Ronen Nir is a General Partner at Carmel Ventures, a venture capital firm based in Israel. Prior to joining Carmel Ventures, he worked for several Israeli tech companies and served in the Israeli Defense Force’s Intelligence Unit for 13 years. We spoke with Nir about the state of the Israeli tech sector, and how he expects it to change moving forward.
The Cipher Brief: How would you assess the current state of the Israeli technology sector?
Ronen Nir: The state of the Israeli technology sector is at an all-time high as a result of three main factors. First, there have been recent successes by Israeli tech companies in the areas of Internet and Enterprise, with some achieving impressive IPOs on the NASDAQ in the past three years. Second, inflated valuations in Silicon Valley have resulted in investors seeking more “sane” opportunities, which can be found in Israel. Third, over the past 25 years, Israel’s tech industry has reinvented itself time and again. It has proven not only that it can keep up with the rest of the world, but in many cases also become a leading player in many of the new technologically led fields.
TCB: How has the high-tech industry in Israel changed over the past decade? To what factors to do you attribute this change?
RN: Israel has always been known for strong technological capabilities and the ability to “get good products out the door,” but turning a good product into a market leader also involves top notch sales and marketing capabilities, which was an area that was somewhat lacking here in the past. This has drastically changed over the past decade as evidenced by the formation of category-leading companies in Israel, like Wix, SolarEdge, Objet, Waze, CyberArk, ironSource, Outbrain and Trusteer, to name just a few.
This change was made possible thanks to a few contributing factors. To begin with, entrepreneurs who sold their first companies for tens of millions of dollars and gained international experience working for the acquiring companies are now moving on to establishing their second or even third startup. They have more ambitious goals and better management capabilities.
The financial ecosystem is also more mature, with a vibrant venture capital (VC) and private equity market, a combination of local and foreign players, active government support, a well-developed legal and financial infrastructure, and the permanent presence of multinational companies (the likes of Intel, Microsoft, EMC, Facebook, Google, IBM, etc.). All of these contributed to the growth of Israeli companies in the world arena.
Finally, since Israel’s local market is small, entrepreneurs are “thinking global” from day one, aiming at the U.S., Europe, or China as their primary markets. Advancements in internet and cloud computing have brought Israel’s main target markets closer, making it far easier to deliver innovation, marketing, and products all over the world. A company in Tel Aviv can now easily distribute services and online products to anywhere in the world.
TCB: How would you characterize the degree of foreign involvement in the Israeli tech sector? What opportunities and challenges are there for foreign investors?
RN: I think that the opportunities in Israel are fairly obvious. More than 70 percent of the money invested in Israel comes from foreign VCs and private equity funds, and account for the majority of the funding rounds in later-stage companies. The level of innovation, reasonable valuations, and the U.S. oriented target market makes Israel one of the most attractive markets for investors.
For technology companies, Israel has been an unparalleled source of ideation for decades, excelling at super-fast implementation and adaptation to changes in the market. That is why every major tech company in the world has an innovation center in Israel, and many of them have also launched accelerators here in order to utilize the local technological talent as part of their global growth strategies.
Some of the challenges faced by Israeli tech companies include running transatlantic operations with a time difference of around 7-10 hours, and cultural differences and subtleties of business practices. In addition to these challenges, with the “barrier” of a 17-hour flight from the West Coast to Israel, investors sometimes find Israel too remote and cumbersome to conduct due diligence processes and run companies.
TCB: Where do you see the trends in the tech sector going? How will the industry change over the next ten years?
RN: Over the next few years, we will see increased investments in massive personalization of consumer behavior through mobile applications. The exploding area of the Internet of Things (IoT) will connect the real world with the digital world, including everything from automobiles to kitchen appliances, all of which will be connected to the internet, providing huge amounts of data. Also, 20 years from now, the financial services industry as we know it will look completely different, with new players that are going to challenge the historic roles of banks and other institutions.
In order to support these trends, the IT infrastructure, computing power, storage, and networking capacity will have to continue to evolve, and we’ll have to make sure that all of this hyper-connected environment is protected from cybersecurity attacks. All of these fields are very strong in Israel, so we are likely to see more category-leading players emerge out of Israel in these areas too.
