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ironSource, valued at $11b, still ‘scratching surface’ of potential – co-founder

Ad-tech firm has what is said to be the highest valuation of an Israeli firm pre-US share sale, after its merger with Thoma Bravo SPAC

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

The ironSource management team in March 2021. (Courtesy)
The ironSource management team in March 2021. (Courtesy)

When Israeli advertising technology firm ironSource confirmed the clinching of a multi-billion merger deal with special purpose acquisition company Thoma Bravo Advantage last month, there were no major celebrations at the Tel Aviv offices of the 10-year-old startup.

The few workers who had come into the 12th-floor office that day, after months of working from home under coronavirus restrictions, ambled onto the office terrace where a short toast was held, and then went back to work.

Earlier that day, the CEO had held a video conference call with all company employees, in Israel and abroad, informing them of the merger. It’s believed that the merger gives ironSource the highest ever valuation for an Israeli firm, ahead of a public offering of shares on the Nasdaq set for later this year.

The company enables game app developers and cellphone operators to make money on the content they create by displaying ads in the games. Eighty-seven of the top 100 game apps use the ironSource platform, in a mobile gaming market that generated $76 billion in 2020.

Omer Kaplan, co-founder of ironSource (Courtesy)

“Of course, we were very happy when we reached that important milestone, but… like most humans, you don’t really stop and appreciate things… You continue with the flow,” said Omer Kaplan, the 40-year-old co-founder of the company. “We are still in a process. It is going on right now; we have been working on that 24/7.”

Kaplan, speaking to The Times of Israel via Zoom, explained why the company chose to go public via a special purpose acquisition company (SPAC) rather than taking the traditional IPO route. He also talked about how the eight founders not only work together but have become a family. He explained why he believes ironSource, which had $332 million in revenue in 2020, up 83% from the previous year, is still “just scratching the surface” of its potential.

And he described how Israel has transitioned over the past decade from the Start-Up Nation, in which entrepreneurs set up and quickly sell their companies to the highest bidder, to what he called the Scale-up Nation, in which companies with massive valuations are taking on the global markets, hungry for growth and market share.

The company announced last month that it plans to raise $2.3 billion through the merger with SPAC Thoma Bravo Advantage at a whopping implied approximate valuation of $11.1 billion, compared to the $1.56 billion the company was deemed to be worth in its most recent private funding round in 2019.

Because of the coronavirus, the whole deal was negotiated via email, video and Zoom calls, taking a total of two months from the first introduction in January to the announcement of the deal in March.

The funds raised in the share offering will enable the firm to grow through acquisitions “on a much greater scale” than previously, said Kaplan. This is where Thoma Bravo, which manages some $73 billion in assets and focuses on investing in software and technology, can play a role, by introducing ironSource to relevant technologies and paving the way for deals.

Haim Saban speaks at the Academy Museum of Motion Pictures’ Unveiling of the Saban Building event at the Petersen Automotive Museum on Tuesday, Dec. 4, 2018, in Los Angeles. (Photo by Willy Sanjuan/Invision/AP)

“They can definitely help us with M&A,” said Kaplan.

Thoma Bravo will also contribute its knowledge in the software field to help the firm add more products and expand its platform and capabilities.

Even so, Kaplan said, growth at the firm will continue to be a balance between organic, in-house development and acquisitions.

ironSource was well into the process of going down the traditional route for an initial public offering of shares, but then Israeli-American billionaire Haim Saban, an investor in the firm, introduced IronSource CEO and co-founder Tomer Bar-Zeev to Puerto Rican billionaire businessman Orlando Bravo, the managing partner of the US private equity firm. Other investors in the Israeli firm include British businessman Len Blavatnik and private equity firm CVC Capital Partners.

“We were in a very advanced [process] for an IPO,” said Kaplan. The founders had heard of Thoma Bravo, he explained, and when the connection was made via Saban, “we felt that as a public company, they could really help us move forward.”

