22nd December 2019

On December 16, Intel announced that it had agreed to acquire Habana Labs, a 3-year-old Israeli start up, for $2bn in cash.

This deal is not “just another exit by an Israeli start-up”. It has numerous, far-reaching implications at the national and international level, as well as illustrating several key trends in the Israeli technology sector.

This note briefly reviews the key facts relating to the companies and summarises the aspects of the deal that make it so important.



1. Who and what?

a. Intel Corp, based in California, is the largest and most important multi-national investor in Israel – an estimated $35bn since 1974.
b. Its Israeli R&D centers have developed most of the company’s key chips in recent decades and its Israeli manufacturing plants export billions of dollars-worth of electronics goods annually.
c. Intel’s Israel workforce currently numbers some 12,000 personnel.
d. In 2017, Intel bought Mobileye, an Israeli start-up producing software for autonomous vehicles. The price paid — $15.3bn — made this by far the largest-ever foreign acquisition of an Israeli company.

a. Habana Labs was founded in 2016 by David Dahan and Ran Halutz.
b. These two approached Avigdor Wilensky, a serial entrepreneur with a long record of major successes, to act as an ‘angel’ investor – providing funding and guidance. Wilensky invested, became chairman and ultimately negotiated the deal with Intel.
c. Habana develops and sells processors and chips in the AI (artificial intelligence) field. Its first product has been sold globally since 2018 and its second was launched this year.
d. Habana has some 150 employees, spread between its headquarters in Caesarea, Israel, additional development centers in California and Poland and a sales office in China.
e. Habana has raised $120mn to date. The latest funding round, in November 2018, raised $75m and was led by Intel Capital, the company’s investment arm.

2. How much?:

a. Intel agreed to pay $2bn in cash – making this the largest all-cash deal ever in Israel. Investors, including those in the last funding round, will make exceptionally large profits.
b. About half of the total sum will be shared by the founders, including Wilensky and his private investor group, as well as employees.
c. Some 35% will go to VC funds – 15% to Bessemer Venture Partners, 10% to WRV fund and 10% to Intel Capital.
d. Another 15% of Habana’s equity is held by corporate investors (including Samsung and Cisco), funds (Battery Ventures) and private investors.

3. Why?

a. Intel’s motives
Intel has recently made a series of acquisitions in the AI sector, in an effort to catch up with industry-leader Invidia and ensure it becomes a leading player in the rapidly-growing AI market, which it estimates at $25bn by 2024.
Earlier this year, Invidia beat Intel in a race to buy Mellanox, an Israeli developer of AI chips, paying $6.9bn in one of the largest-ever deals in Israel. Intel apparently decided that it could not afford to lose more opportunities to buy young companies with proven products that exactly met its needs.
b. Habana’s motives
Willensky is known for his dislike of large corporations – but that has not stopped him selling a series of start-ups to Broadcom, Amazon and now Intel, over the past 20 years. Habana is now catapulted into the major league, where it will benefit from Intel’s technological, financial and managerial resources – but will retain its own identity and its Israeli location and management (although Willensky will leave after a period as ‘special adviser’ to Habana and Intel).


1. Intel-Israel
Intel is the embodiment of the old joke about the difference between ‘involvement’ and ‘commitment’. Intel’s investments in Israel, via both research centers and manufacturing facilities, are unparalleled in scale and impact – on both sides. It is impossible to imagine Israeli high-tech without the cumulative input from Intel over several decades – and similarly impossible to envisage Intel without its Israeli input. The acquisitions of Mobileye and now Habana serve to broaden, deepen and extend this relationship far into the future.

2. AI in Israel
Intel-Habana, following Invidia-Mellanox, and seen in the context of 400+ Israeli start-ups in the field of AI, make Israel a central battleground in the development of AI – which is expected to be one of the key technologies of the 2020s. These deals stretch from corporate news to global geo-politics, because…

3. Israel in the context of China-US technology rivalry
…AI is one of the main areas of US-China technological rivalry. With Invidia and Intel putting Israel in the vanguard of their AI development, Israel’s position in this rivalry – on the side of the US — is implicitly resolved, without the need for overt governmental intervention. The fiercer the rivalry gets, the narrower Israel’s commercial and technological options will become.

4. Start-up strategies
Willensky has rejected the school of thought that believes Israel needs to retain control of its promising start-ups and grow them into Israeli-owned multi-nationals — rather than selling them in their infancy. His record – and those of the companies he has sold over the years – demonstrate the potential of the ‘serial entrepeneur’ approach. It also proves that selling a company while growing its operations in Israel – effectively having the cake and eating it – is eminently possible.

5. High-tech start-ups
Habana Labs also illustrates several other features of the Israeli start-up sector, both positive and negative:
a. Angel investors: there is now a large and very active Israeli community of ‘angels’ who, in addition to considerable financial resources (their own and those of their associates), bring invaluable experience and, above all, contacts. This process of entrepeneurs becoming serial entrepeneurs and/or angels is well-entrenched and a key feature of Israeli high-tech.
b. Role models: Many Israeli high-school and college students have chosen or are choosing paths for their army service and academic studies (and even high-school specialization) designed to lead them to high-tech careers. Applications to law and business schools are falling while applicants to maths, physics and computer sciences are rising. A highly-publicized exit such as that of Habana Labs strongly reinforces these trends.
c. Bottlenecks: Despite this increase in supply, there are severe and growing shortages of highly-qualified personnel in both the military and civilian high-tech sectors. Habana Labs opened a development center in Gdansk, Poland (!!) in an effort to attract the programmers it needs but cannot find in Israel.
The Israeli government – when there is one – needs to adopt measures that will provide both short-term relief, by allowing highly-skilled foreign engineers to easily obtain work visas to Israel, and address the long-term problem via more and larger initiatives through the education system.
d. Military-civilian interchange, co-operation and competition: Another key feature of the Israeli high-tech success story, of which Habana Labs provides a further striking example, is the movement of people and ideas between the military and civilian sectors. Alongside this friendly co-existence and even cooperation, there is also intense competition, especially for ‘talents’ – the top human resources which are the bedrock of high-tech.

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