets, which include Moravské naftové doly, the travel agencies Fischer and Nev-Dama, and the lottery companies Sazka, OPAP, and Casinos Austria, at 2.2 billion dollars. That places the 48-year native of Hodonín, Czech Republic among the one thousand wealthiest people in the world.
Investments into startups and smart technologies are Komárek’s bet on the future – the one billion crowns already invested is expected to double, as a minimum, during the next three years. The money will be spent both in and outside the Czech Republic. Springtide Ventures is mainly interested in Israel, a country considered the world’s best source of top startups alongside California’s Silicon Valley. Thus, Springtide Ventures boss Marek Jablonský has used his contacts to team up with Shalom, and together, they have launched a partnership that has so far resulted in an investment into Bio-Nexus, while another transaction is just around the corner.
“I like the way Springtide Ventures does business; we have a lot in common. It’s like an open marriage, both sides can learn a lot from one another,” says Shalom before ordering another round of fine whisky. Then he taps fingers on the yarmulke that covers his head and reveals, “I’m a man of faith, and I believe that it’s worth it. I like helping good deeds.”
Jablonský and his associates from Springtide Ventures come to Israel regularly. In April, they visited Tel Aviv and Beersheba to look into new opportunities. They focus on the B2B segment and the technology infrastructure. That includes both Bio-Nexus, whose platform accelerates and streamlines communication in work teams, and Spotinst, another company into which the fund has invested which specializes in providing small users with customized cloud services at an affordable cost. Other firms are expected to follow suit, as Springtide wants to invest to the tune of 40 to 60 million dollars into startups during the next five years. In addition, Komárek has contributed another $13 million into Jazz Venture Partners, an American fund that invests into neuroscience projects.
What might now appear as a small part of a multibillion business operation gets considerable attention from both KKCG and Komárek personally. “I consider investments into startups and modern technologies strategically important. I pay close attention to this segment, among other reasons because it often gives me inspiration for our existing business. It’s a way of accelerating the KKCG Group’s technological development,” explains Komárek. “Generally speaking, I find technologies fascinating, and I like working with them. I believe that they will be of fundamental importance for the future of humankind.” Israelis are masters of technological innovation with regard to both software and hardware. Israeli inventions include USB flash memory sticks, firewall, and the ICQ and Viber chat applications. Likewise, Israel is the home of such successful startups as Waze and MobilEye – the former is a part of Google and the latter has been purchased by Intel for 15 billion dollars earlier this year. The likes of Facebook, Deutsche Telekom, eBay, and IBM have their research centers or business incubators in Tel Aviv.
The numbers speak for themselves: 4% of Israeli GDP goes into research and development, which is clearly reflected in the number of startups in the country – currently, there are about five thousand, and on average, two new ones are set up every day. Last year only, investors contributed 4.8 billion dollars into startup ventures. Data collected by the IVC Research Center indicate that there were 104 Israeli startups worth 10 billion dollars in total in 2016.
Where does Israel’s startup power come from? The sources are several, but they all have a common denominator – the military. Every Israeli citizen must undergo army training at the age of 18 years – women go for two years, men for three. Already at the age of 19 years, Israelis are assigned a team of rookies they are required to lead. “In essence, it’s a small startup of sorts,” laughs Shalom from Shell Capital. “In the army, children turn into real adults. Military service teaches you responsibility and gives you self-confidence.”
The army functions as a breeding ground for the startup scene, and provides Israelis with the qualities needed for succeeding in business: willingness to take risk, ability to work under pressure, resilience, orientation on goals, innovative approach, and resolve to make decisions fast. A Special Forces unit designated as 8200 operates as a cybernetic spy agency that brings together the brightest individuals in the country. Being in possession of technologies more advanced than those other countries have at their disposal, hostile countries in particular, is of key importance for Israel’s ability to survive in its volatile region.
Another company with military origins is Bio-Nexus, into which Springtide has invested five million dollars in exchange for a one-third ownership interest. Its founder Ztiki Fuchs and his team of former army rescue personnel have developed a software platform that relies on smartphones, tablets, and other devices to collect data and to manage teamwork in real time. Bio-Nexus’s clients include armed forces, major airlines, hospitals, and industrial corporations.
“We’ve brought the 21st century to an environment where most tasks are still documented on paper. With our solution, everything is faster, more efficient, and thoroughly documented. Plus, the system reduces room for human error,” explains Ztiki, adding that their digital communication solution supports contactless operation thanks to voice recognition. In addition, smartglasses, which are a part of the system, are able to display necessary information to rescue workers in real time. “Bio-Nexus has a unique product. We have essentially no competitor who would be offering a product comparable to ours,” explains Jablonský and adds that the company’s revenues now cover its expenditures.
Bio-Nexus was one of 28 startups middleman Shalom presented and recommended to Springtide in 2015. The fund’s specialists carried out an in-depth assessment of the firm, and the transaction subsequently launched KKCG’s adventure in Israel. Whenever Shalom mentions investment, he stresses that local startups are mainly the target of American and Chinese money, and that European investors lag behind. That is why he decided to help the Czech fund, along with the fact that he receives commission for brokered investment transactions. “Czech and Israelis have a lot in common. In many areas, including the culture. It would be a pity not to take advantage of it. Plus, these guys,” Shalom points at Jablonský’s mini team, “do a great job.”
