The Israeli startup community has had two big things going for it for nearly 20 years now: extremely talented and insanely driven entrepreneurs, and deep-pocketed financiers ready to fund them.

That’s apparent in the results of the just released Startup Genome report, which ranks Tel Aviv the No. 2 startup ecosystem in the world. Two main things pushed us above LA, New York City, and London — the sheer volume of companies that launch here, and the top ranking on the funding index (click on the image for a larger version):

While the talent and company output have only increased in recent years, the funding end of things in Israel is currently undergoing some deep changes.

Here as elsewhere, until recently risk capital was deployed almost entirely by venture capital firms. We’ve had our largish local VC players like Pitango, Evergreen, JVP, and Gemini (and a ton of smaller firms, many of which disappeared in the past decade), along with the big overseas guns active in Israel since the 90s like Benchmark, Sequoia, and Accel.

But with the VCs having all sorts of trouble with their own business models, who’s stepping up now to fund the firehose of Israeli teams at the critical seed stage? Increasingly, it’s an active angel crowd, which is reshaping early stage funding here just as much as in Silicon Valley — especially for the growing number of startups doing web services.

While many aspects of the Israeli angel revolution are similar to those Naval Ravikant eloquently described at the last PandoMonthly — most importantly, the dramatically reduced cost of trying something out — the dynamics of this shift are different here in some important ways.

There are three main trends you can observe right now in the Israeli angel scene:

1. The money, in jeans and sneakers

“There are a few main personas among Israeli angel investors,” says Gigi Levy, one of the most active and successful angels for consumer internet startups these days. “The building contractor (“hakablan”), the business generalist, and then guys like me.”

The contractor is a rich guy who read about big tech exits in the paper and wants in on the action. He makes only one or two investments a year and doesn’t really understand the risk element — that it’s altogether possible the company will close down in a year (his building projects don’t do that). He’s predisposed to drive Israeli entrepreneurs bonkers and has been doing so continually since the late 90s boom.

The generalists — like the Zisapel family, Zohar Gilon (the Ron Conway of Israel), or Guy Gamzu — made their fortunes in other spheres than they often invest in now. They’ll write their checks, let you run your company as you see fit, and will be happy to supply a much-needed high level business contact. But since they invest cross-domain, they may not have the specialized knowledge of those investing in the particular domain they’ve worked in.

Then there are the Gigi Levys — entrepreneurs themselves who have usually achieved one exit or more and bring invaluable domain expertise to the companies they invest in. These younger guys in jeans and sneakers are completely reshaping early stage funding here. Count Yuval Shachar, Yair Goldfinger, Eden Shochat, Yaniv Golan, and Roi Carthy in this growing category.

Levy, the former CEO of 888, says he gets pitched by about 10 companies a day. He’ll meet two of them and end up investing in just about one a month, writing a check between $50,000 and $200,000. He’s done about 50 deals overall and prefers to invest in companies in his direct sphere of expertise — online gaming.

Yaron Samid, CEO of BillGuard and the prime mover behind local founders’ club TechAviv, calls what this new breed of angels offers “EC, as opposed to VC. When you hit Paul Graham’s trough of sorrow and it seems the world’s against you, these guys can look you in the eye and say ‘Hey man, I’ve been there — it’s going to be ok, and here’s how we’re going to make it work.’ And when necessary they’ll also have the candor to say ‘You know what? It’s just not clicking — kill it and try something else and I’ll definitely consider investing in you again.’ That’s incredibly valuable ‘emotional capital’ for founders — and everyone wants it.”

2. The rich uncle from America

Samid began TechAviv Angels as a spinoff investing group. But it’s telling that these days, when a founder asks him how to approach angels, Samid encourages them to just get on AngelList to broaden their search and meet international investors. More and more American and European angels are investing directly in Israeli seed rounds through AngelList or other means.

The most interesting recent development in this area is Jonathan Medved’s Our Crowd – a recently launched Funders Club-like platform for accredited investors outside of Israel to invest in early stage Israeli startups with as little as $10,000.

Medved, a longtime VC and more recently the founder/CEO of Vringo, calls Our Crowd “my shoebox project.” For years, Medved’s been travelling around the States singing the praises of Israeli high tech, and wealthy Americans invariably ask him how they can invest in Israeli startups. “I’ve always had to say to just go buy CheckPoint on the Nasdaq. But online today, it’s possible to get to know and then select companies for a long distance angel investment — which is what we aim to do. I have a shoebox filled with business cards of accredited American investors who we’re now reaching out to — and the response has been very strong.”

Our Crowd — named after Stephen Birmingham’s book on the rise of the German Jewish banking class in late 19th century New York — structures each investment as a separate fund. In a typical $500,000 deal, Our Crowd vets the companies, its GPs (from their own fund) commit $50,000, then they open the remaining $450,000 to investors on the Our Crowd platform. Those investors become LPs in a mini-fund tied to that seed investment. Investors pay Our Crowd an ongoing management fee and 15 percent carry on the upside — not your typical angel investment, but you do get the local vetting and shared exposure.

Blumberg Capital and Eric Schmidt’s Innovation Endeavors are also part of this seed money-lobbed-from-afar phenomenon. Both now have local offices in Tel Aviv and are active in early rounds. Innovation Endeavors has recently done deals in some standout Israeli startups like Soluto, BillGuard, Any.DO, and Commerce Sciences (which I profiled here).

3. Your middle-aged parents trying to stay hip

While they still do the bulk of financing on a dollar basis, the big VC firms have lost their proprietary deal flow here just as surely as they have in the Valley. To maintain access to the best entrepreneurs and companies at early stages, the legend VCs are trying a couple things.

First, there’s the move to Tel Aviv’s Rothschild Boulevard, where the better Internet startups tend to hang their shingle these days. To get closer to the action, Benchmark Capital, for example, recently bolted their snooty Hertzelia Pituach office in favor of an open space on the roof of a historical Rothschild Boulevard building. It was like moving from a Park Avenue four bedroom to a Village loft to get closer to artists.

Pitango, meanwhile, just raised a new fund that will be focused on seed and even pre-seed deals. Skycure, a BYOD security solution, was its first investment.

But the big question with large VCs cozying up to founders for seed deals remains: Why would talented founders choose a slow-moving VC, who often lacks domain experience, pushes to write a bigger check for more equity, and requires a board seat, over a jeans-and-sneakers angel who — refreshingly — offers just the opposite?

