A Big Chunk of Israel's Tech Scene is Actually Based in New York

(Bloomberg) -- Last year, Ben Fried pitched a fintech startup to Israeli investors -- and got nowhere. The venture firms wanted to see if he could sell the idea in the U.S. first. “I’ve heard it from many investors,” says the former Israeli Air Force captain. “They push you out the door as soon as possible.”

Fried’s experience is common. So is his reaction. Fried hopped on a plane to New York, joining a growing number of Israeli tech founders who are thriving in America’s second-largest tech hub. Fried now splits his time between Tel Aviv and New York, and it has paid off. He has received committed funding from American and Israeli investors and a project in the works with a U.S. bank.

More than 350 startups with Israeli founders have set up shop in New York, up from 60 five years ago, says Guy Franklin, general manager of SOSA NYC, a local tech hub for his countrymen and who has cataloged the phenomenon. Three of the five biggest funding rounds in New York last year were for companies run by Israelis or Israeli-Americans: co-working business WeWork, real estate app Compass and ride-sharing company Via.

As Israel’s tech scene matures from a focus on cybersecurity and the military to larger consumer and business software companies, more of what could be considered “Israeli tech” is actually happening in New York, where it’s easier to find the sales and marketing talent to build businesses. The cross-pollination is getting help from U.S. venture firms, which have participated in more than 60 percent of investment rounds in Israeli startups so far this year, according to research firm PitchBook.

“Israelis are going to the next level,” says Erel Margalit, founder of Jerusalem Venture Partners and one of Israel’s best-known venture capitalists. “They’re second- or third-time entrepreneurs, they’ve now moved to the U.S. -- primarily to New York -- in order to engage with the businesses.”

New York wasn’t always the first stop for ambitious Israeli tech founders. When Eyal Bino first moved to the city more than 10 years ago, California was the land of opportunity. “For most Israeli entrepreneurs and VCs, New York was a stopover on their way to the Valley,” says Bino, who now runs ICONYC, a startup accelerator that helps young Israeli companies find their feet in New York.

What changed? Mostly New York’s tech scene grew up and now provides a real alternative to Silicon Valley because it’s a major center for finance, media and advertising. As software works itself into every industry and facet of business, the city’s position at the center of global commerce is turning it into a tech powerhouse.

New York is also a natural fit for Israelis because it has long had strong business and cultural ties to Israel, with thousands of Israelis living in the city and the largest Jewish community in the U.S. “The Israeli community is a close and tight community where everyone is helping everyone,” Franklin says.

Another reason cited by nearly every Israeli entrepreneur you talk to: the time zone, which makes having half your team in Israel a lot less punishing than if you were based in San Francisco. “Seven hours’ time difference and 10 hours’ time difference might not seem like a big difference, but it is,” says Ofer Israeli, chief executive officer of cybersecurity company Illusive Networks.

The companies that are finding the most traction in New York are those that need a major base of large corporations to work with and sell to.

Sisense Inc., which helps companies organize and analyze their data, has won customers like Unilever, Airbus and Nasdaq from its perch in New York. It has raised almost $100 million from top U.S. VCs like Bessemer Venture Partners and Battery Ventures.

The city’s a no-brainer for consumer-focused businesses, too. New York’s population of 8.6 million outstrips the entire nation of Israel, at 8.5 million. Home insurance startup Lemonade, also founded by Israelis, counts Ashton Kutcher among its investors and has expanded to a handful of states outside of New York, including Texas and California.

Israelis bent on starting e-commerce companies don’t have much of a market at home; even Amazon.com Inc. doesn’t have much of a presence. As a result, retailers in Israel have little incentive to adopt new technology, says Shalom Nakdimon, who spends much of his time in New York working to grow his company WiseShelf, which helps retailers keep track of products. “But here, the stores are closing every day, so retailers understand.” He says his home country is less a market than an incubator.

Like any good tech industry, success begets success. As more companies raise money and grow, the draw of New York gets stronger for ambitious Israeli techies.

“A lot of entrepreneurs in the last few years have come to New York and built successful companies and they’ve attracted their friends,” Bino says.

©2018 Bloomberg L.P.

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