More start-ups, less Nation: Is Israeli high-tech still Israeli?
Check Point offices / Photo: Eyal Yitzhar
Jasmine Jablonko
In conversations with Israeli entrepreneurs in recent years, the same refrain is often repeated: they are not in a hurry to exit, they emphasize, but want to build a large, global company. Ostensibly, the start-up nation is expected to benefit from older, blue-and-white companies as a result, which are not soon swallowed up in international giants. But this change in attitude has another side: as the start-up Nation grows and matures, it is less clear what is Israeli in Israeli start-up companies.
According to data from the research company IVC, the center of activity of one in eight high-tech companies defined as "Israeli" is not in Israel at all. Of the 8,314 companies registered in the IVC database (including public), 1,068 of them moved the company's headquarters to another country, or opened it there in the first place. 333 of them have no activity in Israel at all, but they were established by Israeli entrepreneurs. The vast majority of these companies relocated to North America - with an emphasis, of course, on Silicon Valley and New York. The data do not include companies that have opened sales and marketing offices abroad, an older and more common practice.
The definition of a company as Israeli is not unequivocal: government bodies, venture capital funds and research companies have adopted different approaches to this issue (see reference at the end of the article). In any case, many of the investors and entrepreneurs we spoke to agreed that opening a significant office outside Israel, and even moving the company's CEO and most of the activity, are essential to the global growth of start-ups. In Israel, they say, most companies have no market. In other words - to expect to be a global growth company and also an Israeli company, it's a bit like eating the cake and leaving it intact.
Do not move to New York at once
Data on capital raising in recent years show that Israeli companies are raising larger sums than in the past, at later stages of their activities - in most cases from foreign funds. Rounds of more than $ 100 million are no longer uncommon, rounds of this amount are even more common. Many times, it is the capital obtained from such raising that is used by the companies for global expansion. Investors play a key role in opening a central headquarters and branches outside Israel, not only in financing - but also in directing and pushing for the move.
"We invest in companies that can become market leaders with our help, at an international level. It is difficult to do this from Israel," says Sivan Shmary Dahan, a partner in the growth fund at Comra Capital. In recent years, Kumara has invested in companies such as Fiverr, Tabula, Jfrog, Mint Media and Riskipade, which have moved their headquarters out of Israel. "In many cases, after our investment, the CEO moves to the US and physically approaches the market where the customers are, no matter what field. Everything related to marketing and sales also copies itself abroad, and R&D remains mostly in the country."
When is it right for a company to relocate in your eyes?
"When the product is finished and the focus is on the market, and it is clear who the customers are and that this is a significant target market. It depends on the customers whether it is worth opening an office on the West Coast, the East Coast or in Europe in general."
How do you make sure the move is made correctly for the company?
"The move should be correct and gradual. At first, you open a smaller office, with up to 10 people, which symbolizes the company's business front, and slowly increase as needed. You probably don't move to New York in one day and open a 50-person office. A company operating in two locations and two time zones "You also need to learn how to communicate properly: some meetings need to be at night, and people need to fly back and forth to have a warm and productive relationship between the parties."
One of Kumara's portfolio companies that has taken this route is the Israeli DevOps startup Jfrog, which recently raised $ 165 million. The company's headquarters moved to Silicon Valley with a small team after a round of recruitment A five years ago, when the company's platform already had more than a million users. Today it also operates from Seattle, India, Spain, France and Japan, alongside Israel.
"We wanted to get closer to our clients and the largest venture capital funds in the world," says Tali Notman, Vice President of Global Sales at Jfrog. "In 2013, two of the company's founders moved to the valley, and a year later I joined to set up the sales force and ensure continued global growth."
What was the role of the transition in the growth of the company?
"Our growth at the global level is now driven by North America, and American funds have allowed us to complete the next rounds of funding. Our latest round of funding was led by Insight, one of the largest funds in the world located on the East Coast. "Every hour is significant, and if we continued to do so from the country, the result would be burnout and an inability to grow."
To what extent has the transition played a role in the achievements you have reached?
"We did bigger things than competitors who were in the United States when we were still in our small offices in Netanya. However, global expansion is a must when you want to build a large company, break through the boundaries of start-ups and aim for an IPO. To me, Silicon Valley is a great destination to start expanding, but development is not stopping in America. "
Were investors involved in the decision to move?