From what I hear (and what IVC data shows), the VCs aren’t doing many seed rounds these days. The smart ones are happy to bypass them, avoiding the signalling problem if they don’t follow up on the A round and relying on the angels and the market for early vetting. But they now need relationships with top angels and entrepreneurs to maintain that access. This ecosystem still very much requires deep pocketed VCs for A rounds and onwards, but their displacement from owning this seed round changes everything.

Trends that start in the US tend to hit Israel a few years later. The rise of the super angel, with founder-friendly terms and support, reshaped Silicon Valley seed funding beginning a few years ago — and that’s landing with full force here right now.

[Image courtesy Wikimedia]

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

Behavioral economics, as its well-known proponent Dan Ariely describes it, “is interested in the same questions as classical economics, but without assuming that people are rational.”

The field came to popular attention in the past decade from the bestselling “Freakonomics” books (er, empire), Ariely’s and Daniel Kahneman’s fascinating work, and from other behavioral economists identifying sources of the financial crisis that their classical counterparts failed to red flag. Richard Thaler and Cass Sunstein’s 2008 behavioral econ work “Nudge” made such a splash that its authors and their students now impact international public policy in significant ways.

So it’s about time behavioral economics began banking some consumer internet coin, right?

Commerce Sciences, a startup out of Tel Aviv, wants to bring behavioral economics, predictive analytics, and big data crunching to small and midsized ecommerce sites. The company recently raised a healthy $1.8 million seed round from investors, including Eric Schmidt’s Innovation Endeavors, Eden Shochat of Genesis Partners and Joe Lonsdale.

Both co-founders — Aviv Revach and Eyal Brosh — are graduates of the IDF’s elite 8200 intelligence unit, which spawns more and more consumer Web services these days. You can watch Israel’s angels toss business cards at these guys’ feet at the moment they switch out their army boots for Jack Purcells. In this case, both Brosh and Revach, who’s moving to San Francisco to work out of Innovation Endeavors’ office, already have past successes under their belts.

Revach, who’s built like an NBA forward, crouched over his latte in my local Jerusalem cafe to describe the Commerce Sciences approach: “Most ecommerce site owners and marketers look at customers from the perspective of the sales funnel: How can we get you in, down the tube and out through a purchase? We look at the customer as a person,  recognizing that sometimes their motive isn’t finding the right product, but rather other elements, like the feel of the site or the type of communication coming from the merchant. And every person is different.”

The company’s first product is a free, self-service toolbar that sits on an ecommerce site’s footer and pops up coupons, a chat box, and other messages. Commerce Sciences calls it a Personal Bar, as it can, for example, produce different messages for first time customers versus customers whose behavior the software has already analyzed and optimized for.

Revach says the bar already includes an Ariellian behavioral econ lesson: They’ve found that a little coupon graphic that a customer “tears off” from the toolbar converts far better than a discount code that you need to Control-V at checkout.

Now, on the one hand I fully identify with the sentiment of Roi Carthy’s recent Tweet: “Ahhh, toolbars… The damage you’ve inflicted on the Israeli entrepreneurial sensibility…” Conduit’s success has fostered far too much user-hostile product design in this country. Another freaking toolbar to contend with?

On the other hand, Commerce Sciences isn’t really about this toolbar. Revach and Brosh want to build the brains behind optimizing the online buying experience, lessening the friction between merchant and individual customer. That’s the real, not so user-hostile product the founders hope to develop over time. This initial, self-serve toolbar is just a low barrier way to acquire initial merchant customers and begin collecting data.

“This market lacks an entity that sees and analyzes all of the massive activity across thousands of ecommerce sites,” Revach says. “We can integrate all that data and help merchants react to the changes and particularities of customer behavior. The bar is just the beginning — eventually we’ll integrate with the main elements of sites.”

Of course, top ecommerce sites like Amazon already do sophisticated personalization, and their copywriters already incorporate behavioral economics. That’s why Apple puts the phrase “Select your Macbook Pro” at the top of the page (mind to wallet: “It’s already mine! I just need to select one!”). And large online merchants like Wal-Mart and Target use expensive service-based solutions like RichRelevance and MyBuys.

But for the 20,000 online retailers that Revach estimates for the mid-market segment, which can’t afford in-house or outsourced coded personalization or genius copywriting, Commerce Sciences hopes to provide a powerful, affordable option to raise conversions and customer satisfaction. The revenue model: freemium, with payment for over 400,000 monthly unique shoppers.

So far, Revach says, over 70 sites have installed the bar, and the company has collected over 20 million user actions across the 40 different behavioral data points they monitor. While the software does analyze referral links, it does not at this point integrate with ad networks’ cross-site browsing data for its behavioral analysis.

[Image courtesy hospi-table]

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

Call it Zynga Anxiety: A thrilled yet disquieting sense that you’ve built a billion-dollar web business that’s almost entirely dependent upon another company’s platform.

For browser toolbar provider Conduit, the audacious self-prescribed cure was to develop its own platform – its own damn browser – in an effort to hoist itself up a notch on the software stack. Today, Conduit’s U Browser went into a public, unplanned and rather premature beta. Try it if you’re on a Windows PC.

When I met with Conduit CEO Ronen Shilo in the spring to discuss his roadmap, Shilo was perfectly candid about the fact that the toolbar business, while insanely profitable for the company, does not represent Conduit’s future. The next stage for Conduit has to include two elements: an end user-centered product that adds genuine ongoing value (unlike toolbars, which are publisher and Conduit-centered), and independence from inherent IE, Firefox and Chrome restrictions.

U Browser is Conduit’s most ambitious effort to date to break out of the toolbar model and achieve this goal. A few months ago, Shilo was already quite stoked about it, but asked me to hold off on reporting the browser until it was more fully baked – more than it still is. U Browser’s big product launch was not supposed to go down like this.

At an internal company meeting yesterday, the U Browser product team presented an open version to peers, and when a few tried out its Facebook sharing, eagle-eyed Israeli hackers and Hebrew tech media pulled the cat out of the bag. So non-official launch day it is, though the current beta product lacks some essential planned features (including Mac support).

At this stage, U Browser most closely resembles Andreessen Horowitz-backed RockMelt – it’s based on Chromium (so all Chrome addons should work) and integrates a social layer directly alongside the browsing experience. U Browser has a nifty right-panel element that lets you switch easily among your Facebook news feed, Facebook chat, Twitter feed and YouTube channels:

That element is where U Browser soon hopes to shine, as it encourages developers to build apps and integrate their services directly into its browser.

