Israel’s ‘scale-up discount’ called good value for multinationals

Multinationals like MasterCard are drawn to working with Israeli start-ups thanks to the availability of good technology at a discounted price, among other reasons, said Geoffrey Iddison, executive vice president for M&A and Investments at MasterCard Europe.

“Israel brings a lot of innovation to the table for financial technology applications, a very well educated candidate pool, and more realistic valuations than you get in Silicon Valley, London, or other fintech centers,” said Iddison.

“The skill set in Israel is as good as it is anywhere else, if not better,” he added.

Iddison was in Israel last week as part of the company’s TechTrek program, where a delegation met with local and global venture capital executives from leading venture capital firms, as well as with more than 15 local start-ups that cover many aspects of the fin-tech space including fraud and security, biometrics, digital currencies, cross border commerce and more. Attending the event were, among others, Knesset member Robert Ilatov, chairman of the Knesset lobby for the Israeli high-tech industry, and fellow parliamentarian Yoel Hasson, chairman of the Knesset Lobby for Advancement of Israeli start-ups.

MasterCard is no stranger to Israel. Last year, it held a hackathon called the Masters of Code Competition, in which participating teams developed apps that “demonstrate artful coding and design skills while also articulating clear business use cases,” according to the company.

Before that, it held several start-up contests, with one of the winners of its events – KitLocate, the company chosen by MasterCard in 2012 for its first-ever Israel Technology Awards – eventually bought out by Russian search giant Yandex, for a reported $20 million or so.

“The goal of this engagement is to obtain deeper insight into the Israeli Fin-Tech startup community,” said Iddison. “We are seeing extremely good ideas coming out of the Israeli startup community and we would like to establish stronger and more meaningful ties within this network of innovative companies.”

But even with technology as good or better than elsewhere, Israeli start-ups generally have lower valuations than they would in other places.

“There’s a built-in ‘scale-up’ discount when it comes to Israeli tech,” said Iddison. “Many of the ideas are great and start-ups usually implement them in Israel first, with the company becoming a beta site for new technologies. But there’s always a question of whether the tech that works well in a country of 8 million people can scale up to work for tens of millions of customers.”

Israel is not alone in that situation, noted Iddison; other places where there is start-up development, especially in fin-tech, are subject to that discount – which is one reason why MasterCard runs TechTrek programs around the world, attracting start-ups from all over the US and Europe to events in New York, London and San Francisco.

Israel now joins that prestigious list – and the extra advantage for MasterCard is that it gets access to top technology at a “reasonable valuation.”

That is good for MasterCard, said MasterCard Europe regional president Javier Perez, who also attended the event.

“We are happy to be visiting Israel, a hotbed for innovation, featuring globally relevant start-ups,” said Perez. “Israel is among the world leaders in cyber security and fraud prevention, and we are excited to assess commercial and investment opportunities.”