Is Israel the next Silicon Valley? – News Couple
ENTREPRENEUR

Is Israel the next Silicon Valley?


Israel continues to be a major power in global technology, growing more and more unicorns and attracting massive amounts of capital never seen before. According to a recent report by the Israeli IVC think tank, Israeli technology companies have raised a staggering $17.8 billion this year, nearly doubling the total funding for 2020 in 2020 with another quarter remaining. And that’s driven by a huge amount of mega-rounds – funding rounds of $100 million or more with numbers never seen before.

But funding is just part of the story. Additionally, Israeli startups posted $18.92 billion in exits in 2021, nearly double the annual record for 2020 as many of them came through IPOs – 65 in total. Israeli technology broke records this year, making 2021 a record year for books.

The effects on the industry are visible across the board. Israel now has many new millionaires who are buying new cars and expensive real estate at an unprecedented rate, causing real estate prices to rise and widening the gap between technology and other sectors. In addition, technical talent has become very expensive, which has resulted in many companies looking for creative ways to fill positions abroad. Israel now looks more like a Silicon Valley than a Silicon Valley.

With 2022 approaching, many investors and founders are concerned about the market’s inflation. Where does the startup country go from here? While many in the Israeli tech scene are looking to take advantage of frothy market conditions, others are wary and measured by their approach as they face a new reality.

There is noise, but we are not in a bubble

With companies raising unprecedented amounts of capital, there is a belief among many that we are in a bubble that is about to burst soon. Others think this is the new normal, says Amir Aurad, CEO of Sisense, a business intelligence software company that serves more than 2,000 clients around the world: “There is unlimited capital available that amplifies value and raises salaries.” “At the same time, there are countless companies with real, robust, replicable business models that deliver real value to their customers. This is impacting the market like never before.”

Amit Karp, partner in venture capital fund Tier 1 Bessemer Venture Partners, agrees with Aurad. “The market is definitely hot and in the fear versus greed equation, most investors are turning to the greedy territory.

But on the other hand, I don’t think this is a bubble. Many of today’s startups are generating real revenue, selling a product through a predictive recurring revenue software model and growing at a pace we could not have imagined in the past. In addition, the opportunity has also become more profitable, and the new winners are much larger than we have seen before.”

The IPOs of Israeli companies this year are a testament to that, with companies like Monday.com, SentinelOne, Riskified, and many others having proven to have a scalable business that generates tens of millions of revenue through happy customers and where the potential for growth is still very high. The sky is literally the limit.

The struggle for talent is fierce

While the growth of Israeli technology has been dramatic over the past two years, it does not come without challenges. Orad’s Sisense raised $100 million in a funding round to accelerate growth before the covid-19 pandemic hit the world, putting it in rhino status. Over the past year, Arad has stated that he needs to adjust his process in part due to market conditions in Israel and the world, especially when it comes to sourcing good talent. “The competition for talent is stronger than ever. You find a difficult situation where there is not enough talent and it slows down growth.”

Karp also highlights the difficulty of hiring employees for his portfolio companies. There is a talent shortage. It is very difficult to recruit locally because the supply of quality candidates is relatively constant and the demand is growing exponentially. At this point, many of our “Israeli” companies have R&D centers outside of Israel and many times, even in the US where it’s easy to hire here. As Israeli companies become more global and distributed, it has also become difficult to define what an “Israeli” company is at the moment.”

US growth investors are changing the rules of the game

Meirav Oren is the co-founder and CEO of Versatile, an Israeli construction technology startup that uses machine learning and artificial intelligence to improve construction processes. The company’s solution captures and analyzes data points to provide real-time insights into job site performance and simplify the decision-making process.

Recently, the company announced a $80 million round led by Insight Partners and joined by Tiger Global. The two companies used to focus on late-stage rounds in the past, but over the past two years they have made a strategic decision to invest early, a development that has had a serious impact on the venture capital landscape in Israel.

For Oren, this is a natural evolution of an ecosystem that is clearly maturing. “Local technology in Israel is maturing as founders choose to drive along and avoid early exit. We have built a mixed-use company into a big company from day one. As capital looks for the best places to land, big companies present a unique opportunity for investors to support innovation growth. Early and before that, which is exciting.”

Karp confirms this and concludes: “We are seeing more budding investors investing in Israel in previous rounds. This “pressures” most local investors to focus even on the early stages, and leads to more competition, higher valuation, and bigger rounds at all stages.”

Will this make Israel more like Silicon Valley in the coming years? This is definitely a real possibility.



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