Conduit has been working with a bunch of top consumer web services to build custom apps for U Browser, which aspires to become a type of web-centered desktop, like Google’s Chome OS. But while in Chrome OS the operating system reaches out to incorporate the web, U Browser goes in the other direction – the browser swallows up the desktop, and can do so on any OS.

Aside from those desktop and web service integrations, we’re still not seeing two other planned aspects of U Browser that could be game-changers: (1) for mobile, smoother integration of web services to the browser, and (2) a ‘lean-back’ mode for web browsing and app use on your TV, from the living room couch.

The latter feature could end up being the key differentiator in a browser market dominated by the giants, especially if widespread PC-TV convergence occurs at a rapid rate that catches Google, Microsoft, Apple and Firefox without a thoroughly rethought browser UI. That’s where U Browser’s greatest potential lies – with a healthy budget and very talented team behind it, Conduit’s product can radically reassess what the browser experience should be for today’s devices, apps and users.

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

For a startup just gaining serious traction, it’s your basic nightmare: Apple, Google, or Facebook decides to enter your space. Those first few million users you earned through blood, sweat, and tears will surely be swept up with the masses on the giant’s platform, and once the big guy throws its dev resources at the problem your app addresses, what chance does your tiny, overworked team stand? Too bad they didn’t buy you instead… Your company is toast.

That’s a standard tech blog narrative and surely keeps some founders up at night, but it’s by no means the way things always pan out these days. Some popular consumer internet services — think Dropbox, Yelp, Foursquare, and Instapaper — have managed to sustain their growth alongside, or even on top of, a giant that tries to replicate their offering.

Now it’s navigation app Waze’s moment to try to pull this off.

At June’s WWDC, Apple announced that it’s ditching Google Maps in favor of its own native maps with turn-by-turn navigation and realtime traffic updates built into the forthcoming iOS 6. The tech press and Waze fans immediately began wringing their hands over the company’s fate — especially here in Israel, where Waze was born and remains everyone’s favorite crowdsourced mapping app.

I sat down with Waze CEO Noam Bardin in Raanana this week to talk about how he’s responding to Apple’s move. Bardin joined the company about three years ago, soon after the founders had raised a $12 million A round to build upon 80,000 early Israeli users. During his tenure, Waze has launched in the US, Europe, South America and in parts of Asia, growing its user base to an impressive 20 million, with the latest 10 million user surge coming in just the last six months. He spends most of his time in the company’s Palo Alto office these days, along with ten of Waze’s 80 employees.

Bardin’s strategy has been to focus almost entirely on the user experience and growing the Waze community, keeping his app free while raising gobs of capital, which buys time. He oversaw two additional financing rounds of $55 million total, including a $30 million Kleiner Perkins-led C round in October of last year. Waze generates a modicum of revenue from location based advertising, but that seems more a proof-of-concept sideshow — they still have no sales team. The company’s focus remains on building a large, passionate community of global users that can’t be displaced by a larger player.

Waze’s hypothesis is that navigation will be so central to our mobile computing experience that no single app will satisfy all needs. “Waze for Android has grown strongly right alongside Google Maps for Android over the last couple years, because the two services address very different use cases,” Bardin explains. “We focus on the daily drive to work — avoiding traffic jams and hazards on a route you know — while Google helps you find places outside of your daily routine. Nobody uses Google Maps to get to work, because it doesn’t bring any particular value there in the way Waze does.”

Bardin doesn’t expect Apple’s new maps to be any different in this regard. In fact, he’s convinced Apple will lag Google’s maps for a long time to come.

“Apple’s really late to the game on maps, and they’re going about it the old way, by licensing data. That leaves Apple at the mercy of their data providers, whereas Google went out and gathered their own data, going as far as shooting photos on every single road for Street View.”

Waze shares that ownership of data characteristic with Google, but acquires it in a very different way. Waze’s users constantly build out its product and supply its realtime data. The app is social at its core, inviting new users to join a community that’s mapping your own local area and to help others around you right now by lessening the agony of their commute that so resembles yours. Waze’s adorable icons, gaming mechanics (you gain points for enhancing maps and providing traffic updates) and social elements all make you feel part of something grassroots, smart, and fun.

That compelling user experience and branding have been key to driving Waze’s growth, which according to Bardin is currently strongest in the US and parts of Europe — anywhere where traffic is hell. “In the US, we started out in just San Francisco and LA, but it just didn’t work to limit it to just those metro areas. People wanted in from other places, so we let them build local maps all over the country.”

With 65 percent of its user base on iOS versus 35 percent on Android, Waze’s experience for the past couple years alongside Google Maps for Android was just a warmup for its upcoming main event against Apple. Is there any way for a company like Waze to collaborate with the big platforms and not get killed? “Probably not,” acknowledges Bardin. “The only thing that can really protect us is our brand and our users’ love of the product.”

That said, Waze seems to have played ball for Apple’s new maps. In the iOS 6 Legal Notice, Waze is listed as contributing “map data.” No matter how hard I twisted his arm, Bardin wouldn’t say a word to me about this apparent collaboration/licensing deal. But he’s not cozying up to Cupertino too much.

“Look at Instagram and Dropbox,” says Bardin. “Apple and Google have had photo sharing and cloud storage services for awhile, but they just didn’t get it right the way these completely user-focused and differentiated services did. That’s what we aim to do. On the app level, Apple’s record has been poor, and while Google builds their own data well, in the long term we think community will always beat enterprise for realtime navigation data. You have to ask: how successful have these big companies been in their non-core products?”

I raised Yelp as another optimistic model for Waze, and Bardin concurred. “As much as they wanted local reviews, Google couldn’t really accomplish what Yelp did because of Yelp’s user loyalty and its focus. Now Apple is going to use Yelp for reviews on top of its maps,” which points to another big advantage of Waze, that it is cross platform: “Every social app built for a single platform is a problem,” Bardin asserts. He expects to see not only a Facebook smartphone, but also an Amazon one and phones from any number of other platforms once the hardware becomes commoditized, and he wants Waze as the go-to everyday traffic navigation app atop all of them.

You can see Foursquare’s success as another model for Waze. Remember when Facebook Places check-ins were going to kill Foursquare? A year later, Facebook killed Places and now Foursquare, like Waze in its optimistic scenario, is in a great position to enable mobile commerce on top of a mobile-native service whose users love it for a very particular feature light social experience.