"Those who initiated the move were first and foremost the company's founders, but our investors at the time - Gemini and VMware - fully supported it. The main question they raised was whether it would be more appropriate to recruit local management, which knows the American public better than inexperienced Israeli management. "Today, everyone knows that the fact that the generation that founded the company in Israel did the same in the United States was one of the significant components of our success."
How did you get along with the corporate culture in the US?
"The gap in the style of communication is one of the challenges at the professional level. The fact that we as Israelis are very direct in providing feedback, very open and loud, made it difficult for American workers to read the map correctly. Nevertheless, our corporate culture has contributed a lot there."
CEOs must approach customers
Compared to the model of Shimri Dahan and Jfrog, in which a head office is opened in Israel only after the company establishes a product and a target market, there are Israeli projects that encourage start-ups in the early stages to develop outside Israel. Fusion LA by Yair Vardi and Guy Katzovich, for example, has so far invested in 20 Israeli start-ups and given them work space and training in Los Angeles, with the intention of moving their operations there. The investment fund and acceleration program Upwest Labs operates on a similar model for entrepreneurs looking to move to Silicon Valley, and has already invested in 70 companies - including Apester, CyberX and Airobotics.
"Entrepreneurs in Israel come from very technological backgrounds, and think 'Product First' and not Market and Customer First," says Shuli Galili, a founding partner at UpWest Labs. "Entrepreneurs from a technological background find it difficult to change their thinking, but it is very important to think about the market before thinking about the product, and before settling down to write code. One has to ask: why are we doing this? Who is the customer and what is it going to solve for him? The final and the industry ?.
How do you usually solve this problem?
“The really successful companies in the last two decades were the ones that built a strong business headquarters in the US, with talents in marketing, sales and business development, who were in senior positions in parallel and large companies. Development remains in the country, where there is access to very important talent in the field of engineering. This model works, but it has a lot of challenges: of time zones, of a CEO living on planes to bridge the gap. "
When do you think it is worthwhile to transfer most of the activity to the target market?
"We believe very strongly in the initial construction of the product in close proximity to the customer. Many times we see entrepreneurs starting in Israel, know what they want to develop and what problem they are going to solve, but can not do remote validation. We saw entrepreneurs who built products for local customers in Israel. "It was clear to the American market that the product was not adapted. There are regulatory differences, and there are differences between marketing a product to an American bank and an Israeli bank. They had to make a turnaround, and it takes time, and US companies were ahead of them."
And what about the CEO's need to be close to the development center during the product construction stages?
"I understand the desire to concentrate on building an amazing development center in Israel, but for that we need to bring in technology and R&D managers who will take care of it and bring in the talent. "The CEO should be close to the market in the early stages: the more he is drawn to the development center, the further away from the company its customers are."
Europe and China also enter the picture
Although the United States is the main destination for Israeli high-tech companies that go beyond the borders of the country, it is no longer the only one, due to the change in the investment map. According to IVC data published in August in "Globes", Chinese investors have been involved in 12% of the capital raising rounds of Israeli start-ups since the beginning of the year, compared with 7.5% -9% in recent years. The rate of investment by European investors in Israel is also on the rise.
Both investors from Europe and those from China often condition their investment in launching an operation in their countries of origin. The EU encourages intra-European investment through benefits, and the various continent countries provide investment benefits within the countries themselves.
Similarly, the Chinese government encourages investment as a tool to bring technology into the country, although today few Israeli companies have moved their headquarters to the country. In a conversation with "Globes" about a month ago, Doron Myersdorf, founder and CEO of Stordott, said that the company has a "check on the table of 300 million to open a factory in China, but we are approaching it carefully. The advantage is that they will open up the Chinese market for you - and they will really do that - but everything will just stay there. "
Affinity or Intellectual Property: What exactly is an Israeli high-tech company?
Who is an Israeli? This is the question that comes up every time you come across a high-tech company abroad, whose leaders include Israelis. Is Amdocs, one of the pillars of Israeli high-tech for many years, with most of its activities and employees abroad, still Israeli? And what about Formlabs, a huge startup from Massachusetts in the field of 3D printing, by the Israeli Nathan Linder?
