I am glad to report that Google just acquired Lab Pixies, one of my portfolio companies. Lab Pixies was the first investment I had made in Israel. The impetus for investing in Israel came from my friend Mark Gerson who decided to look for global Internet investment opportunities a few years ago and who was kind enough to invite me to participate. He teamed up with Yaron Carni who became our investment opportunity lead generator and co-investor in Israel and they invited a bunch of our entrepreneur friends to invest alongside him such as Auren Hoffman and Gilad Carni.

When I met the Lab Pixies team, I was seduced by the company: the team led by Ran, Nir, Oded and Udi was fantastic. They had crazy amounts of traffic (almost 1 billion page views per month) in the right countries (Western Europe and the US). Their users loved them. Moreover, their products fell squarely in a rapidly growing ecosystem: social networks and mobile applications. They were generating very little revenues at the time which they supplemented by building apps for third parties, but I did not feel it would be an issue given the categories they were in.

I had actually been seduced by high traffic companies in the past, but those deals turned out not to be good investments: the traffic was in low value countries which proved impossible to monetize and the products were not nearly as good. I felt (and hoped) this time would be different.

In this Ran and the team did a fantastic job at rapidly moving from offering utility apps on iGoogle to offering more social apps to building iPhone and Android apps. Nudging them to do that transition is the one thing I can take a bit of credit for along pushing us to make the investment. By the time of the sale, the company had moved away from building apps for third parties and was generating significant revenue and was very profitable.

It makes perfect sense for Google to acquire them: they make the most popular iGoogle widgets and some of the most popular Android apps. In a way I am sorry to sell so early. The company and team are great and the category is only becoming bigger. However, the team loved the idea of working for Google and I can’t complain about having such a good return just two years after my original investment. It’s also Google’s first acquisition in Israel!

I should really say I was impressed by all the work that Mark and Yaron put into making this deal happen. Yaron who was already on the board became head of business development. Mark was integral in the negotiations with Google. They have been the most entrepreneur friendly and helpful investors I ever met and I hope this deal will lead to many more such deals to come our way!

As a side note, since the book Start-up Nation: The Story of Israel’s Economic Miracle came out, it definitely seems that the Israeli Internet market is heating up. Dan Senor, the author of Start-up Nation was also an investor in Lab Pixies 🙂 I look forward to seeing what next great startups come out from Israel!

BTW You can read the Techrunch article on the deal at:
http://techcrunch.com/2010/04/27/labpixies-google-25-million/