The transaction is expected to close in the second quarter of 2021, subject to customary closing conditions, including approval by Thoma Bravo Advantage’s shareholders.

Kaplan said that regarding company potential he feels ironSource is still very much a “baby.”

“I really think we’re just scratching the surface,” he said. The company is growing almost 150% a year, “and our customers are constantly growing with us. So we are still expecting tremendous growth.”

ironSource today has 800 workers spread through nine global offices — in Seoul, Kyiv, London, New York, San Francisco, Beijing, Tokyo, Bangalore and Tel Aviv. Half are employed in research and development, according to the firm’s website.

Israeli teenagers play Candy Crush on their smartphones in Tzur Hadassah, November 15, 2013. (Nati Shohat/Flash90)

There are 6.7 billion mobile devices globally and in 2020 the average adult spent 4.3 hours a day consuming media on mobile devices. Some 140 billion apps were downloaded globally in 2020 and 83% of device time is spent on apps, a company presentation showed, based on eMarketer data.

The abundance of apps and games in the mobile ecosystem, and the ease with which they can be created, has made it even more important for developers to be able to get their products noticed, reach the most relevant users, and commercialize their businesses. ironSource identified the need for a one-platform solution nearly a decade ago, and built its products accordingly.

“The app economy represents a massive opportunity,” ironSource’s Zeev said in a statement. “Yet while app creation has become progressively easier, app commercialization has become increasingly harder. Our solutions allow our customers to focus on what they do best — creating great apps and user experiences — while we provide the infrastructure for their business expansion.”

The ironSource software for mobile apps (Courtesy)

Before setting up the company, the firm’s original founders built consumer web applications, but they found it hard to grow their user base and their revenue. That was when they realized that there might be a larger opportunity to grasp by helping developers turn their creations into money-making businesses.

By the end of December 2020, ironSource had over 4,000 customers around the world with a combined reach of over 2.3 billion monthly active users.

“Basically, anywhere people are going to consume apps, we are the ones connecting these apps with people and being the business infrastructure for them,” Kaplan said. “The app economy is really going to exponentially grow and we look at ourselves as one of the enablers of that economy.”

The firm believes that its total market opportunity will grow to $41 billion by 2025, from $17 billion in 2020.

Competition, like anywhere in the tech field, is fierce and there is always concern that a newcomer will come in overnight and upend an already aggressive industry, in which solutions are being offered by tech giants including Google’s AdMob, Facebook’s Audience Network and MoPub by Twitter.

“It is very competitive, but we have been working in this competitive landscape for many years, and we have managed to continue to grow faster than the market,” Kaplan said. It is all about “innovation and identifying the trends, being first to market and about execution. I think these are actually things we excel in, even in comparison to the largest companies in the world. It is something that we love, the velocity and the dynamic nature of this business.”

Rapidly evolving markets, competition and a failure to retain or expand its customer base are some of the risks facing the firm, according to the company presentation.

Illustration of the Subway Surfers mobile game by Sybo that uses the ironSource solution (YouTube screenshot)

Bigger than the parts

Part of ironSource’s success, Kaplan said, is due to the comprehensive nature of its software suites and their combination into one platform, which gives it a competitive advantage in the market. The other part is due to the company’s eight co-founders.

The company started off with four — Bar Zeev and three brothers: Itay, Roi and Eyal Milrad. Through strategic acquisitions of other technologies and startups, the firm added four additional founders: Tamir Carmi, Arnon Harish, Netanel Shadmi and Kaplan, each bringing to the firm his own strengths. Half of the founders come from a technical background and half from business management.

“We work really well together, we are extremely good friends, and we trust each other. It is much more than work today,” Kaplan said, with the families spending time together outside work.

“Each of us brings his own flavor,” he said. The firm, he added, is still a “founder-led company. We look at the company kind of like an extension of ourselves. It is our DNA.”

And just like a piece of art becomes greater than the artist, Kaplan said, so the company they have created has become “much bigger than us.”

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