“Germany is the fourth-largest GDP in the world and only an hour timezone away from Israel, and yet most Israeli entrepreneurs strive to collaborate with San Francisco, with 10 hours difference, and 20 hours flight. This is silly,” Eden Shochat recently said to me during a coffee in Herzliya, the “Palo Alto of Israeli Silicon Valley.”
Like many successful entrepreneurs, Eden became a business angel and later a VC after he sold Face.com to Facebook. Eden is a superstar, picks his companies wisely, and most of the startups supported by Eden’s Aleph VC get additional funding from various investors. But when I look at the backers of Aleph’s portfolio companies, it becomes clear that, aside from Israeli money, most of the venture capital here comes from the U.S. Take Meerkat whose majority 20-plus investors are American.
Stories like this made me wonder. There are a lot of startups in Israel that have an immense potential, while Berlin is full of venture capital looking for deal-flow. So why are there almost no European investors in success stories like Meerkat? Why do barely any Israeli startups consider European money? And looking at investors actively looking for deal-flow in Israel, where is Berlin’s Early Bird, Point Nine Capital, Atlantic Capital? Where are the London-based VCs that are most active in Berlin like Index Ventures or Accel Partners?
At the same time the Berlin investor community is eagerly looking for deal-flow as far away as Silicon Valley, when amazing companies are built just in front of our European noses. Israel is just three-and-a-half hours away. It’s as close to Berlin as Spain, and certainly much closer than America. From the perspective of a Berlin founder who got to know the Tel Aviv tech community, something here doesn’t make sense.
I ended up in Tel Aviv after the acquisition of our startup Xyo by an American corporate with a large office in Herzliya. Through this I’ve spent most of my time in Israel since October last year. I felt at home in Tel Aviv almost immediately. It looked like Berlin in summer, with the same cosmopolitan vibe, tons of startups and the same rundown streets and mess of a city that grew organically with immigration of young creatives from all over the world.
Also the startup ecosystems and venture capital scene are similar in both cities – both emerged about 15 years ago, and are equally mature in its development, with the first wave of large exits behind them, but still lots of very young founders.
With the majority of money here being American, Tel Aviv seems a little bit underfunded in early stages. No surprises there: Early-stage investors like to keep their companies close to them, and Silicon Valley is simply far away. With such exposure to U.S. venture capital, B and C rounds are common. On the ground, the most active investors are Sequoia, Carmel Ventures and Eric Schmidt’s Innovation Endeavours. Except for Aleph.vc, there seems to be a shortage of A and seed money, and many entrepreneurs complain about valuations in early stages.
Tel Aviv startups are often riding on the bleeding edge of tech and do not shy away from the most complicated problems of the industry. While Berlin’s CEOs come from Europe’s great business schools, however, it is not the university that produces the most amazing engineers in Israel, but the Israeli army.
The Intelligence Unit 8200 is the largest unit in the Israeli Defense Forces. It engages in intelligence activity partly through the use of advanced technology, and it has become a “university” for Israeli CTOs. Participation in Unit 8200 is one of the surest ways to a take-off to hold senior positions in high-tech or founding a successful startup. Several alumni of 8200 have gone on to found leading Israeli IT companies, including Waze, ICQ and Onavo.
Unlike Berlin, there is an overabundance of amazing CTOs, but often the founders I meet roll their eyes when asked about their go-to-market strategy, as if I was touching on some really boring point. There is an advantage and a disadvantage to it. The advantage is engineering talent is something that the whole world is striving for. The disadvantage is companies seem to be sold prematurely, in frequent asset or team-driven exits to large corporates that look to establish an R&D office in Israel.
In Berlin, to the contrary, the CEOs often don’t even have a CTO as co-founder but are able to market a to-do list as if it were the best invention since sliced bread. I wish to see Israeli CTOs join forces with Berlin CEOs to unlock the full potential of all the amazing tech that’s being built in Tel Aviv. I could imagine billion-dollar companies built this way.
Not only do I see the benefits of tightening this cooperation, but with 20,000 Israelis in Berlin, and more and more Berliners visiting Tel Aviv as an oasis of sun nearby, there is something natural about it. On both sides of the Mediterranean Sea, there are founders and investors willing to syndicate, exchange talent, and create another high-tech hub, an “EMEA Valley.”<
“Berlin and Tel Aviv are just four hours apart, both are vibrant ecosystems with highly complementary skill sets, it is time to work closer together", said Christophe Maire, Berlin’s most active super angel and early-stage VC, with companies like SoundCloud and EyeEm in his portfolio. As André Eggert, founding partner at leading Berlin startup law firm Lacore, who met a number of Israeli startups during his frequent holidays in Tel Aviv, said: "Berlin and Tel Aviv are equally vibrant and open to sharing experiences. I am impressed by the high standard TLV companies work on. Their focus on hardcore technology is something Berlin can benefit from.