Two Cents: A Closer Look at the U.S. and Israel Startup Ecosystem
by Alden Mahabir with contributions from Roni Burrell
In May, I gave a guest lecture to business students at Rutgers University highlighting the current state of the U.S. and Israel startup ecosystem and why Verizon Ventures sees such potential in the Israeli market.
Much of today’s innovation comes from Israel and we believe that this is an incredibly important market to look at when investing in areas that can help strengthen and expand Verizon’s current capability set as well as frontier technology.
As part of this belief, last June, Verizon Ventures was excited to announce the establishment of Verizon Ventures Israel, which has provided Verizon a gateway to the Israeli startup ecosystem and gives us a team on the ground that can scout for innovative companies in sectors such as AR/VR, AI, cyber security, networking and telematics. As an aside, the Rutgers University class actually visited our Israel office a couple of weeks later and got the opportunity to meet my colleague Roni Burrell and to learn about some of our Israeli portfolio companies, such as Optibus, Edgybees, Skywatch and iguazio.
Many foreign Venture Capitalists (“VC”) see similar potential in the Israeli VC landscape, which is why Israel’s high-tech startups are in part still largely funded by non-Israeli money (84 percent of foreign VC investment vs. 16 percent Israeli VC investment in 2017). Looking forward, one of the questions asked is, whether Israeli VCs could become the predominant funding source of their ecosystem?
If you look at Israel’s upward VC growth trajectory, it would suggest that there is hope. Over the past 5 years, Israel’s deal value has more than doubled from $2.4 billion in 2013 to $5.2 billion in 2017, with 2018 trending towards $6.1 billion. However, putting that into perspective, the Israeli VC market is still only a fraction of the U.S.’s, which reached $82.9 billion in 2017.
Interestingly, when you look below the surface, it is surprising to see that Israel’s VC per capita is the largest in the world at $578, which is more than double the U.S.’s $255. Part of the reason for the stark difference between the aggregate and per capita VC stats relative to the U.S., is owed to the amount and potential of the innovative technology that is coming out Israel and the smaller size of its economy/industries. Because the U.S. has such a large market with robust industries, it in essence could be a self-sustain ecosystem whereby startups can be funded and find an abundance of customers within itself. Israel on the other hand, is a much smaller (albeit growing) economy. As such, Israeli startups that have technology with global applicability are naturally going to explore international markets. Given that dynamic, foreign investment is not only a great way to fund these companies as they try to scale, but also serve as a bridge to other markets from a business perspective. With that as a backdrop, it is no surprise that Israel is the 4th largest Nasdaq producing country behind the U.S., China, and Canada.
Verizon Ventures is excited to be a part of the Israeli VC community and continue to see how the Israeli tech ecosystem as well as VC activity evolves in the next few years.