So for now Bardin’s goals for the company are for continued strong user growth. Waze aims to reach 30 million users this year and 100 million by 2014, while continuing to improve the product for its particular use case. To that end, its latest release provides realtime gas price comparison.

In the meantime, everyone in this field, including Waze, is jockeying for position to work on telematics with the automakers, who finally seem to have given up on building their own systems and resigned themselves to providing better display and UI for smartphone integration. “We’re going to see a ton of innovation with the cars’ own sensors alongside smartphone mobile apps, starting in 2013,” predicts Bardin.

To get there with momentum, though, Waze has to cruise through that upcoming iOS 6 speed bump. Watch for it.

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

This spring, two greentech venture capitalists took delivery of their long-awaited fully electric cars. Both men are convinced their slick new rides augur a cleaner future for all human transportation. But both can’t be right.

Steve Jurvetson clutched his key to the first production $98,000 Model S Signature in June before cheering throngs at Tesla’s Fremont, California factory. While video of Jurvetson’s maiden voyage coursed through Twitter, half a world away here in Israel, Greylock’s Noam Gressel had just completed two months in his modest $31,000 Better Place Renault ZE, one of the first sold to the public. No crowd, no speeches, no video — just a candid, enthusiastic blog post from Gressel.

Which VC’s car has a legitimate shot at becoming that elusive vehicle that finally nudges us over the hump toward mainstream EV adoption? The answer will have less to do with the car itself and more with business model of the company behind it. Consider what Dartmouth’s Ron Adner said about the Chevy Volt and Nissan Leaf in the Wall Street Journal recently:

Great cars, terrible sales — here is your e-car paradox… For the electric car to be anything more than a plaything for rich environmentalists — and have any impact on energy security or the environment — it has to succeed in the mass market. Unfortunately, manufacturers are approaching the electric car as another new product when what they really need is a new business model. The problem is not the cars themselves (which are technology marvels), or even the availability of charging infrastructure (which is improving thanks to government largess). Unless two neglected factors — battery depreciation and power-grid management — are addressed, costly efforts at improving e-cars and charge spots will fail in the mass market.

Only one of the two cars launched this spring addresses these issues, and it’s not the one that comes standard with Nappa leather interior, Alcantara accents, and carbon fiber décor.

In this land of hyper-ambitious startups, Better Place is the biggest, baddest, most hatzuf* yet — out to achieve nothing less than to wean humanity off its oil reliance. Shai Agassi, who was in line for the CEO role at SAP when he left to found Better Place in 2007, has now raised a whopping $750 million to tackle head-on the issues that have hobbled the EV industry to date. Better Place isn’t an Israeli startup per se — the initial team assembled in Silicon Valley and they’re currently doing a full global rollout, with Israel serving as the linchpin.

As Adner notes, there are two main reasons electric vehicles haven’t yet captured the mainstream: the battery is too damn expensive, and driving range between time-consuming recharges has been way too limited. Better Place addresses both issues in a novel way,  separating battery ownership from vehicle ownership while building a network of quick battery switching stations that allow for long trips with very short refueling stops.

So while Tesla sells expensive, beautiful cars — Elon Musk and team are betting that aesthetics and enhanced performance will expand interest in EVs — Better Place is actually in another market entirely: EV infrastructure and power supply. The 100,000 Renaults they now market in Israel and Denmark are intended merely to get the ball rolling, but Better Place has no intention of becoming a car company. So while its massive 85 kWh battery constitutes about half the cost of Jurvetson’s Tesla, Gressel paid nothing for his Renault’s battery. As battery technology improves, depreciation and resale of existing units falls on Better Place, not its customers.

Owners of the Better Place cars we’re starting to see on Israeli roads choose among six different monthly plans based on the distance they drive. It’s like buying voice and data service plans from your cell carrier, completely separate from your mobile device. The plans are priced 25-30 percent below the cost of driving a typical gas-powered car. And should oil prices collapse, Better Place says they’re prepared to renegotiate any existing contract.

I spoke with Gressel (who’s not a Better Place investor) and two other private owners of Better Place Renaults here, and everyone seems thrilled with the experience so far. I took one for a spin around Better Place’s northern Tel Aviv track and was surprised how responsive it is — the engine has no gearbox and accelerates like a turbo. And then of course there’s the blissful silence of an EV. Imagine a city freeway at rush hour with zero engine noise and emissions, just the wind and soft crunch of tires on asphalt.

Through the rest of this year, Better Place plans to activate 40 battery changing stations to cover Israel. Currently seven are running, with a new one sprouting up every week or so. The first changing station in Denmark, the second Better Place launch site, went live last week (check out the parade of the first 40 Danish cars). A battery switch takes just five minutes, and you can stay in your car, like at a car wash.

But since most electric vehicle charging can be done slowly, at home or work (through “trickle charging”), one of the concerns about a broad public move to EVs has been the increased aggregate load on the electric grid. Better Place devised a clever solution to this: “managed charging,” which is really only possible with its model of separating car ownership from energy provision.

Centralized diagnostic software learns how far each driver typically drives each day, and charges its entire network of batteries just enough to satisfy that, with some to spare (if you plan a long drive, you can request more overnight juice). In addition, Better Place is in constant communication with the electric company to time and locate its charging to avoid exacerbating existing demand surges on the grid — during, for example, heat waves.

So how and when does Better Place make money? I understand that the highly capital-intensive initial stage required the company to burn through over $400 million of its $750 million financing. But Joe Paluska, Better Place’s VP of Global Policy and Communications, tells me that aside from that ongoing infrastructure build, the company’s sales model is already profitable. Ongoing, their model assumes that oil costs will rise over time while batteries become more efficient and cheaper. So with its consumer packages priced at a fixed percentage below gas costs, Better Place expects to profit from that growing spread.