The mere registration of a high-tech company as an Israeli company is not sufficient for the purpose of the definition. In fact, all companies operating in Israel are registered as a limited company with the Registrar of Companies, including Intel and Microsoft and the rest of the international community. When you want to know which company contributes and will contribute to the country's economy,
According to Aharon Aharon, CEO of the Innovation Authority, the government criterion for examining Israeliness is the intellectual property that the company develops. "We look at where its IP sits. If he is in Israeli society, for us it's fine. This means that revenue recognition is also in Israel, even if the marketing guys sit abroad. We support such companies, but if only the R&D is done in Israel it is less interesting to us, and the attitude is like a foreign company. "
The example he gives is of the video communication company Amimon, which was sold about a month ago for $ 55 million to the British Vitec. The company, which was established in 2004, employs 60 people, most of them in Raanana and some at the company's headquarters in San Jose, California, and in offices in Tokyo, Taipei and Shenzhen. According to Aharon, this is an example of a company where the management is based in the United States, but most of the company's activity is based in Israel and sales are made and recorded in Israel. "For us, this is an Israeli company," he says.
Although the definition of the Innovation Authority has budgetary implications, not everyone adopts it. The research company IVC, for example, defines as an Israeli any company whose entrepreneurs behind it are Israeli and related to Israel, when in most cases these are companies with an address in Israel ("We have an entire department that examines each case individually," they say). Some of the companies in the ranking of promising start-ups, published in this issue, also placed most of their activity abroad - but in the eyes of the venture capital funds, which voted for them and invested in them, these are Israeli companies in every way.
Do you feel the trend of Israeli companies moving the center of activity abroad?
646/5000
Aaron: "This is a trend that has intensified now, because of President Trump's tax reform. People are afraid that if they stay in Israel they will be taxed in larger amounts. But now they are working in the tax authority to neutralize the effects of the reform, and things will return to normal."
Are you afraid that this process will overcome the opposite trend, of CEOs who want to build a large company in Israel?
"We see that a quarter of the entrepreneurs of Israeli companies are repeat entrepreneurs, those who have already built companies abroad before. What it means? That money does not interest them, and they come to build a real company. This is a good phenomenon, it means that the market is maturing, that there are many companies that want to sit and operate in Israel, even if the sales are where the customers are. In this respect, there is no local market for these companies, they will always go out. "
https://www.globes.co.il/news/article.aspx?did=1001261400
Check Point offices / Photo: Eyal Yitzhar
Jasmine Jablonko
In conversations with Israeli entrepreneurs in recent years, the same refrain is often repeated: they are not in a hurry to exit, they emphasize, but want to build a large, global company. Ostensibly, the start-up nation is expected to benefit from older, blue-and-white companies as a result, which are not soon swallowed up in international giants. But this change in attitude has another side: as the start-up Nation grows and matures, it is less clear what is Israeli in Israeli start-up companies.
According to data from the research company IVC, the center of activity of one in eight high-tech companies defined as "Israeli" is not in Israel at all. Of the 8,314 companies registered in the IVC database (including public), 1,068 of them moved the company's headquarters to another country, or opened it there in the first place. 333 of them have no activity in Israel at all, but they were established by Israeli entrepreneurs. The vast majority of these companies relocated to North America - with an emphasis, of course, on Silicon Valley and New York. The data do not include companies that have opened sales and marketing offices abroad, an older and more common practice.
The definition of a company as Israeli is not unequivocal: government bodies, venture capital funds and research companies have adopted different approaches to this issue (see reference at the end of the article). In any case, many of the investors and entrepreneurs we spoke to agreed that opening a significant office outside Israel, and even moving the company's CEO and most of the activity, are essential to the global growth of start-ups. In Israel, they say, most companies have no market. In other words - to expect to be a global growth company and also an Israeli company, it's a bit like eating the cake and leaving it intact.
Do not move to New York at once
Data on capital raising in recent years show that Israeli companies are raising larger sums than in the past, at later stages of their activities - in most cases from foreign funds. Rounds of more than $ 100 million are no longer uncommon, rounds of this amount are even more common. Many times, it is the capital obtained from such raising that is used by the companies for global expansion. Investors play a key role in opening a central headquarters and branches outside Israel, not only in financing - but also in directing and pushing for the move.
"We invest in companies that can become market leaders with our help, at an international level. It is difficult to do this from Israel," says Sivan Shmary Dahan, a partner in the growth fund at Comra Capital. In recent years, Kumara has invested in companies such as Fiverr, Tabula, Jfrog, Mint Media and Riskipade, which have moved their headquarters out of Israel. "In many cases, after our investment, the CEO moves to the US and physically approaches the market where the customers are, no matter what field. Everything related to marketing and sales also copies itself abroad, and R&D remains mostly in the country."
