Coming to America

Israeli Start-Ups Skip the Valley, Go Direct to New York

How NYC became the new Mecca for Israeli techies.
web israel silicon v225cd1 Israeli Start Ups Skip the Valley, Go Direct to New York

Illustration by Oliver Munday

Taykey co-founder Amit Avner had just moved into his new offices off Madison Square Park a couple weeks ago. His desk was bare save for a Mac laptop and a Samsung Galaxy S2 phone, which started playing the first few chords of Darth Vader’s Imperial March theme song.

Hmm-hmm-hmm, hmm-hmm-hmm, hmm-hmm-hmm.

“Oh, that’s our chairman of the board. Let me just tell him I’ll call him back,” Mr. Avner said. After a few words in Hebrew, he hung up. “It’s like 11 p.m.” in Tel Aviv, Mr. Avner noted. “He must be really bored.”

Mr. Avner, who moved to New York from Israel 10 months ago, has curly, blond hair, full lips, and blue eyes the exact color of the inside of a Hpnotiq bottle. “I’m 25 now. On Friday, I’m 26. I’m still like … ignoring it,” he said, laughing at himself. “When I was 14, I built a search engine.”

After getting a B.A. in computer science (age 15) and selling his search engine (age 17), in 2008 Mr. Avner launched Taykey, an advertising platform that helps clients like Pepsi use real-time algorithms to determine consumer interest. Both of his co-founders were fellow engineers he met while serving as a software architect developing cryptography and network security for the R.&D. unit of Israel’s Ministry of Defense.

Asked what sorts of projects he worked on, Mr. Avner sputtered something about “encrypting stuff” and “making things work together.”

For decades, the elite programming units of the Israeli Defense Forces, which include 8200 and Mamram, have functioned like the ultimate feeder school for Silicon Wadi, as the software hub clustered around Tel Aviv was dubbed in the ’90s (wadi is Arabic for “valley”). But these days, the start-ups coming out of Israel have put aside mature sectors like security, microchips and network communications for something more Americanized.

“Freedom is very compelling to someone who spent years in a mandatory-draft army,” explained Yaron Samid, the 38-year-old serial entrepreneur behind TechAviv, an invitation-only founders club that hosts monthly meetings in Herzliya, a high-tech industrial park outside of Tel Aviv, New York City, Silicon Valley and Boston. “These guys and girls, all of 22 years old—given the option to work for Intel or Microsoft or partner up with their buddy and launch a company with $10,000 out of a coffee shop—want the flexibility,” Mr. Samid said. “They’re trying to build the next Twitter and take advantage of this new bubble and this amazing frothy market in the venture community.”

The dream of becoming the next Mark Zuckerberg, it seems, has made aliyah.

And Israeli entrepreneurs are making the return trip. “Silicon Valley is still mecca,” said Michael Eisenberg, a partner at the V.C. firm Benchmark Israel. “But now that New York’s come of age, you’ve seen a lot of Internet companies go there.” Rather than building some wild new technology and flipping it in foreign markets, Israelis are looking to bubbling sectors like media and advertising and setting up shop next to their customers in search of Facebook-sized growth.

If you include non-founders, there are now 1,135 members of TechAviv New York, more than double the membership in the Valley branch. Last month, Bootcamp Ventures, a start-up advisory headquartered in Tel Aviv, sent 15 young companies seeking partnerships and funding on an “Innovation Road Trip” to New York and Boston, bypassing Silicon Valley for the first time. Hybrid companies structured like Outbrain, a search recommendation engine that keeps its R.&D. arm in Netanya, Israel (where it’s easier to find engineers), but moved its business development and marketing to Union Square (closer to clients like Slate, the Daily Beast, and The New York Times), have become common. Mr. Samid’s latest venture, BillGuard, a service that scans consumers’ credit cards for hidden fees and fraud, splits its staff between an office near Canal Street and one in Herzliya. Mr. Avner’s tech team is also in Herzliya. Sales and business development staffers Skype across the Atlantic via a giant flatscreen functioning 24/7. “It’s like a window to the other office,” he explained.