Of course, a whole lot can still go wrong for Better Place, as it rolls out globally. Its model makes a ton of sense in principle, but in many ways it’s swimming against the tide. To name just three altogether possible bad scenarios:

• Battery efficiency growth stalls — Despite massive scientific effort in this field, it’s proven very difficult to significantly enhance the output of Lithium Ion batteries, and every new proposed battery chemistry (such as nanomaterials) has been way too expensive to make sense commercially. Better Place insists its financial model works even with its existing 24 kWh battery, but without a step change improvement in battery efficiency in the next decade, can it squeeze out margins that would allow even returning investors’ money?
• DC fast charging works — Chevrolet, Nissan and Tesla are counting on a nationwide U.S. buildout of DC fast charging stations to enable long trips in their EVs. These stations are more than ten times cheaper to build than Better Place’s battery changing stations and currently enjoy federal government funding. Better Place points to three big problems with DC fast charging: the time required (over 30 minutes including cooling), plus the heavy impact on both the battery and the power grid. But if these technical limitations can be overcome while battery prices fall, it would end up much harder to justify the Better Place model.
• Industry resistance grows — Better Place chose Israel, Denmark, and Australia —  nations with progressive renewable energy policies — for its initial launch, since at this stage it needs both government subsidies (or vehicle tax breaks) and policymaker cooperation on regulation and licensing. But the automaker and oil industries wield enormous power in Washington and Berlin, and will almost certainly resist a promising new private player with ambitions to gut the core of their business. Without government support from the major western powers, how far can Better Place go?

On the final point, Paluska insists that real policy change in the US begins at the city level, and points to Better Place’s electric taxi program now underway in the Bay Area as a sign of progress. This involves switch stations in the San Francisco-to-San Jose corridor to enable a fleet of zero emission, switchable-battery taxis.

So the current plan is to focus on such friendly locales and give consumers a better deal than gas, along with an amazing customer experience. They’ve done little paid marketing here in Israel, relying more on their initial customers to spread the love. It’s true that the first wave of customers are drawn at least as much to the idea of an electric vehicle as they are to the savings. As Gressel says, “I would much rather visit a switching station than a greenhouse-gas-and-fume-emitting, OPEC-controlled, range-anxiety-hoax-promoting gasoline station.”

At the same time, as with any super ambitious project, skeptics abound — including (and not surprisingly) here in Israel. Almost anyone you ask has something to gripe about on Better Place, like my local corner store owner: “Tell me, why does this Agassi get special treatment? You watch, he’ll just become another tycoon!” But as Saul Singer, who made Better Place the marquee story in the intro to his best-selling Startup Nation says, “Once people begin to see these cars on the road and realize they’re for real — below the cost of standard cars and with no real downside, all this cynicism will fade away.” He’s got one on order.

*[Editor's note: "Hatzuf" is a Hebrew word, the adjective form of Yiddish/Hebrew "hutzpah."]

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

There are Techies, and then there are Normals. You, dear PandoDaily reader, are almost certainly a Techie, which doesn’t necessarily mean you fork repos on GitHub. Hear of Instagram before Facebook bought it? Techie. Friends turn your way for digital help, and you’re kind of stunned they didn’t already know how to do that? Techie.

Soluto, a darling of the Israeli startup scene since winning TechCrunch Disrupt in 2010, is a slick tool for Techies to soothe Normals’ computing hell and share a bit of Techie bliss. The newish Web-based version of Soluto, available since December, allows you to remotely monitor and optimize a Normal’s Windows PC (Windows only at this point), including one-click remote installs of apps including Skype and now Dropbox.

That means you now have a better way of sharing big pictures and videos with Normals: “Look Ma, Sasha’s birthday party’s already right there on your Dell… And you don’t even have to log into AOL!”

Soluto did a big $10.2 million financing round last summer, adding CrunchFund (Disclosure: CrunchFund is an investor in PandoDaily), Innovation Endeavors, Index Ventures, and Initial Capital to previous investors Bessemer, Giza, and Proxima. The company has raised $18 million overall.

The first version of Soluto, downloaded over three million times, was the local agent that still sits on both parties’ machines, joined by the new Web interface. This kernel-level app monitors hardware and software performance, sending anonymous reports back to Soluto’s servers, which in turn suggest solutions for the Techie to implement remotely on the Normal’s machine when it’s idle.

All that incoming data, combined with a crowdsourcing element, means Soluto can actively suggest smarter PC optimization solutions all the time. “There are only two companies in the world that receive all this PC crash report data at scale — Microsoft and us,” said CEO Tomer Dvir, when we met in their funky Tel Aviv office, “and only we provide immediate solutions.”

Selling or licensing Soluto to Microsoft would seem an obvious play, but perhaps since Microsoft is going another, exasperating direction on removing Windows bloatware, Soluto’s current revenue model is focused entirely on enabling the Techie.

Product head Roee Adler says the three main use cases are for (1) an IT supervisor at a small business, (2) an independent IT consultant, and (3) someone who wants to start a business as an independent IT consultant. For (2) and (3) Soluto’s ongoing monitoring helps justify a recurring charge to Normals. Your first five PCs are free to monitor, then Soluto charges $6 per additional PC per month. They’re still working on the pricing model, Adler’s quick to add, and they plan special pricing for educational institutions and non-profits.

As Dvir and Adler see it, the future for Soluto isn’t so much the crash diagnostics side of the product but rather installing cool stuff on Normals’ machines. So the new Dropbox remote install is an important milestone. It works well (tried it with Dad) and, interestingly, was built without a Dropbox API — yet Dropbox seems ok with that. Soluto creates a random password for the Normal, which neither he nor the Techie nor Soluto keeps, but the Normal can change it at any point through Dropbox’s “forgot password” function.

With the business now firmly focused on the Techie helper, I wondered aloud to Adler if Soluto falls in an awkward spot between, on the one hand, simple phone support, and on the other, take-over-your-machine apps (like TeamViewer for individuals or Citrix’s GoToAssist for enterprise). That is, if a Techie wants to get into the kishkes of a Normal’s machine, why not go all the way?

Adler’s reply was that IT people simply don’t do RegEdit, Adobe product updates, and all the other little stuff that keeps Normals’ machines running smoothly. So he’s convinced they have unique product/market fit and are now just listening closely to the “hundreds of IT people” using their new service.

On Adler’s suggestion, I spoke with one of those users, Evan Oberman of Toronto’s Obercor, which provides remote IT support. Oberman supports about 30 clients on Soluto’s new platform and loves it. “Nobody likes getting their machine taken over, since they have to stop working and it feels intrusive,” he says, “and I appreciate that I can be proactive with clients, instead of reactive. So it has both great functionality and is really good for customer relations.”

A version for Macs and mobile devices is in the pipeline — “Mac’s a priority!” Adler promises. The Soluto team imagines a future where a Techie can remote support a whole range of gadgets in Normals’ hands — from any gadget in her Techie hands.

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

Forex payments are a complete racket. If you need to wire money to someone in another region and currency, you typically have to suffer two blows from your bank, delivered like two cheek slaps: whap! a lame exchange rate well below their interbank rate, then backhand whap! a hefty processing fee. Together these usually reach 3-5% of the transfer sum.