When is it right for a company to relocate in your eyes?
"When the product is finished and the focus is on the market, and it is clear who the customers are and that this is a significant target market. It depends on the customers whether it is worth opening an office on the West Coast, the East Coast or in Europe in general."
How do you make sure the move is made correctly for the company?
"The move should be correct and gradual. At first, you open a smaller office, with up to 10 people, which symbolizes the company's business front, and slowly increase as needed. You probably don't move to New York in one day and open a 50-person office. A company operating in two locations and two time zones "You also need to learn how to communicate properly: some meetings need to be at night, and people need to fly back and forth to have a warm and productive relationship between the parties."
One of Kumara's portfolio companies that has taken this route is the Israeli DevOps startup Jfrog, which recently raised $ 165 million. The company's headquarters moved to Silicon Valley with a small team after a round of recruitment A five years ago, when the company's platform already had more than a million users. Today it also operates from Seattle, India, Spain, France and Japan, alongside Israel.
"We wanted to get closer to our clients and the largest venture capital funds in the world," says Tali Notman, Vice President of Global Sales at Jfrog. "In 2013, two of the company's founders moved to the valley, and a year later I joined to set up the sales force and ensure continued global growth."
What was the role of the transition in the growth of the company?
"Our growth at the global level is now driven by North America, and American funds have allowed us to complete the next rounds of funding. Our latest round of funding was led by Insight, one of the largest funds in the world located on the East Coast. "Every hour is significant, and if we continued to do so from the country, the result would be burnout and an inability to grow."
To what extent has the transition played a role in the achievements you have reached?
"We did bigger things than competitors who were in the United States when we were still in our small offices in Netanya. However, global expansion is a must when you want to build a large company, break through the boundaries of start-ups and aim for an IPO. To me, Silicon Valley is a great destination to start expanding, but development is not stopping in America. "
Were investors involved in the decision to move?
"Those who initiated the move were first and foremost the company's founders, but our investors at the time - Gemini and VMware - fully supported it. The main question they raised was whether it would be more appropriate to recruit local management, which knows the American public better than inexperienced Israeli management. "Today, everyone knows that the fact that the generation that founded the company in Israel did the same in the United States was one of the significant components of our success."
How did you get along with the corporate culture in the US?
"The gap in the style of communication is one of the challenges at the professional level. The fact that we as Israelis are very direct in providing feedback, very open and loud, made it difficult for American workers to read the map correctly. Nevertheless, our corporate culture has contributed a lot there."
CEOs must approach customers
Compared to the model of Shimri Dahan and Jfrog, in which a head office is opened in Israel only after the company establishes a product and a target market, there are Israeli projects that encourage start-ups in the early stages to develop outside Israel. Fusion LA by Yair Vardi and Guy Katzovich, for example, has so far invested in 20 Israeli start-ups and given them work space and training in Los Angeles, with the intention of moving their operations there. The investment fund and acceleration program Upwest Labs operates on a similar model for entrepreneurs looking to move to Silicon Valley, and has already invested in 70 companies - including Apester, CyberX and Airobotics.
"Entrepreneurs in Israel come from very technological backgrounds, and think 'Product First' and not Market and Customer First," says Shuli Galili, a founding partner at UpWest Labs. "Entrepreneurs from a technological background find it difficult to change their thinking, but it is very important to think about the market before thinking about the product, and before settling down to write code. One has to ask: why are we doing this? Who is the customer and what is it going to solve for him? The final and the industry ?.
How do you usually solve this problem?
“The really successful companies in the last two decades were the ones that built a strong business headquarters in the US, with talents in marketing, sales and business development, who were in senior positions in parallel and large companies. Development remains in the country, where there is access to very important talent in the field of engineering. This model works, but it has a lot of challenges: of time zones, of a CEO living on planes to bridge the gap. "
When do you think it is worthwhile to transfer most of the activity to the target market?
