The Mercury Mafia and the Maturation of Tech Ecosystems

Taking a look at Israel's golden age of startups through the lens of one of its most impactful companies

Looking Back to Look Ahead

Israel’s tech ecosystem is maturing in front of our very eyes. On the heels of Monday’s IPO last week and a record start to 2021, everyone involved in the local ecosystem can feel a shift in the mindset of founders and investors alike. It’s almost palpable - our little Startup Nation isn’t so little anymore.

But it wasn’t always this way - unicorns were a rarity not so long ago (btw, now that they are no longer a rarity, that uh, kinda makes them just regular horses ¯\_(ツ)_/¯). And while multi-billion dollar outcomes are worthy of praise for a multitude of reasons, perhaps the most important impact that such companies have is on their surrounding ecosystem.

Startup ecosystems are built on the backs of these success stories. Truly large companies serve as training grounds for all employees that pass through. They serve as a paradigm for success that gets etched into the minds of all who have the privilege to participate.

It is because of this that Silicon Valley has long been considered the epicenter of the startup world. Spend enough time in the Bay Area, and you begin to uncover various families/groups of startups successes. One such family, aptly labeled the PayPal Mafia, is perhaps the most well known and has the largest sphere of influence to date of all of these groups.

Israel however, is different. The local ecosystem didn’t have a billion dollar outcome until 2006, during which it had two. One of those two acquisitions held the record for largest outcome in Israel for 11 years, until Mobileye was acquired by Intel for over $15bn.

The company I’m speaking of is Mercury Interactive, and it’s about time that more people recognize its place in the Startup Nation’s lore.

The Rise of Mercury

Founded in 1989 by Zvi Schpizer, Ilan Kinriech and Arye Finegold, Mercury was a global leader in IT management software.

In July 2006, the company was acquired by HP for $4.5bn, a staggering amount even by today’s standards. A pioneer of SaaS, Mercury reached annual revenues of close to $1bn at the time of its acquisition (for young investors like myself, a 4.5x revenue multiple seems like the deal of the century).

I’m not the right person to tell the full Mercury story, but it is indeed a story worth telling. The company survived the Dot Com bubble and survived multiple difficult political spats in Israel (including the Second Lebanon War, which broke out days before the announcement of the acquisition).

Despite sounding cliche, the overwhelming sentiment former Mercury employees have regarding the reasons for it success, come down to people and culture. Mercury’s culture encouraged entrepreneurship. The totem pole of Corporate America was largely ignored and everyone within the company was given the ability, and even had the responsibility, to think of ways to expand the business and create new opportunities.

The Mercury Mafia

It should come as no surprise then, that individuals who thrived in this culture, continued to emulate it later on in their careers. In fact, I believe that Mercury is the single most influential company in Israel’s history to date, simply based on the list of successful founders and executives who are part of the Mercury tree.

Pictured Members of The Mercury Mafia

• 1-3: Guy Goldstein, Nissim Tapiro and Alon Huri

  • Currently Co-Founders of Next Insurance, last publicly valued at $4bn

  • Previously Co-Founders of Check, acquired by Intuit for $360m in 2014

• 4 & 5: Ariel Cohen and Ilan Twig - Co-Founders of TripActions, last publicly valued at $5bn

• 6 & 7: Shahar Erez and Hilik Paz - Co-Founders of Stoke

• 8: Guy Nirpaz - Co-Founder and CEO of Totango

• 9: Israel David - Co-Founder and CTO of hiBob

• 10: Yuval Scarlat - Serial founder. CEO of Capriza, Board Member at Apptio

• 11: Boaz Chalamish - Prolific angel investor and tech executive. CEO of Clarizen and GM at VMware

• 12: Yaron Shapira - Co-Founder and CEO of 8fig

• 13: Eran Sher - Co-Founder and CEO of Sealights, previously Co-Founder at Nolio (acquired by CA). Alon Eizenman (not pictured) is the co-founder and CTO of both of these companies, and also a Mercury alum.

First, I’d like to thank the above 13 individuals for taking time out of their busy schedules to participate in this photo shoot.* Second, it’s important to mention that in addition to these 13 people, there are countless other incredibly influential individuals who can trace their beginnings back to Mercury.**A small list of them include:

• Yoav Schreiber, Yaron Gueta, and Hanan Blumstein - Co-Founders of Glassbox

• Guy Bloch - CEO of Bringg

• Eyal Elbahary - CEO of Dealhub

• Lior Reuven - Co-Founder of Spectralops

• Sharel Omer - CEO of Affogata

• Kobi Eisenberg - CEO of Autofleet

• Ronen Morecki - CTO of Zooz

Maturation Nation

Hopefully the above picture and lists demonstrate how important successful companies are for the surrounding ecosystem. This might sound obvious, but people usually harp on the immediate economic impact such companies have. The impact I’m referring to is longer term.

Using Mercury as a benchmark, each true unicorn yields multiple unicorns itself. Thus, the compounding effect on an ecosystem is clear. And while these developments take time, the results are unfolding before our eyes. Below are a few examples of Mercury-esque mafias that have also had an outsized effect on the local ecosystem.

The circumstances of the above companies were/are obviously vastly different, but the results are similar. Of course, the majority of the unicorns globally and in Israel cannot be traced back to another unicorn directly, and thus is the nature of entrepreneurship. But it’s clear that the experience of being part of a success story inspires and educates a generation of future founders on how to build a big business.

This is the realization of a truly mature tech ecosystem. Sure, Israel has been considered a tech hub for decades, but it couldn’t have been considered a true tech capital until the repeatability of creating enduring companies persists. I believe we’ve finally reached that moment.

The Golden Age of Israeli Startups

And this takes us back to the beginning of the post with Monday’s recent IPO. In this moment in time, a transition between the second generation of Israeli unicorns and the third generation is occurring. If, when looking back at the past decade of Israel’s startup ecosystem it’s hard to count the number of successful companies due to sheer number of them, imagine what the next decade holds.

I spend a lot of time thinking about which founders are likely to fill the above empty squares. Perhaps more importantly, I spend time thinking about which companies are likely to be considered the next Mercury. Of course, Wix and Checkpoint are great candidates, but they are bit too obvious.

WeWork is having quite a moment, with companies like Empathy, Santa, Benga and Groove getting their start in the past year. Behalf, the lesser known of the three major local lenders, has built quite an alumni network with early stage companies like Balance and EverAfter making a big impact quickly. And there are many other candidates to emerge as the Mercury’s of the future.

But if there’s one thing to be learned from Mercury, building a successful business does not a mafia make. There needs to be a culture of entrepreneurship within. Identifying that from the outside isn’t an easy task, but it’s one I’m thrilled to have the opportunity to do, in this golden age of Israeli startups.

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*Lol. Photoshop for the win :)

**This list isn’t exhaustive either, so I apologize in advance to anyone I left out mistakenly. Furthermore, part of Mercury’s legacy includes several US based unicorns as well such as: Sumologic, Apptio, Anaplan, Jive and others