Large institutions also suffer from banks’ stranglehold on cross-currency payments. BNY Mellon currently faces a lawsuit from state pension funds claiming nearly a billion dollars in losses from fraudulent forex price execution.

Enter TransferWise, a London-based money transfer service that just closed a $1.3 million equity-based seed round from an absolute Who’s Who of fintech funding and innovation. Lead by Roger Ehrenberg’s IA Ventures (who now takes a board seat), the group includes Index Ventures, Robin Klein, and Saul Klein of The Accelerator Group, Pay Pal co-founder Max Levchin, Wonga co-founder/CEO Errol Damelin, ex-CEO of Betfair David Yu, and Simple co-founder Shamir Karkal.

Launched just over a year ago, and running Euro/GBP transfers only at this point, TransferWise bypasses the traditional international money wiring systems entirely. Like single currency payment startup Dwolla (which also just announced a financing round), TransferWise aims for a more or less direct transaction between payer and recipient, avoiding the exorbitant traditional bank and credit card costs.

How much cheaper is TransferWise? They’ll process a £1,000 payment into Euros for 35-40 EUR less than the major banks, and over 100 EUR less than Western Union. They do so by both applying a far better exchange rate and drastically lowering the processing fee to just 1GBP on transfers up to 300GBP. (See their dynamic cost/comparison calculator.)

To fulfill payments, TransferWise simply sets up its own accounts in each region it serves. So if Lane in London needs to pay Sal in Rome, Lane sends his GBP to TransferWise’s UK account, then TransferWise instructs its continental EUR account to pay Sal’s. Through the end of February, the company has processed over €10 million in transactions.

TransferWise’s founders are two Estonians, Taavet Hinrikus and Kristo Käärmann. Taavet was part of the original Skype team, and Kristo is a former Deloitte manager with financial systems architecture expertise.

They’re addressing a massive market, of course: cross-border payment flow for goods and services reached $150 billion a day in 2010, Taavet says, based on UNCTAD figures. Taavet runs some numbers: “If you assume the average fee is now 5%, that means our industry is $1.925 trillion per year (5% of the $38.5 trillion/year total). Disrupt that down to 1% and you have $385 billion/year.”  98% of the market outside of remittance providers like Western Union, he believes, is handled by the banks, “so it’s really about expanding that 2%.”

I spoke with Taavet about regulation, which is clearly one of the biggest challenges they’ll face to scale. In February, the company received authorization by the UK Financial Services Authority (FSA), which allows it to process all European transfers with no volume cap. (It cannot, however, hold deposits).

TransferWise plans to add more currencies in about a month, starting with three European nations. Then they plan to add regions adjacent to Europe — possibly Russia, the Mideast, or Africa. At that point, they’ll tackle the great American regulatory monster.

“There are two possible solutions for us in the U.S.,” says Taavet. “We could either get a banking license or get a state by state transmitter license. We’re looking at both, as well as partnering with an existing licensor.” It’s also possible, he adds, that offering India or China would make more sense ahead of the U.S.

Sequoia-backed Xoom offers a cross-border payment service closest to TransferWise’s. As Taavet sees it, “Xoom is the one peer of ours that’s not ripping people off. But they focus on the classic remittance corridor, U.S. to India. We could possibly charge less than Xoom, but in any case Xoom is a very good option — we see them on our side against the outrageous traditional bank fees for this service. There’s room for a dozen companies like ours, Dwolla and Xoom.”

On the other hand, Taavet sees PayPal’s business model as far different: “PayPal does things very much like the banks, charging 2-4%, which is absurd. They see cross-border transfers as a revenue driver, while we say that it fundamentally doesn’t cost anything, so there’s no reason to charge for it. We want to be completely transparent and massively drive down costs across the industry, as Skype did against the traditional call carriers.”

What about the credit card providers, and payment startups like Square and Stripe that use the Visa and MasterCard backbone? “I see us as complementary to credit cards. There are many use cases still when a credit card is the best method of making payment, for example, mobile payments. We could at some point start taking credit card payments, though that almost certainly wouldn’t be as cost efficient as our current model.”

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

So now it’s official… Israel has its first billion dollar Internet startup. And remarkably, it’s still controlled by founders and employees.

The Israeli press today reports that JP Morgan acquired a $100 million stake in Conduit at a $1.3 billion valuation. JPM bought remaining shares held by early Conduit investor Yozma, completing Yozma’s exit from Conduit following its recent sale of $39 million of stock at an identical valuation to private equity group W. Capital Partners.

Last week I sat down with Conduit CEO Ronen Shilo (pictured above) at the company’s Rehovot office to discuss the company’s impressive growth since 2005 launch, and where Shilo hopes to take things from here.

Conduit’s cash cow is its toolbar, which the company says has been used by more than 200,000 sites, including MLB.com and Miniclip, to reach 250 million users. When those users run a search via the publisher’s toolbar, Conduit receives a volume and ad performance payout from either Microsoft’s Bing (in the US) or Google (outside the US).

Israel’s The Marker reports Conduit generated $200 million in profit last year on $500 million revenue, but I think those numbers are somewhat exaggerated. In any case, Conduit right now is indisputably a cash machine. But Shilo knows it can’t stay that way in its current form.

“The future is not in toolbars,” he announced straight up to me. “We are broader than that. We’re an engagement company. We aim to help publishers and online brands engage with their users on any platform.”

To that end, Conduit has been taking a number of steps to try to expand its product beyond its much-maligned toolbar.

Last year Conduit acquired another Israeli startup, Wibiya, for $45 million. Wibiya’s footer bar sits on a publisher’s site, complementing Conduit’s toolbar which is used primarily off the publisher’s site. The 30-member Wibya team, like every Conduit unit, works in its own discrete area of the Conduit building, with its own management team and minimal joint activity with the rest of the company.

In an effort to enter the mobile market, Conduit also launched a smartphone app-building platform last year. But Shilo acknowledges that the mobile platform hasn’t really achieved his goals for it to date: “It did not work out as well as the toolbar.”

Nonetheless, Conduit has found significant niche community pickup for the mobile app platform among independent musicians and around event content, and it’s following up on those markets aggressively. In addition, Conduit’s mobile unit just launched a slick Android lockscreen app that aims to capture that critical area,  including its search box,  for brands.

