How the makers of Facetune raked in about $18 million in 2 years - and caught Facebook's eye

Lightricks makes a popular smartphone photo-editing app, Facetune, that's a perpetual member on the App Store's best-selling apps list.

And that's no accident.

Lightricks was founded in Israel in 2013 by five co-founder friends, four of them PhDs studying computer graphics, or as the company's CEO Zeev Farbman described it to us: "computational photography."

Their best-selling apps Facetune and Enlight help you edit photos on mobile devices and have already generated "millions of dollars in profitable revenue" for the company, Farbman tells us.

Lightricks has 4.5 million customers for face photo touch-up app Facetune (used by many celebs including, reportedly, Kim Kardashian). It costs $3 to $4, (so, over $13.5 million of revenue for that app alone).

The startup has also already nabbed over 1 million customers, at $5 a pop, for their new full image editing app, Enlight, which is like Photoshop for your iPhone. (Another $5-ish million in revenue.)

Earlier this month, the 30-employee company took a $10 million venture investment from Israeli firm Carmel Ventures so they can hire more people, build more new products, and grow faster.

But the successful app isn't what Israeli insiders are buzzing about.

The scuttlebutt is that this small company is headed for a big exit perhaps by Apple or Facebook because the team of PhD founders invented two valuable bits of technology far beyond its popular apps.

These are:

1) a graphics engine that helps cameras work better.

2) mobile advertising software used only by themselves, that helps them stay in the best-selling lists.

As for the graphics engine, we know that a major maker of Android phones was in talks with Lightricks about licensing it for its phones.

Because of this tech, people in Israel told us that they think Lightricks has (or will) be bought by Apple.

Apple is a big player in Israel that earlier this year opened yet another huge 800-employee office there.

Apple likes to buy Israeli companies, too, like secretive flash memory company Anobit, acquired in early 2012 for $390 million, and movement sensor and former Microsoft Kinect partner PrimeSense, purchased by Apple in late 2013 for $300 million.

Earlier this year Apple bought another camera-equipment technology maker LinX for an estimated $20 million.

Facebook loves Lightricks, too.

But Facebook is all over Lightricks, too. Its homegrown mobile ad prediction software system discovered that ads on Facebook mobile was the best way to grab new customers.

The system was the brainchild of CMO co-founder Nir Pochter (He's the most atypical CMO we ever met. He hardly talks at all, and in very few words, always says something insightful.)

When Facetune first launched, Apple featured it in the App Store, giving it a huge boost in downloads.

When Apple stopped featuring it, the downloads stopped. Pochter knew the bootstrapped company needed to advertise, but where and how much?

Being a mathematical wiz, Pochter built a prediction algorithm, which grew into a software platform, for running ad campaigns.

He experimented in small countries, small markets on a small advertising budget and discovered that Facebook mobile was best for Facetune.

Today his algorithm predicts exactly how much money he has to spend on ads to keep Facetune on the best-seller list, where it attracts even more customers.

Lightricks' success became a poster child for Facebook's mobile ad business. Facebook has showcased the company as a success-selling story, and, we're told, gives the young company a lot of extra attention and support.

Pochter has been asked, many times, if he's willing to sell the ad software as a product, too, but Lightricks isn't considering that now, he tell us. They want to focus on computers graphics and don't want to "get sidetracked" with developing and supporting an ad software product.

Upshot: this is a startup worth watching, headed for something big.