What does it mean in reality? Why do young Israeli entrepreneurs take money from an “unknown” Central European billionaire? “The way they work is different than a standard venture capital fund. They operate under a large conglomerate whose business spans from industrial production to technologies. They have expertise, knowledge, and good connections, and they’re able to open the door for us whenever we need it on a certain market. It’s reassuring to have the backing of someone like that,” recounts Ztiki. “It’s not a fund that would focus only on exit from the very beginning. It is, first and foremost, a partner for our further development.”
What he says reflects the fact that KKCG operates in dozens of countries on three continents, and is becoming more and more powerful in the IT sector. It owns data centers, cloud service providers, and stakes in gaming and biotechnology companies. “Thanks to that, we are able to offer truly smart money and convince up-and-coming entrepreneurs that we can assist them. Since they often talk to financial specialists, they appreciate that we understand the technical aspects of their products,” describes Jablonský, adding that it takes some time before the initial barrier is overcome and before the fund wins the trust of its partners. “If things make sense, people don’t care where you’re from.”
This opinion is shared by Eran Grabiner, Head of Operations at Spotinst, a company Springtide has recently bought into.
“There is a lot of investment money around. But we sought someone who would help us in a different way, especially with knowledge as to how to successfully enter new markets. Already now, we have customers we have met thanks to Springtide, and through them, we want to gain a strong foothold in Europe,” says Grabiner in the office of the firm’s CEO who happens to be on a business trip in the U.S.
There is no other quiet place where we could sit down and chat.
Spotinst has its head office in an inconspicuous villa on the busy Rothschild Boulevard in Tel Aviv. The building is occupied by 40 people, and the two-year old startup will soon outgrow its size – as revenues rise by an average 38% per month, so does the number of employees.
Jablonský calls Spotinst’s business as a “game-changer”. Thanks to ingenious algorithms, the startup is able to resell at low prices unused capacity of Amazon, Microsoft, and Google data centers (they are normally used to roughly 60% of their capacity). Spotinst also works as a trading exchange: customers bid to get the least expensive spot in a cloud, and Spotinst also predicts and secures smooth transfer to another facility in the event the primary location is down, which occurs quite frequently because of maintenance or entry of new data. “Our services allow clients to save as much as 70% of the cost of using the Amazon cloud,” calculates Grabiner.
Amirar Schahar founded Spotinst at the age of 26 years (he is now 28), following seven years of military service. He served in an elite unit that was responsible for improving the Iron Dome mobile air defense system, which protects Israeli cities from missile attacks. “An extraordinary founder, an exceptional product, an unbelievably rapid growth. It was a love at first sight for us. This could be a unicorn,” hopes Jablonský. Unicom is a term that refers to a startup with a value in excess of a billion dollars. It is now a half past nine in the evening, but the wind blowing from the Mediterranean Sea is still warm. The quest for another unicorn continues over a dish of scallop and shrimp in the Fortuna del Mar beachside restaurant. Jablonský and his associates Karel Tušek and Tomáš Jiroušek are eating dinner, wrapping up a string of meetings that began at seven o’clock in the morning and took them on crisscross cab rides around Tel Aviv. They are facing two founders of a startup whose name needs to remain confidential for the time being, as nothing is certain until an investment deal is signed.
In shoptalk, the process is called working with leads, and it involves endless streams of e-mails, hours of videoconferences, days spent studying documents, and frequent flights between Prague and Tel Aviv. Only a small percentage of startup assessments result in an investment deal. That’s why it is so important to pamper the most promising projects. After all, here, at Fortuna del Mar, a lot is at stake – this startup, which allows any person to design an IoT product and have it made, has already received 14 million dollars from investors.
Its owners aim high. “Unicorn? That’s the reason why I get out of bed every morning,” tells me one of them. Jablonský grins on opposite side of the table.
It was him who set things in motion in 2012, which later led to the founding of Springtide Ventures. As part of management buyout, he wedged out the 1188 service from Telefonica 02 and teamed up with Michal Tománek, a former fellow student at the London Business School, to bring it under KKCG’s wings. It wasn’t long, however, before smartphones connected to the Internet made the original business concept of 1188 obsolete, and today, the service, renamed as Connectart, rents out the capacity of its call center. Be it as it may, other investments followed in the wake of the Connectart deal, such as NejRemeslnici.cz, Geewa, Cleerio, and Cloud4com, and they were transferred to the Springtide fund.
Incidentally, do you know what the fund’s name stands for?
When the Sun, the Moon, and the Earth all line up, a spring tide occurs, during which the ocean creates enormous waves. “Our goal is to catch the right wave and surf along,” mentions Jablonský. While he and his associates are on the lookout for the right wave, Komárek is the person who decides whether Springtide will go for a ride. For every prospective startup, they bring him a concise presentation on three slides to which he listens attentively, and then shoots questions. If he gets satisfactory answers and all things add up, he gives a go-ahead.
