Israel was referred by Eric Benhamou (Angel investor and chairman of 3Com) as a “60 year old startup” in an interview last week. Judging by the ROI on Israel, any VC would be happy with the nominal results: Economically, the country was able to grow the average annual gross domestic product from $3,500 in 1950 to $22,500 last year. Financially, the exchange rate of the Israeli Shekel is one of the fastest growing against the Dollar and when it comes to the team – Israel has one of the largest pools of engineers and startups per capita.
That said, not all is rose: the political leadership in the country is rotten and involved in various criminal investigations which puts a strain on international investors looking for stability. Israeli firms are experiencing multiple difficulties:
1) High costs of labor – an Israeli engineer costs $68,000 on average which is almost equivalent to the price of a US engineer ($76,000 on average), but 4 times the price of an Indian or Russian engineers which stands on approximately $18,000 a year. A continuous spike in labor costs might drive away investors to China, India and Eastern Europe.
2) Israeli companies are facing layoffs and a slow down in hiring due to the dollar crisis. Less orders and more costs make it hard to stay in the black. Just in the past few weeks:
– Tower fired 170 employees to save $14 million
– Agent VI fired 20% of its work force
– Metacafe laid off 70% of staff
– Intel closed its development center in Yokneam, lost $100 million investment
3) Lastly, the closed IPO window and the slowdown in M&A activity makes it hard for investors to cash out on their Israeli portfolio.
Yet investments in Israeli technology firms are announced almost on a dialy basis. So, can Israeli startups prevail? Numbers indicate a yes, but analysts predict that the worst may still be around the curve. In the next series of posts, I will detail the VC founding rounds announced in the last 30 days.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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