Foreign Firms Rule the Roost in Israel, Says Local VC

Adam FisherIsrael’s startup scene has probably never looked quite so promising to investors. In 2013, five venture-backed companies headquartered in the country netted $2.7 billion at the time of their respective exits, says CB Insights. Within that group: Google acquired the social mapping service Waze for $1.1 billion; the Web development platform company Wix went public (its market cap is currently $670 million); and Cisco acquired the mobile networking firm Intucell for $475 million.

The country’s prospects this year look just as bright. Last month, for example, Israeli-run Viber, a voice and messaging service with a development center in the country, was sold to Rakuten of Japan for about $900 million. Around the same time, Covidien, the health care company, completed its acquisition of Given Imaging for $860 million. (Given makes a capsule with a camera that is swallowed, allowing doctors to see patients’ intestinal tracts.)

“Three years ago, the [Israeli] press was complaining about a lack of big, $500 million exits,” recalls Adam Fisher, who co-manages the Herzliya, Israel office of Bessemer Venture Partners. “Now billion-dollar exits are growing boring to [reporters]. That’s good news.”

It’s good news for global firms like Bessemer, at least, which set up an office in 1992 and in 2007 plucked Fisher out of Jerusalem Venture Partners, which he joined straight out of Georgetown Unversity. Fisher says he has led “15 or so” investments for Bessemer and that roughly half have produced stellar returns, including Intucell and Wix.

From where he’s sitting, both Israeli venture firms and U.S. firms without a local presence could miss out on Israel’s maturation into a mainstream tech market – which, by the way, is just fine with him.

“Israeli funds had proprietary deal flow” during the last bubble, but “I don’t think any Israeli fund ever created a strong brand,” he says. “Why work with a small, no-name fund when you can work with Bessemer?”

I ask Fisher if things might change. For example, the country’s former Finance Ministry Director General Haim Shani and the former head of Microsoft’s R&D operations in Israel, Moshe Lichtman, are reportedly close to raising $250 million for a new venture fund. Another Israeli venture firm called Stage One is raising $100 million for a second fund that has reportedly already closed on roughly $75 million. Isn’t it likely that competition will increase?

Fisher notes that activity is picking up but says that in many cases, Israeli VCs are “going for the scraps.” Bessemer, he says, has “50 odd professionals across the U.S. working at deals – networking. We have a huge trove of competitive industry information that no local fund can compete with.”

As for U.S. investors who might be tempted to spend more time in the region right now, Fisher says the venture community is “welcoming,” but “It’s a tight network … I’ve been here 15, 16 years, and those of us who are active literally know everybody, along with who they’ve worked with, and who was in the army with them.”

Language is an issue, too. “Everyone speaks in English, but if you don’t speak Hebrew, you’ll be a few steps behind, no question about it.”

To be a successful investor in Israel also “takes a certain culture,” he adds.

“I fit here in Israel. I fit there [in the U.S],” says Fisher, who has twice lived in the U.S. “There aren’t many people who fit that profile.”

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