For Israeli investors and entrepreneurs, a fundamental shift toward a growth mindset, the penchant of seasoned serial entrepreneurs to mentor a new generation of startup founders, and a shared sense of responsibility are the main reasons behind the country’s recent scale-up prowess.
Scalability is the focus amid a rush of capital into Israeli startups and companies, and a critical mass of billion-dollar tech companies, or unicorns, that have flourished in Israel.
“Today, arguably, there’s a surplus in growth capital,” said Alan Feld, Vintage Investment Partners co-founder and managing partner. The Herzliya-based investment firm recently raised $812 million to back startups and investors in Israel, Europe, Canada, and the US.
“Ten years ago, if the vast majority of Israeli companies got an offer to be bought out before they went public, they would do that,” Feld told The Times of Israel in a recent phone interview. “Ten years ago, there wasn’t enough growth capital. And so, if you wanted to take your company to the next stage, you had a real problem fundraising significant capital.”
The startup mentality had once been to develop a product and once it reaches maturity to seek opportunities to sell the startup. Today’s local tech sector has its sights on multi-billion-dollar global companies. And a long list of fast-growing companies, including password-less authentication startup Transmit Security, sports-focused digital media firm Minute Media, music app maker JoyTunes, and cybersecurity company At-Bay among many others, are looking to experienced serial entrepreneurs, investors, and advisers to help scale up.
In the past, Israeli companies would “start a startup, find a couple of angels [investors to get you started], raise $200,000 and set sail, and then do a seed round at $1 million and an A round for $3 million. This doesn’t exist anymore,” said Mor Assia, founding partner and co-CEO of Israeli-based venture capital firm and investment platform iAngels.
Nowadays, startups position themselves from the get-go to aim at becoming a billion-dollar company, said Assia.
“The aspirations of entrepreneurs have grown. They want to build global brands that are successful. They bring moxy and aspirations. And they want to build something meaningful,” said Michael Eisenberg, co-founder and equal partner at Israeli venture firm Aleph.
The venture capital company’s portfolio includes outfits like insurtech startup Lemonade, now a publicly listed company and one of the fastest-growing in the insurance industry; fintech startup Melio, founded in 2018 and today valued at some $4 billion; robotics startup Fabric; logistics startup Bringg; and Empathy, the Israeli developer of a platform that helps families navigate the complicated bureaucratic journey after losing a loved one.
Many of these companies, and so many others, are founded or backed by seasoned entrepreneurs who have already built and/or sold a startup in the past.
“Entrepreneurs have icons now, people to look up to. Check Point, Wix, they want to be like that and build companies like that. This matters a great deal,” Eisenberg said.
Eden Shochat, also a co-founder and equal partner at Aleph, agreed that the aspirations of Israeli entrepreneurs have changed over the years.
“There are second- and third-time founders and entrepreneurs who love the idea of paying back the next generation and the generation after that” with their knowledge and expertise, Shochat said. There is so much institutional knowledge nowadays about building revenue and teams, and “these founders know they can aspire for more.”
“We have crossed the tipping point for the Israeli ecosystem, which is now dense and rich enough to actually build [big] companies. We have the infrastructure for this,” Shochat told The Times of Israel.
A mindset change
“There are a lot of startups being founded every day. The difference is that in the past, the startup would find a problem, find a solution, build an internet and technology company around it and then sell it. Today, people understand that they don’t have to sell the company at an early stage. They can stay on and become an industry leader or a sector leader and that’s a mindset change,” said Lior Handelsman, a founder of SolarEdge who saw it grow from a small startup to a multibillion-dollar global company with a market leadership position in the smart and renewable energy markets.
Handelsman, an active investor at Grove Ventures, says this change in mindset is growing companies.
Canadian-Israeli investor Feld says the mindset that Israeli companies can acquire other companies — and not only be acquired — is boosting the ecosystem.
“We have now seen Israeli startups do many acquisitions of Israeli companies and some non-Israeli companies before going public. We’re also seeing them make acquisitions after going public. There has been a mindset change, and that is really important,” said Feld.
A recent preview of an upcoming report by consultants PwC Israel showed that “blue and white” agreements where both sides — the buyer and seller — were Israeli were 30 percent of the total number of buyers in 2021 so far, up from 11% last year.
“One of the things that makes Israel special is that it’s like one big family,” said Shelly Hod Moyal, founding partner and co-CEO of iAngels, and general partner of the iNgenuity Fund, which focuses on early-stage tech. “When startups come to talk with us, even if it’s not relevant for us at a certain stage, we always think about how we can help, how we can make a valuable connection or give a valuable idea.”
There is also perseverance, said Hod Moyal, “really the notion of not giving up, being relentless in achieving and growing.”
A small yet robust tech ecosystem
The Israeli innovation ecosystem continually ranks high in world listings. It is small yet robust, and is supported by government agencies, acceleration programs, universities, and both local and international investors.