The planes fly both ways. In February, two big names in Israel tech, Avichay Nissenbaum and Yaniv Golan, launched a micro-V.C. in the same vein as New York’s betaworks mentorship program. We heard about Lool Ventures, which means “crib”  or “chicken coup” in Hebrew, from Mike Brown of AOL Ventures, who travels from New York to Israel three times a year looking for potential investments. “The reason we started Lool was to provide American investors a way to tap into Israeli start-ups,” Mr. Nissenbaum told The Observer.

Of course, a lot of the appeal of New York is relative proximity, at least compared to California. “It’s a very prosaic reason, but it’s a direct flight,” Mr. Eisenberg said. “It’s three hours more that you can work together. It’s a huge difference,” Mr. Avner agreed.

“Everybody reads TechCrunch, everybody reads Techmeme,” noted Omer Perchik, co-founder of Any.do, a stealth start-up involving voice-activated technology, describing life in Tel Aviv. “The emergence of Foursquare and the whole Twitter stream of Chris Dixon and Fred Wilson and those kind of people, I can see more people leaning towards building a consumer product in New York.”  Next year when Mr. Perchik leaves Israel, however, he will be moving out to the Valley. “You have Boxee in New York, which is also a consumer product, but it’s still mostly around advertising in my opinion.”

“THERE’S THE ISRAELI MAFIA THING going on,” said Mr. Avner, referring to the expat network that embraces new recruits as soon as they deboard in JFK or Newark. “But there’s also the PayPal mafia and the Digg mafia. I don’t think ours is a scary one. Before I moved here, I was introduced to so many people who stepped in and showed me around. It’s like a pet project for everybody.”

Mr. Avner, who picked up $11 million in funding from investors like Sequoia Capital in Israel and Softbank since he arrived , got help finding an apartment, buying furniture, and even free office space at Wix, an Israeli start-up that hosts a free co-working space called Wix Lounge in the Flatiron district. ““One of the associates in Sequoia is good friends with one of the Wix founders,” Mr. Avner explained. “They were like, ‘Hey Amit is moving to New York, do you want to give him table?’ They were like ‘Sure we’ll give him table!’ And then one table become a few more tables and then someone said, ‘Okay we need to move out to our own office.’”

“The Israeli community in New York is a pretty tight-knit group,” TechAviv’s Mr. Samid concurred. “We all know each other. The founders stick together, especially when you’re outside Israel. You hang out, your families kind of connect. Your kids go to the same day care, whatever. In Israel it’s actually less of a kind of bonding together since we all live here.

“Most of us have offices either in Union Square, Flatiron, or Soho district,” Mr. Samid went on. “There’s a hummus place called Mamoosh that a lot of guys go to. There’s also Aroma, an Israeli coffee shop on 72nd Street—a lot of us live on the Upper West Side. Any time of the day you walk into that place, you’ll see an Israeli high-tech start-up person having a coffee or two guys just hanging out, you know, with their laptops and Wi-Fi.”

Mr. Avner won’t be one of them. “You can quote me,” he said. “I don’t go to Aroma. I’ve actually never been. It’s like Starbucks in Israel—why do you want to go here?! I just generally try avoid the Upper West Side.”

Mr. Avner also tends to hire Americans rather than Israelis because he thinks they have a better sense of what clients are looking for. But he’s still a loyal mafioso. “Even if you’re competing in the same market, you’re still friends with them and try to push each other,” he said. “There’s the pride of being Israeli tech. It’s like you can’t escape that they had the same experience you had. It’s hard not to relate to them.”

ANOTHER SHARED EXPERIENCE is time spent in elite I.D.F. programming units. “I consider the Army the biggest human resources company in Israel,” said Ori Lahav of Outbrain, who served in the Navy with his co-founder Yaron Galai. “They recruit everyone. Everyone is inspected under their lenses and classified into something. Say somebody was an officer. There’s a good chance he’ll have good managing skills. The guys that worked in the field unit, you can expect persistence and hard work. If someone was in technology, you can expect a good sense of innovation and a lot of creativity.”

It’s the reason you see “Mamram experience preferred” on online job boards or “Unit 8200” bulleted on resumes in LinkedIn.

Mr. Avner likened his experience at the Ministry of Defense to working for “the McKinsey or Bain for the Israeli Army,” he said. “We all knew how to code before, but when you start working with really smart people, you learn some crazy stuff.”

