Israel’s Startup Hype Master Faces His Toughest Test Yet

(Bloomberg) -- Israel’s most prolific startup hype man is a scruffy 35-year-old named Moshe Hogeg. Among his various endeavors, he convinced Leonardo DiCaprio and Mexican billionaire Carlos Slim to invest in an Instagram look-alike. He raised more than $1 million from tech industry bigwigs for a messaging app that lets users send the word “yo” to each other. (That’s pretty much all it does.) And this year, he helped recruit Tom Hardy, who starred alongside DiCaprio in The Revenant, to hawk a $14,000 smartphone.

But Hogeg’s newest product may be his toughest sell. He’s helping develop computerized glasses that aim to deliver relevant information as people go about their daily lives. He hopes his startup will succeed where Google and others have failed.

The project began five years ago when Hogeg took charge of a penny stock that specialized in buying people’s life insurance policies at a discount in the hopes of a big payout when the policyholder dies. His objective was to take Absolute Life Solutions’ New York-based insurance business and repackage it as a hot Israeli tech startup.

Leveraging $5 million leftover on the publicly traded company’s balance sheet, Hogeg recruited a team to work on augmented reality software, a nascent field of projecting images and information into a person’s field of view. He changed the name to Infinity Augmented Reality Inc. and produced a promotional video to outline the company’s new direction. It features a man wearing glasses that overlay data onto the lens, including the astrological sign of a female bartender he tries to hit on. Hogeg makes a cameo in the pool hall.

Infinity delisted from the over-the-counter stock market in September. It said last week that it raised $18 million from Chinese online shopping giant Alibaba Group Holding Ltd. and Japan’s Sun Corp.

As with much of what Hogeg does, there’s more to the story than the one he so elegantly tells. He’s the face of Israel’s tech startup scene for many celebrity investors around the world and one of its most visible evangelists. His venture capital firm Singulariteam made a dozen new investments in Israeli companies last year, more than any other VC in the country, according to IVC Research Center, which tracks the market. Each one benefits from his bombast, salesmanship and stable of famous friends, though none has achieved a major exit yet.

Hogeg describes his marketing formula as a combination of controversy, star power and “pure luck.” All three were on display at a splashy London event he hosted in May for startup Sirin Labs, which makes smartphones. DiCaprio and Hardy were in attendance to support Hogeg’s introduction of the Solarin luxury phone, which ranges in price from $13,800 to $17,400 apiece. Its Italian leather back and dedicated security button convey status. The company has raised $72 million from investors.

“Some entrepreneurs are absolutely amazing storytellers, and certain products lend themselves to a sexy allure,” says David Blumberg, founder and managing partner of San Francisco VC firm Blumberg Capital. “I know a lot of really good companies who could never have raised that much money.”

Often sporting a patchy beard, white T-shirt and thick-framed hipster glasses, Hogeg looks more like an indie musician than a venture capitalist. The oldest of three children, he grew up the son of an Israeli Air Force lieutenant colonel in the desert town of Beersheba, about 70 miles south of the tech hub in Tel Aviv. “There’s no money and not even neighbors with money where we can see what money looks like,” says Hogeg. “We always looked at the center, Tel Aviv, as the rich guys that are above us.”

Hogeg spent seven years in the army, where he devised a system of sharing equipment between different units to save money and persuaded his superiors to let him implement it. He left as a commander in 2007, over the protests of his father, to try his hand at entrepreneurship. His first company Web2Sport bought a low-ranking Israeli soccer club and set up a website asking fans to pick the player lineup for each game by voting online. He says the global financial crisis of 2008 made it impossible to raise capital, so he sold the business to an Israeli broadcaster for $60,000.

In 2010, Hogeg started the photo-sharing app Mobli and began to hone what he calls his “secret sauce” for creating viral products. Around the same time, Israel was beginning to achieve international renown for its entrepreneurial prosperity. Start-Up Nation was on the New York Times bestseller list of business books and became shorthand for the country’s economic transformation.

Hogeg devised a strategy of coaxing celebrities to lend their star power, if only halfheartedly, to his products. He pitched Mobli to Hollywood as a way to gain autonomy over the paparazzi. DiCaprio was touted as an investor in the startup’s initial $4 million round of financing. In 2011, the Oscar-winning actor made an investment of just $9.54 in exchange for almost a million shares, according to a securities document seen by Bloomberg. Hogeg declined to comment, saying he wanted to protect investors’ privacy but added that Mobli doesn’t have a shareholder where “the sum of their total investments was $10 or close to it.” More valuable was the credibility DiCaprio’s name lent to the venture. Other backers include Lance Armstrong, Tobey Maguire and Serena Williams.

When Mobli faced a new threat from Facebook Inc.’s purchase of Instagram in 2012, Hogeg went searching for another celebrity ally. He wanted help breaking into Latin America, where Facebook was less dominant, and tried to get in touch with Slim, then the world’s second-richest man. Hogeg eventually found a circuitous path to Slim through a friend of the telecom tycoon: the Canadian crooner Paul Anka. Mobli paid the “Put Your Head on My Shoulder” singer $1 million in cash as a “success fee” for an introduction to Slim and other consulting services, according to a company document seen by Bloomberg. Hogeg says the board of directors approved the transaction. Mickey Segal, a spokesman for Anka, says the entertainer’s consultation to the company went far beyond the Slim intro.