Its size and this “one big family” trait play in Israel’s favor with engineers, executives and entrepreneurs tending to share both strong personal ties and deep tech experience. Many of them have worked together before in an earlier startup or even during mandatory army service.
“One of the success factors of Israeli companies is having experienced people behind the scenes helping. It has been proven to be an important tool,” said Handelsman.
There are dozens of companies with serial entrepreneurs on board as advisers, investors, or co-founders. The list includes Uri Levine, co-founder of Waze (sold to Google), who is involved as co-founder, chairman or board member of over a dozen startups and companies including Fibo, GCNHub, and Moovit.
Benny Schnaider, Rami Tamir and Gil Hoffer, the three founders of business apps configuration startup Salto, have three exits under their belts (Pentacom acquired by Cisco, Qumranet acquired by Red Hat and Ravello Systems acquired by Oracle).
Prof. Oded Shoseyov is the scientific founder of multiple companies including Paulee CleanTec, food tech startup SavorEat and CollPlant, and the head of the advisory board of SupPlant, the agritech company just dubbed by Time magazine as one of the year’s best inventions.
And also recently in the news, serial entrepreneurs Shai Wininger, co-founder of Lemonade and Fiverr, and Micha Kaufman, also a co-founder of Fiverr, recently invested in Empathy, itself a startup founded by second-time entrepreneurs Ron Gura and Yonatan Bergman. The two began their work together at The Gifts Project, acquired by eBay in 2011, and over the last decade have held various positions including at PayPal, eBay and WeWork.
Assia, whose firm specializes in early-stage startups positioned to scale, said this trend of entrepreneurs who have founded successful startups starting a new startup or joining one as an adviser or investor “spreads learned lessons.”
She said successful – or failed – experiences are an important part of Israeli entrepreneurial advancement. “An entrepreneur who learned something and takes it onward to the next venture is paying it forward, being a mentor, supporting the ecosystem by being involved.”
It would seem that having experienced senior advisers on their boards as well as veteran investors could give startups more credibility especially, when there’s a funding round on the horizon.
“Experience and knowledge are critical factors, and this is no different with startup companies,” according to a report by Israel-based market research firm IVC Research Center. “An investment in a company with a serial entrepreneur will be less risky and offer a higher probability of a profitable return.”
“As we progress from startup nation to scale-up nation, investors find themselves in a situation where companies are facing dilemmas they didn’t face five or 10 years ago. Dilemmas around major deals, dilemmas of Israeli companies acquiring other companies, dilemmas of how to scale up a business in a market where you’re already the market leader,” said Handelsman.
“When you have investors who are more experienced with such dilemmas, then you bring more brainpower into the discussion, usually more experience and gray hair to the discussion. When you have more people who are easily available with aligned interest to consult with, you can usually get to a better result,” he added.
But Vintage Investment’s Feld believes there is no real evidence that having a serial entrepreneur on board brings better outcomes. “There is an assumption that because they’re experienced entrepreneurs, that the results will be bigger companies. There’s empirical evidence in the United States that that’s true but in Israel, we haven’t yet found enough empirical evidence to show that that’s true.”
Shochat, of Aleph, echoed some of these sentiments. “If you look at results, some of the biggest outcomes worldwide were actually by first-time founders. Sometimes, it’s good for you to know what you don’t know, it’s good for you not to be marred by your past experience. I wouldn’t discount the phenomenon of first-time founders. Afterward, they actually need help with some things like granting options [to employees], building their first sales infrastructure, and so on.”
And still, the investing community – foreign and local – appears to be banking on Israeli entrepreneurs to scale up. The tech scene is brimming with investors and a recent report showed the local tech sector breaking capital-funding records, with companies raising $17.78 billion in 575 deals since the start of 2021, almost double the total raised in all of 2020.
Add to that frequent unicorn valuations, and there’s obviously a much bigger transformation underway.
“We’re still a mighty startup nation but there is absolutely no limit to the value that you can take your startup to be or the size of the company that you can start off from here,” said Handelsman, who has led four investments this year to help young entrepreneurs scale (Mirato, AI-driven third-party risk management platform for banks and financial institutions in February; Teramount Silicon Photonics for high-speed data transfers in March; NoTraffic traffic management platform in July; and Metrolink dataflow-management omni-platform in October).
Hod Moyal calls investing “the fuel for building large businesses,” and said investors have an important role in boosting the local tech sector.
“We speak with a lot of entrepreneurs, they sit with us, and they share with us their dreams. A lot of time, the dream, especially for someone who’s a first-time entrepreneur, is narrow,” said Hod Moyal.
“As investors, we really try to have the entrepreneurs dream big and think big and look for opportunities that really do make a difference.”
Ricky Ben-David contributed to this report.
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