Those elite units once worked like “Microsoft shops,” steeped in old-school languages like C++ and frameworks like .NET. But these days, the prestigious Unit 8200, a subdivision of the Israeli Intelligence Corps, embraces everything from Python and Perl to C2C. “Over time, you see Mamram is also going towards open source,” said Mr. Perchik, who left Mamram in 2006. “There’s definitely a shift.”

Fluency with those new languages, in turn, makes it easier to build technology for media, advertising, and the consumer web. “It’s not the army shifting from telecom and crytopgraphy,” explained Mr. Avner, “But it’s the Army implementing technology that have more different uses nowadays. We’re doing Internet advertising. I didn’t know anything about advertising, I knew about network security, but this worked for me.”

NEW YORK’S TECH TIES TO ISRAEL go all the way back to 1998, when AOL acquired ICQ, the first online I.M service, built by the Israeli company Mirabilis, for $407 million. The technology was created by four co-founders in their twenties trying to enable peer-to-peer communication possible online. At the time, the purchase price was the largest amount ever paid for an Israeli company. But the ICQ sale illustrates the problem Israelis are now trying to address, namely that there simply haven’t been enough boffo success stories like it. The question seems to haunt the Israeli tech scene: How could a nation of technologists have gotten out of the dotcom bubble with so few home runs?

Now that froth is flowing again, Israeli start-ups feel they have something to prove, especially about their penchant to build the tech, but forget about the market. “Generally speaking Israelis are too jumpity about flipping companies,” Dan Senor, co-author of 2009’s Start-Up Nation: The Story of Israel’s Economic Miracle, told The Observer. That tendency has to do with the factors outlined in Mr. Senor’s book, which breathlessly chronicles how the rise of the country’s venture capital sector led to more Israeli companies being listed on the NASDAQ than all of European combined.

The catalyst for that stupendous growth was public investment from the Israeli government. Military funding for R.&D. and policies from the office of the chief scientist mitigated the risk of launching a start-up. But it also created what Bessemer Venture Partners’ Adam Fisher calls Israel’s “tech crutch.”

“One of the ironies I always to point out is that, sure, Israel has the chief scientist’s office, which has been great in terms of subsidizing high-tech,” Mr. Fisher told The Observer. “But it has this kind of religious belief that high-tech is all about engineering, to the point where they’ll abandon a company if the company needs to shift the marketing of a product. They’re engendering this kind of view where you just have to develop a product and it’ll be fine. Which is not the way it works.”

In New York City, where engineering talent is scarce, it’s not uncommon for start-ups to sell light-tech products and services with a savvy business model. Israeli entrepreneurs are learning to do the same. “They’ve been so used to competing based on technology prowess—they can always make it better, smaller, cheaper, faster—but that only matters in certain sectors,” explained Mr. Fisher.

“The common Israeli thing is like, ‘Hey, let’s build this amazing tech and then figure out what to do with it,’” said Mr. Avner. “It’s a huge problem for people not to understand the market they’re building into. But I think people are getting better at this.”

A recent MoneyTree report noted Israel’s 45 percent increase in start-up investment last quarter, pointing to large exits like MediaMind, a digital advertising company, which sold for $517 million in June and Dotomi, a personalized display advertising service, which was acquired for $295 million last week.

Mr. Avner predicted that Israel will have a few LinkedIn-size exits coming in the next year. “That’s a big company,” he said. “Obviously it’s not as big as Facebook, but it’s very hard to build Facebook.” He smiled. “I would build LinkedIn, it looks more stable.”

ntiku@observer.com

Follow Nitasha Tiku on Twitter or via RSS. ntiku@observer.com

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  4. Danny Hen says:

    Soon there will be one more hot internet SaaS company joining the NYC scene – Personyze :)

  5. S. says:

    Yeah, after we’ll launch our beta – we’d probably move too

    1. Nitasha Tiku says:

      What’s your start-up?

  6. Gay Fin Jock says:

    Actually, I think all tech start ups are now looking to be in NYC. That’s the feeling I got in SF last time I was there.

    1. Nitasha Tiku says:

      Hi, you! Wait, tell me more about what you heard in SF? That’s interesting.

  7. David Robins says:

    Makes me fell good that we are here (Israel) too. I don’t think everybody needs to move to NY or SF to make it.
    BTW you missed http://www.binfire.com ( started in Boston, now in Israel)

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