How he went from a start-up nation to a scale-up nation

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I recently took my first business trip since the start of the pandemic. Like everyone else, I don’t take travel lightly these days, so I wanted to make sure getting on a plane would make sense from a professional, personal, and public health perspective. The only place that seemed worth a visit was Israel, where a sea change in business creation and growth is taking place. Israel has long been known as the “Startup Nation” due to the creation of the highest number of tech companies per capita. The entrepreneurial and highly technical Israeli workforce, the vast majority of whom learn software, leadership and communication skills in the military, are natural entrepreneurs. But after witnessing the palpable excitement in the streets of Tel Aviv and seeing with my own eyes a frenetic pace of investment far eclipsing that of the dot-com boom, I can honestly say that Israel is is transformed into a “large scale nation”.

Today, Israeli entrepreneurs are launching their second or third startup. Engineers, operators and executives who have spent the last decade working in global technology companies are leaving the corporate fold to become the founders themselves. Venture capitalists around the world are opening offices in Tel Aviv or raising dedicated funds for Israel. The first half of 2021 saw a record amount of capital raised by Israeli high-tech companies – $ 11.9 billion, exceeding the total capital raised in 2020 by $ 10.3 billion. Thirty-eight transactions of more than $ 100 million each represented 50% of the total capital raised during this period and only 9.5% of the total number of transactions according to a report by IVC Research Center and Meitar Law Offices.

And Israeli tech companies are growing into massive global corporations in record numbers; there is today 71 unicorns founded by Israel, including private companies Gong, Orca Security, Rapyd, and Snyk, while other Israel-born tech companies have gone public at multibillion-dollar valuations, including Hippo, JFrog, Lemonade, and Monday.com. Israel is no longer just the birthplace of tech companies that open headquarters in the United States and seek to be acquired quickly, but has become a melting pot where multi-billion dollar global companies are created and developed.

Of course, Israel is not alone in creating extremely successful software companies. As I have pointed out in the past, global software powers will emerge in many countries. The world is getting flatter, smart founders can be found everywhere, and software can be created and used by anyone, no matter where they are. But Israel stands out for the large number of technology companies created per capita; It’s the world leader in this regard. And most of these startups are enterprise software companies, started by founders who learned coding skills in the military in disciplines such as security, networks, fintech, and communications. As an investor, I have never been more enthusiastic about investing in Israel than today and here are some reasons why.

A constantly growing pool of talent

For the past 20 years, Israel has been a hub of entrepreneurship, so the country now has a huge cohort of operators, engineers, and executives who have worked in high-growth startups and helped them get started. guide them from seed to exit. Not only is this growing talent pool helping startups hire the experienced employees they need to become global companies, but it has recently created a whole new generation of founders. The new founders in Israel come from companies such as ironSource, Monte Carlo and AppsFlyer.

A flood of capital

It’s no secret that Israel has been a great place to invest in startups and has been for two decades. Many American VCs have offices there, and many more invest in Israeli startups from afar. It is difficult to determine exactly how many VC firms invest in Israel, but some estimates estimate the number to be around 200 local firms, 60 venture capital firms and 70 foreign firms. Since 2015, an average of 23 venture capital firms have moved to Israel each year. Of course, there are also dozens of angel investors, accelerators, and private investors. When I was in Israel recently, I met many local VCs who told me that they had never seen so much foreign venture capital chasing Israeli startups. Even more so than in the United States, investors said the competition for transactions was fierce and valuations were rising rapidly. We also met several US VCs looking for deals who told us the same thing. All this capital is not only going to Seed and Series A contracts, but also to termsheets at a later stage, allowing already established Israeli startups to grow quickly and sustainably. With more money in the bank, late-stage startups can hire great talent, grow globally, and find clients around the world.

At the crossroads of global technological trends

As I have discussed at length, it doesn’t matter today where you start a software business, especially a developer-focused business. Today, every business is transformed into a software company, so the developers tasked with writing the billions of lines of code to digitize their businesses are in the driver’s seat. They dictate the tools they want to use to do their jobs. And developers want to use community, open source, API-based, and freemium platforms. They want to collaborate with their peers around the world to co-create new tools and platforms that make their lives easier. They don’t care if a tool they use was built in Monte Carlo, Mexico City, or Menlo Park. So software companies can be set up anywhere, and Israel is arguably a fantastic choice. As we have discussed, Israel has a combination of technological talent, entrepreneurial zeal, and access to capital that is common in technology hubs like Silicon Valley, but it also has a unique geographic position. Being a very young and small country, Israel has always looked outward; Israeli founders must think about going global from day one. And now that the pandemic has been a game-changer in the way companies sell their software – no more huge developer conferences, urban information centers for high-value prospects and other in-person schmoozing – Israeli companies are in a good position. to lead into the low-up software sales model that was already gaining momentum before the pandemic.

Israel has led the world in a science-based response to the pandemic, vaccinating more of its population faster than any other country. Although every country faces a continuing threat from the pandemic, Israel today feels like a beacon of innovation, hope and excitement. My company is betting big on Israeli software companies and we are certainly not alone.

My firm, GGV Capital, is an investor in Hippo, Monte Carlo and Orca Security.


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