I was also given a sneak preview of an extremely ambitious new consumer-facing product that Conduit plans to unveil later this year. I’ll provide details as its launch approaches.

All these products suggest that Conduit — despite the current internet IPO and buyout wave — is playing the long game, looking to leverage its massive reach and cash position to build a sustainably profitable business that remains under founder and employee control for years to come. That’s what Shilo told me, and what he recently extolled in a blog post, entitled “In Praise of Control” on Mark Zuckerberg’s handling of Facebook’s IPO:

What interests me most is the fact that Mark Zuckerberg is about to be worth $28 billion – and still maintain operational control of the company… As someone who has been concerned about maintaining control of my company from the beginning, I completely understand and empathize with what Zuckerberg and his financial gurus have structured. My partners and I control over 50% of Conduit; I wouldn’t have it any other way, and I don’t think we could have achieved what we did otherwise.

In an effort to keep it that way, Conduit took the unusual step last year of dipping into its cash hoard to pay out an approximate $50 million dividend to shareholders and employees who exercised options, and it plans a similar dividend this year. With fully 22% of shares still held by employees, this is a company that wants to retain its talent and continue to compete for the limited pool of top notch Israeli engineers. Some Conduit employees also participated in the recent stock sale to W. Capital Partners at the $1.3 billion valuation.

For the holistic and sexy Israeli Internet scene, Conduit’s newly pegged 10-figure valuation will no doubt inspire. But for an ecosystem characterized by premature sales of promising young companies, the fact that Conduit hit the magic $1 billion mark not through acquisition, but rather while still scaling, is no less significant.

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

When I sat down with Index Ventures partner Saul Klein on the porch of a Tel Aviv cafe on Sunday, the late winter Mediterranean sun shone so intensely that I could barely see him, squinting across the table. We ducked inside to a covered spot and Klein quipped, “There it is, Israel’s light onto the nations.”

We shared a chuckle — what would the prophet say about the hookers and junkies working the street corner ten minutes from us? But as became clear over the next couple hours, Klein was really only half-joking. In the almost two years since he moved here from London, Klein’s quickly become both a leading player in Israeli consumer Internet and so bullish on the emerging Israeli web startup scene that this low-keyed South African, part of the original Skype executive team, now seems positively dazzled by the Holy Land’s light.

If you want to understand what’s driving this new wave of Israeli startups, Klein says, take a look at Eyal Gever, an artist-turned-software CEO-turned-artist-again who produces stunning sculptures with bleeding edge 3D printing. (See the recent BBC profile of Gever.)

“That combination of technical and design brilliance, that left brain/right brain mix, I’m seeing that over and over again in this generation of Israeli entrepreneurs,” says Klein. “If da Vinci and Picasso were alive today you know they’d be integrating technology with their art, and the talent here expresses that mix in an incredibly compelling way.”

Wait, Israeli technology bearing some kind of holistic beauty? The first generation of big Israeli tech companies from the 90s was anything but that. It just had deep nerd appeal. With security software from Check Point or flash memory from M-Systems, the only thing normals could get excited about back then were the mounds of cash those companies threw off. But this time around, young Israeli entrepreneurs are producing innovative consumer Web products that are slick, super engaging and with real human resonance. Silicon Wadi’s gone sexy.

And they’re now getting the money too: consumer internet teams now garner the lion’s share of new investment flowing into Startup Nation. Israeli per capita VC and R&D as a percentage of the economy remain much higher than the rest of the world, and 2011 brought a big overall uptick in tech investment, with Internet services leading other sectors for the first time in the past decade, attracting $482 million, or 23% of total capital raised by Israeli tech companies, double the amount that went to Internet services in 2010 (data from IVC).

“When I told our LPs I wanted to spend more time in Israel,” Klein recalls, ”they said ‘what the hell are you going there for?’ But I had already seen with our investments in MyHeritage and Abe’s Market this new type of product-and-design focused Israeli founder and knew there was a lot more in Israel where they came from.”

The leader of the pack right now is cash machine Conduit, which did no less than $200 million of EBITDA last year on $500 million in revenue. A big chunk of Conduit shares were nearly sold last month to private equity firm Silver Lake at around a $2 billion valuation. And though that deal fell through, local press leaks got the whole ecosystem jazzed and solidified Conduit’s status as the most valuable Israeli Internet company for the past decade.

Behind Conduit are a slew of other Israeli consumer web services that have a good shot at hitting these sort of numbers: Kenshoo, Wix, PrimeSense, Gigya, Waze, Peer39, eToro, Fiverr, Viber, Seeking Alpha, BillGuard, Farmigo, Shaker, CrossRider – plus Index-backed Soluto, Outbrain, and Abe’s Market.

Promising stuff, but where are the venture returns? It’s now been about three years since Sarah poured some cold water on the ecosystem here, recognizing the disappointing liquidity since the late ‘90s (and getting completely undeserved, politicized flak in response).

While the numbers Sarah quoted were disputed at the time — she used Dow Jones VentureSource, whose method of defining an Israeli company understates liquidity as opposed to IVC reports — no serious participant in this community took issue with Sarah’s basic point: Overall venture returns for Israel were disappointing through the aughts, and Israeli startups really had kind of lost their mojo.

Klein, for one, is convinced that’s changing right now, before our eyes: “There’s no reason why Israel can’t turn out ten Internet companies in the next few years that are bigger than Check Point,” he says, and he believes the driver for that will be this new generation of Web-native, design- and UX-savvy entrepreneur.

It’s still the case, though, that the most valuable Internet companies in any Israeli VC portfolio right now are located in Europe — CliqTech (backed by Jerusalem-based JVP) and Wonga (Greylock) — and that big obstacles stand in front of Israel’s young consumer Internet companies.

As Klein’s fellow Israeli VCs Michael Eisenberg (in his Hummus Manifesto) and Adam Fischer recently lamented, it can be incredibly difficult for promising startups here to hire full developer and ops teams and remain risk-on in a way that lets them scale to significant size. Everyone around here seems to want to be a founder, not a team member. And at the end of the day only great teams build great companies.

Also, for these new consumer Internet services, there’s often a real issue of distance from their user base. That doesn’t necessarily have to constitute a major obstacle, but for Israelis in particular it clearly is a real business risk, as this culture hardly encourages the modesty required to listen well and closely to your users, then respond quickly by adjusting your product. That weakened feedback loop, Klein acknowledges, could actually become the biggest Achilles heel of this ecosystem.