In 2013, Slim agreed to promote the Mobli app to his 290 million wireless subscribers at América Móvil. A spokeswoman for Slim declined to comment. At Mobli’s peak in late 2013, it boasted 22 million users. Hogeg’s string of good fortune enabled him to realize a lifelong dream of owning a Ferrari. He bought a 2013 Ferrari California, financed partly by selling some shares in Mobli, he says.

The Israeli tech community was experiencing a similar high around the same time, when Google bought homegrown mapping startup Waze for about $1.1 billion in 2013. Foreign investors poured $1.7 billion into Israeli startups that year.

Hogeg decided it was time to become a VC. He introduced his fund at a press conference in Tel Aviv flanked by Kazakh investor Kenges Rakishev and former Israeli Prime Minister Ehud Olmert, who was introduced onstage as chairman. Hogeg says Olmert resigned from his VC firm Singulariteam after unrelated allegations that Olmert had taken bribes from property developers while serving as mayor of Jerusalem. He’s since gone to jail on corruption charges. According to the trial verdict in another case, Olmert said he wasn’t involved in any decision-making at the fund and was only “an adviser.” Hogeg says Olmert was a paid consultant and helped make investment decisions.

If Tom Hanks’s character in the movie Big had been a VC, his office might look something like Singulariteam’s. During a visit last year, the Tel Aviv headquarters were furnished with an eclectic collection of Transformers toys, superhero action figures, purple velvet chairs and a mannequin dressed in traditional Kazakh garb. There was also an in-house psychology professor coaching entrepreneurs on product design.

Singulariteam has raised $152 million across three funds, relying heavily on Asian investors eager to tap into startup nation. “What a typical Israeli VC will do in four to six months, we do in four to six weeks,” Hogeg says. “When you see a company like Slack going from zero to a billion within 12 months, there’s no room to do a deal in six months. It’s stupid. It’s too much time.”

Hogeg’s most famous business took eight hours to build and only slightly longer to go viral. He came up with the idea for an app that would let him press a button to ping his assistant’s phone with a message that read “yo.” He asked Or Arbel to put aside his work at Mobli for a day in 2014 to code it. They called it Yo. For a brief period, the app was one of the most downloaded in more than a dozen countries. Vic Lee, co-founder of China’s Tencent Holdings Ltd., and a handful of Silicon Valley luminaries put $1.5 million into the startup. An episode of HBO’s Silicon Valley included a parody called Bro.

Yo is pretty much at a standstill now, but Hogeg refers to it as his “greatest marketing experiment.” He says Singulariteam has more serious investments, such as battery startup StoreDot and robo-adviser Invest.com.

Mobli may also be out of time soon. Instagram’s growth has been unstoppable over the last few years. Mobli attempted to reposition itself as a visual search engine but abandoned the project after Facebook blocked it from accessing Instagram photos. Mobli developed a crowdsourced news-publishing platform called Slant but shut it down in June. It turned its attention this year to creating a social network called Galaxia. The service has failed to gain traction and resources “are currently in severe shortage and nearly exhausted,” according to a September investor letter seen by Bloomberg.

Hogeg is wistful about what he describes as Mobli’s bad luck. He wishes DiCaprio had done more to support the app, such as posting selfies instead of pictures of endangered species. But Hogeg hasn’t let Mobli’s failures discourage him from pursuing ever-more audacious ideas. He told the team at Sirin Labs to build the best mobile phone imaginable, with high-quality materials and military-grade security, and not to worry about cost. For the phone’s target market of wealthy customers, Hogeg says $14,000 is “peanuts.”

Infinity AR presented Hogeg with an entirely new set of challenges. As if building a tech startup weren’t difficult enough, his team had to do it while adhering to the accounting rules and disclosure requirements of a public company.

Further complicating things, Infinity’s earliest bet was a bad one. The startup was initially focused on creating software for Google Glass, which flopped. Then Hogeg was approached by Motti Kushnir about investing in a competing augmented-reality company he started with Matan Protter, a former computer vision engineer at Mobli.

Hogeg proposed they team up on Infinity instead and appointed Kushnir as chief executive officer in 2014. They then partnered with Lumus Ltd., another Israeli startup, to create the glasses. Kushnir says they’ve sold barebones hardware and computer vision software to Asian manufacturers Jorjin Technologies Inc. and Quanta Computer Inc., which plan to develop and eventually sell the product in stores as soon as next year. The Israeli startups are set to show off the concept device next month at the Consumer Electronics Show in Las Vegas.

Like many of Hogeg’s recent investments, Infinity has its sights set on Asia. The startup hopes Alibaba’s backing will help. An Alibaba spokesman wrote in an e-mail that Infinity’s “proposition as an open platform aligns with Alibaba’s approach.” Hogeg says Alibaba didn’t want to invest in a public company. So as a condition of securing the investment, Infinity had to delist from the stock market and buy out some shareholders, regulatory filings show. According to a letter recently sent to Infinity shareholders that was seen by Bloomberg, Alibaba is now the largest investor, with a 23 percent stake, followed by Sun Corp., a Japanese game maker that also owns the Israeli cybersecurity firm that helped hack the San Bernardino, California, terrorist’s iPhone.

As a private company, Infinity is no longer required to disclose revenue or other financials, and the company declined to provide them. Hogeg, now chairman, says the use of a public vehicle to house a startup was less than ideal, citing the costs of lawyers, accountants and other consultants. While the move was controversial, he has no regrets. “That money allowed us to build the company—a real, real company,” he says. “For me, controversy is good.”

—With Sangwon Yoon, Lulu Yilun Chen and Zeke Faux

(A previous version incorrectly said both authors of Start-Up Nation are Israeli.)

To contact the author of this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net.

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net.