Israeli tech entrepreneurs are more informed and savvy than they were a decade or two ago, and foreign venture capital firms are helping startups to grow rather than cashing out quickly on their investments, members of Israel’s tech community were told at a conference in Tel Aviv earlier this week.
“One of the biggest changes that has taken place in Israel’s ecosystem in the past decade is by the venture capital funds supporting high-tech companies,” said Micha Kaufman, CEO of online freelance services platform Fiverr, which held a Wall Street initial public offering of shares last year at a company valuation of $650 million.
Kaufman, who practiced law before deciding to become an entrepreneur, set up Fiverr in 2010 with his partner Shai Wininger. It is his fourth company and what he considers his “largest and most successful” enterprise.
“Most of the Israeli venture capital funds that were around 15 years ago no longer exist and that’s just as well,” Kaufman said, speaking on a panel at the conference. That’s because those early Israeli VC firms “were very focused on the short term and did not have the stamina to take companies on for further financing rounds.”
“Very often they got in the way of entrepreneurs who wanted to raise money in further financing rounds and ultimately they weakened them,” he said. “It’s a good thing that that generation is no longer here. Their departure and the entrance of strong foreign funds and local funds with more distant horizons have changed for the better our ability to think ahead.”
The conference on VC and tech trends at the end of the decade was organized by Fusion LA, an accelerator program for Israel startups in Los Angeles, and the Pearl Cohen Zedek Latzer Baratz law firm in Tel Aviv.
The past decade saw 587 exit deals — defined as sale or initial public offering of shares of tech firms, for a total value of over $70 billion, according to data compiled by PwC Israel. And while Israel’s tech ecosystem has always been a playground for early-stage startups, 2019 was the year this notion changed, “perhaps for good,” according to Israel’s IVC Research Center, which tracks the industry.
The year was marked by dozens of Israeli companies evolving into fast-growing organizations, giving rise to a unique pool of growth-stage companies that require different resources and hold out different kinds of opportunities. In 2019, there were 68 deals that raised funds over $30 million, compared to 10 such deals in 2010, the newly released data shows.
At the conference, Kaufman also spoke about how the information revolution has had a major influence on the tech sector.
“When I started my entrepreneurial journey 20 years ago, there wasn’t a single book about entrepreneurship and that’s without mentioning blogs or Google,” he told the audience. “Nothing. I was clueless. In contrast, during the IPO process, which we began two years ago, there was so much from whom to learn.”
A number of Israeli firms have already gone through the IPO process, he said. And each entrepreneur can now help others with their knowledge. “If someone is thinking about an IPO in the next few years, then talk to me.”
Entrepreneurs are much more savvy than they were a few years ago, he added. “Everything has changed. Today 22-year-olds come to us and they already know what it took me until I was 35 to learn. It’s scary. You feel like a dinosaur and irrelevant… It is this information that has made the biggest revolution.”
Eynat Guez, the CEO of global payroll solutions developer Papaya Global, who also participated on the panel, said that Israeli managers are more confident about their decisions and can’t be told by VC investors what to do.
A few years ago, she said, startup founders were told they needed to move to the United States to raise funds. “The situation has changed,” she said. “The market has changed and even though the companies operate abroad and they have US investors, at the end of the day the managers are based in Israel… The CEOs know what’s right for them and their company and how to do it.”
Papaya Global recently raised $45 million led by US venture capital funds Insight Partners and Bessamer Venture Partners.
In answer to a question on how to cope with building layers of management in a growth company, Kaufman said that in the case of Fiverr all the senior management is based in Israel.
“This is one of the important lessons that we learned on the journey. It is very difficult to hire good American managers because on paper they all look good and know how to present themselves wonderfully. In practice, many of them turn out to be mediocre.” He added that in Israel there are “many talented managers”.
Papaya’s Guez said that startups should make sure to hire a range of people who speak different languages and come from different places and backgrounds. This “creates an open organization that is suitable for everybody.”
Guy Lachmann, senior partner in Pearl Cohen’s Hi-Tech Group, spoke at the conference about the changes that took place in the tech industry in 2019 and the anticipated trends for 2020.
“We see more and more new players coming into the market and bringing with them large sums of money in the early stages,” he said. “We are talking about sums of money that are generally acceptable to see in Palo Alto and we never imagined that they would also come to Israel.”
Even so, despite the growth in financing rounds, valuations are “still low compared with Silicon Valley, and Israeli companies are still being underpriced,” he said.
In his forecast for the coming year, Lachmann said that in his opinion, the hottest tech sectors would be digital health and agro-tech.