In the meantime, though, the Israeli web startup scene is basking in the light and doing everything it can to reflect it back outward. And deep pocket investors like Saul Klein want to pour much more into this extremely talented new breed of fully human Israeli technologists, who really do seem to be bringing Israel’s tech mojo back.

[Disclosures: Saul Klein is a personal investor in Pando Daily, and I am a shareholder in Seeking Alpha.]

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.

The service alerts credit and debit card holders to fraudulent and deceptive charges, smoking out the bad guys through crowdsourced flagging and some novel big data science.

And today, it’s unveiling a new platform to make settling those disputes even easier.

Everyone raved about the Israeli and NYC-based company when co-founders Yaron Samid and Raphael Ouzan launched at TechCrunch Disrupt last May, and the company is now amply funded with $13 million total from a tier one cast including Khosla Ventures, Peter Thiel’s Founders Fund, Eric Schmidt’s Innovation Endeavors and seed backers Bessemer, SV Angel, IA Ventures, Founder Collective, and Social Leverage.

Here’s a web service that solves a very real problem (who checks their charges as carefully as they should?), with a slick and intuitive UI and massive target market. At launch, Samid and Ouzan presented a freemium model, intending to charge cardholders for BillGuard protection beyond their first card.

But soon after, following feedback from panel judge Fred Wilson and others, the founders decided to remove all user friction and focus on what Samid referred to on Quora as “BillGuard’s multi-billion dollar opportunity… in the backend with banks and merchants.” For the revenue model at least, it was goodbye consumer web service, hello enterprise software for large financial institutions. Bigger stakes, but that’s also a radically different sales cycle.

Now, it’s clear that BillGuard really does ultimately belong on the bank point of the card customer-merchant-bank triangle, since banks hold all the essential transactional data and real authority in card transactions.

In truth, BillGuard is the type of anti-fraud service that card issuing banks should have produced on their own, long ago. But the very reason why they never did so is what presents a massive challenge to BillGuard at this stage: retail banks are lumbering, reactive beasts that simply don’t function in anything resembling a consumer-centric or collaborative manner.

Just the opposite – they’re manic about protecting customer data from competitors, and right now are frantically trying to raise the number of little niggling charges they can sneak by their customers in an effort to compensate for billions in lost revenue from new regulation on their overdraft and swipe fees.

That means the banks’ own charges would likely get caught in BillGuard alerts… and you want they should install it on their servers?

I visited BillGuard’s Israeli R&D center this week to talk with 24-year old Ouzan, a veteran of Israel’s intelligence unit and a Davos ‘Global Shaper’,  about how they’ve been tackling this over the past few months. He and Samid, who’s based in New York, bring the right story when pounding the pavement to card issuing bankers – they address the banks’ own pain points.

So while Ouzan himself describes their company to me as “writing the book on consumer centered risk management” and is convinced the only way online security can succeed at scale is “to react fast through collaborative, collective vigilance,” the banks don’t hear all that people power stuff first in BillGuard pitches.

Rather, Chase, Capital One and their ilk receive detailed spreadsheets illustrating how much they can save in call center costs by replacing their expensive teams fielding dispute and nuisance calls with BillGuard. Then the banks hear how BillGuard will greatly improve their currently abysmal user engagement, since – unlike their own missives – BillGuard emails actually get opened by appreciative customers.

Ouzan acknowledges that a shift toward customer-centered, collaborative data sharing requires a whole new way of thinking for the banks, but he’s convinced there are enlightened souls there who are coming around to it, and believes BillGuard has now found the key to nudge them forward.

The company soon plans to launch BillGuard Resolution Center, a lightweight platform that largely removes the bank from the dispute process, placing the bewildered card holder directly in touch with merchants for a first attempt to resolve charge queries. If the merchant doesn’t give the cardholder satisfaction, the cardholder can still turn to her bank to adjudicate a dispute, but BillGuard claims, convincingly, that in the great majority of cases queries should be settled far more efficiently by directly linking merchant and cardholder.

The bank can therefore rid itself of much of the painful and expensive middleman role without ceding ultimate control over the transaction. Upstanding merchants should also love it, since they’re currently charged even for banks’ complaint investigations and suffer heavy fees for breaching a certain threshold of chargebacks (usually 1%).  BillGuard Resolution Center, applied at scale, should drastically lower all chargebacks.

Another big plus if BillGuard can get banks onboard: they currently use Yodlee to scrape customers’ transactions from card issuers’ sites, which can create massive integration and data normalization headaches, but if the banks themselves join the platform the company would gain direct access to clean transaction data.

So are the banks actually biting, choosing cost savings, transparency, data sharing and customer love over everything we’ve come to loathe them for? Ouzan tells me that in fact they are – that BillGuard’s in “very advanced stages” of inking deals with multiple card issuers, and that we can expect announcements on these partnerships over the course of this year.

If that does actually happen with multiple card issuers, it would be the fintech biz dev deal of the decade, signaling a sea change in how banks view their customers and data, and a big win for consumers.

While BillGuard is betting card providers are capable of this kind of radical reform, Dowalla and other upstart mobile payment providers are convinced that credit cards are fundamentally broken due to card providers’ intransigence. These companies hope to cut the intermediary bank out entirely from a next-gen payment process. It’s a fix from within, fix from without type of disagreement and it’ll be interesting to see how it plays out.

BillGuard calls itself “antivirus for your bills” – a terrific and accurate tagline – but when you extend the metaphor it raises a question. Card issuers today are like a cartel of Microsofts in the late ‘90s, dominating their market with a deeply flawed product that regularly exposes their users to malicious threats.

Why didn’t Microsoft acquire a serious antivirus software company like Symantec or McAfee in the late ‘90s or early oughts? Because it was easier to release reactive patches to Windows than it was to accept full and immediate responsibility for their product’s safety. Only when Mac and Linux seriously eating into Windows market share did Microsoft begin bundling a (lame) antivirus solution directly with their product.

Can BillGuard do for Bank of America and Chase what nothing could do for Microsoft? For the millions of cardholders out there with daily exposure to credit and debit card fraud, let’s hope so.

Mick Weinstein

Mick Weinstein is head of content at Covestor, which brings the transparency and efficiency of an online marketplace to the world of investment management. He was previously editor in chief of Seeking Alpha for its first five years. The most expensive bottle of wine he ever drank was shared with Sarah at a Tel Aviv restaurant (neither of them paid for it -- a VC's expense account did). You can follow him on Twitter here.