The fund’s goal is to acquire stakes in 12 to 15 firms over the next seven years and, ultimately, to earn five-fold of the invested sum. “Choosing the right startup is difficult. And a matter of luck too. The degree of risk is higher, but, naturally, the potential profits are higher as well,” says Michal Tománek, KKCG’s Investment Director who is responsible for this segment. “Investing into startups will never be the bulk of the group’s business, but there is the potential of using these investments in our own projects. Today, technologies are essential in every field.”
Potential synergy might exist, for example, in Sazka, which needs a large number of back-end technologies that are not visible on the outside as well as solutions with a direct effect on gamers. Lotteries are entering the digital world – starting this year, a Sportka ticket can be purchased using a mobile phone, and Lucky Numbers can be caught in the virtual reality of Café Happiness opened by Sazka in the Flora Shopping Mall in Prague. Sitting there, in the café, and sipping a demitasse, which came with a scratch ticket as all cups of coffee do, Tománek explains that the quest for the right ideas must focus on places where action happens. “The Czech Republic is fine, but you have to be where the best ideas see the light of the world,” Tománek says. In KKCG’s case, it translates into three locations – Israel, California, and Taiwan.
Last year in January, Tománek and Komárek boarded a Gulfstream G550 jet and set out for San Francisco.
“We wanted to get the feel of the place and to start creating a network of people. In a nutshell, we wanted to see how things work over there,” describes Tománek the trip to Silicon Valley, where they visited Google X (they saw Makáni airborne electricity generating units in action), Salesforce, Lending Club, and the UCSF neurotechnology lab.
The lab’s manager Adam Gazzaley also happens to be a partner in Jazz Venture Partners, a fund specializing in bringing together IT and neuroscience, and the meeting intrigued Komárek to such an extent that he decided to invest 300 million crowns into the fund and to become its minority shareholder.
Jazz’s firepower amounts to the equivalent of 2.5 billion crowns, and people who invested into the fund include the likes of Jack Ma, the founder of the Alibaba online giant, and former Citigroup boss Sandy Weill. The fund was established two years ago, and it oversees seven companies that share one common denominator – technologies capable of improving man’s efficiency in learning, entertainment, sports, and healthcare.
For example, Level Ex allows surgeons to practice operations thanks to a virtual reality headset, and Pear Therapeutics use a combination of virtual reality and pharmaceuticals to treat a disorder known as ADHD – the startup is the first company that has been awarded a permit from the U.S. Food and Drug Administration. Another product seen as to have a high potential is a special headset made by Halo Neuroscience, which uses low-intensity transcranial electrical stimulation of the nervous system to improve the transmission of impulses between the brain and muscles. “Scientists have discovered that this method is able to improve movement coordination by as much as 20%,” claims Tománek, adding that the headset is used by the U.S. Marines and ski jumpers.
“Apart from the new mentality these investments bring to the KKCG Group, I’m interested in the global reach of new segments because business today is no longer limited to countries or continents; the winners are those who are able to offer solutions for the global market,” says Komárek.
In this regard, he draws inspiration from golf buddy and fellow billionaire Terry Gou. “I like his vision regarding all the things that technologies have the power to change,” says Komárek about the founder of the Taiwanese giant Foxconn. KKCG has teamed up with this largest maker of electronics in the world, which runs a production and development center in the Czech Republic, to carry out two projects. The two partners built the SafeDX data center near Sazka’s head office in Prague last year, and in February, they jointly launched the ETIP investment fund, which – unlike Springtide and Jazz – will focus on firms at a more advanced developmental stage. In other words, companies with a proven business model specializing in cybersecurity, the Internet of things, and data centers.
“KKCG possesses the investment know-how and is well familiar with the Czech and Europe-wide IT market. Combining our experience with our partner’s size, research and development abilities, and production facilities in Europe and Asia will bring interesting results,” believes ICT Director Martin Chládek who is responsible for the partnership with Foxconn and the data center segment as a whole. According to him, the fund has investment deals worth to the tune of tens to hundreds of millions of euros ready to be launched in the initial stage of its operation.
To make sure that the list of Komárek’s group’s startup and technology activities is complete, it is necessary to mention the DataSpring data center, which has been built near Hodonín, Czech Republic. In part financed by EU subsidies, the facility is now connected to the Microsoft global network. In addition, there are the biotechnology firms SmartBrain and Medicem – the former is developing a revolutionary drug for breast cancer treatment, and the latter follows the legacy of Czech contact lens inventor Otto Wichterle by producing modern intraocular lenses that are implanted directly into the eye.
One of the reasons behind Komárek’s close relationship with startups is his family. Two years ago, his son Karel, who is currently pursuing university studies in the United States, founded BranchTop, a startup operating what is essentially a new social network that brings together personal and professional life. The network operates on the principle of not selling user-related data to advertisers.
Komárek senior is proud that his son has independently (without dad’s knowledge) launched its own project, but he stresses that he’ll have to make do without his money. “I wish him success, but he’ll have to find financing for his projects on his own.”