"We believe very strongly in the initial construction of the product in close proximity to the customer. Many times we see entrepreneurs starting in Israel, know what they want to develop and what problem they are going to solve, but can not do remote validation. We saw entrepreneurs who built products for local customers in Israel. "It was clear to the American market that the product was not adapted. There are regulatory differences, and there are differences between marketing a product to an American bank and an Israeli bank. They had to make a turnaround, and it takes time, and US companies were ahead of them."
And what about the CEO's need to be close to the development center during the product construction stages?
"I understand the desire to concentrate on building an amazing development center in Israel, but for that we need to bring in technology and R&D managers who will take care of it and bring in the talent. "The CEO should be close to the market in the early stages: the more he is drawn to the development center, the further away from the company its customers are."
Europe and China also enter the picture
Although the United States is the main destination for Israeli high-tech companies that go beyond the borders of the country, it is no longer the only one, due to the change in the investment map. According to IVC data published in August in "Globes", Chinese investors have been involved in 12% of the capital raising rounds of Israeli start-ups since the beginning of the year, compared with 7.5% -9% in recent years. The rate of investment by European investors in Israel is also on the rise.
Both investors from Europe and those from China often condition their investment in launching an operation in their countries of origin. The EU encourages intra-European investment through benefits, and the various continent countries provide investment benefits within the countries themselves.
Similarly, the Chinese government encourages investment as a tool to bring technology into the country, although today few Israeli companies have moved their headquarters to the country. In a conversation with "Globes" about a month ago, Doron Myersdorf, founder and CEO of Stordott, said that the company has a "check on the table of 300 million to open a factory in China, but we are approaching it carefully. The advantage is that they will open up the Chinese market for you - and they will really do that - but everything will just stay there. "
Affinity or Intellectual Property: What exactly is an Israeli high-tech company?
Who is an Israeli? This is the question that comes up every time you come across a high-tech company abroad, whose leaders include Israelis. Is Amdocs, one of the pillars of Israeli high-tech for many years, with most of its activities and employees abroad, still Israeli? And what about Formlabs, a huge startup from Massachusetts in the field of 3D printing, by the Israeli Nathan Linder?
The mere registration of a high-tech company as an Israeli company is not sufficient for the purpose of the definition. In fact, all companies operating in Israel are registered as a limited company with the Registrar of Companies, including Intel and Microsoft and the rest of the international community. When you want to know which company contributes and will contribute to the country's economy,
According to Aharon Aharon, CEO of the Innovation Authority, the government criterion for examining Israeliness is the intellectual property that the company develops. "We look at where its IP sits. If he is in Israeli society, for us it's fine. This means that revenue recognition is also in Israel, even if the marketing guys sit abroad. We support such companies, but if only the R&D is done in Israel it is less interesting to us, and the attitude is like a foreign company. "
The example he gives is of the video communication company Amimon, which was sold about a month ago for $ 55 million to the British Vitec. The company, which was established in 2004, employs 60 people, most of them in Raanana and some at the company's headquarters in San Jose, California, and in offices in Tokyo, Taipei and Shenzhen. According to Aharon, this is an example of a company where the management is based in the United States, but most of the company's activity is based in Israel and sales are made and recorded in Israel. "For us, this is an Israeli company," he says.
Although the definition of the Innovation Authority has budgetary implications, not everyone adopts it. The research company IVC, for example, defines as an Israeli any company whose entrepreneurs behind it are Israeli and related to Israel, when in most cases these are companies with an address in Israel ("We have an entire department that examines each case individually," they say). Some of the companies in the ranking of promising start-ups, published in this issue, also placed most of their activity abroad - but in the eyes of the venture capital funds, which voted for them and invested in them, these are Israeli companies in every way.
Do you feel the trend of Israeli companies moving the center of activity abroad?
646/5000
Aaron: "This is a trend that has intensified now, because of President Trump's tax reform. People are afraid that if they stay in Israel they will be taxed in larger amounts. But now they are working in the tax authority to neutralize the effects of the reform, and things will return to normal."
Are you afraid that this process will overcome the opposite trend, of CEOs who want to build a large company in Israel?
"We see that a quarter of the entrepreneurs of Israeli companies are repeat entrepreneurs, those who have already built companies abroad before. What it means? That money does not interest them, and they come to build a real company. This is a good phenomenon, it means that the market is maturing, that there are many companies that want to sit and operate in Israel, even if the sales are where the customers are. In this respect, there is no local market for these companies, they will always go out. "
https://www.globes.co.il/news/article.aspx?did=1001261400
