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Infrastructure Software
Scott Goering  |  June 27, 2017
Way More Than Cybersecurity: An Up-Close Look at the Startup Nation

Eight years ago, a book called “Start-up Nation” opened the world’s eyes to the breathtaking pace of startup activity in Israel. Today, an Israel-based nonprofit called Start-Up Nation Central estimates there are 5,500 active startups in Israel, a nation with just over eight million people. According to the group’s executive director, Wendy Singer, this means the country is supporting an incredible one startup per 1,500 citizens.

Battery Ventures has played a part in this ecosystem for roughly two decades. The firm, which maintains a significant office outside of Tel Aviv led by two general partners, has invested in excess of $300 million in more than 30 Israel-based companies since 1995.*

Earlier this month, Battery hosted executives from several global enterprises for a week long crash course in the Israeli startup machine. The executives—from companies including HSBC, UBS and Travelers Insurance—met with local tech and economic thought leaders (like Ms. Singer) as well as startup executives, including some from early-stage accelerators. These groups included a Microsoft accelerator as well as a group focused on helping companies founded by alumni from the Israeli military’s famed and highly secretive Unit 8200, which manages the army’s signal intelligence. This means it pulls and analyzes hordes of electronic data, so the group has understandably spawned many private-sector tech companies.

“Israel’s modern tech ecosystem has been fueling innovation around the world for at least the last decade,” said Scott Tobin, the Battery general partner who leads the firm’s Israel office. “As large corporations continue to manage their operations in a global fashion, it’s natural that the decision makers want to have a first-hand familiarity with what’s going on in tech globally.”

Indeed, members of the Battery group said they came away impressed by the scope of innovation happening in this tiny country. A few key takeaways, discussed as the group went in and out of meetings and walked the charming, WeWork-dotted streets of Tel Aviv:

The technology is real. The market for deep, enterprise-focused technology is alive and well in Israel. While some smaller companies are still perfecting go-to-market capabilities, the quality of innovation at Israeli startups is at an extremely high level, and some companies are growing into global behemoths. According to the IVC Research Center, Israeli high-tech companies raised $4.8 billion in funding in 2016, an all-time high. What’s more, there was a 22% increase in deals involving funding rounds worth $20 million or more—indicating a growth in later-stage companies.

To stay ahead of competition, global enterprises are checking out tech hotspots like Israel when seeking out differentiated technology. Startups there are making products that can be leveraged to meet the needs of the world’s largest banks or even a cable company in a small market. To those people who have not yet gone, we urge you—get on a plane!

The technology is varied. Despite all the buzz about fancy cybersecurity companies coming out of Israel—partly due to the military connection—there is quite a bit of diversity on the startup scene, and startups are developing solutions for a variety of industries. One Battery CEO, a Unit 8200 alum, for instance, has parlayed his experience into a Battery portfolio company called Leadspace that builds analytics technology for sales and marketing professionals. Similarly, the executives on the Battery tour last month met with two companies, LawGeex and Autorni, trying to use machine learning to disrupt the legal sector.

Execs need to avoid “innovation tourism.” Just as in the U.S. and other markets, it’s easy for corporate technology buyers to be overwhelmed by the bright shiny object when talking to startups—and not focus on ferreting out technology that can actually be helpful in solving real business problems. In Israel, a place filled with so much energy and enthusiasm around tech, it’s also easy to fall into this trap. We tried to structure our trip agenda to avoid this, and think we succeeded: More than 80% of the startup companies our executives met with were targeted for follow-up meetings.

Our big-company guests seemed to get genuine value from the interactions. One from UBS commented that she was “amazed“ at the “energy and great talent I was able to meet,” and that she enjoyed the “intensive and interesting discussions.” At Battery, we look forward to continuing to open up the Israel ecosystem for others.

*For a full list of all Battery investments and exits, click here.

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