The startup scene in Israel is going bonkers, and the Chinese are swooping in
This summer, it’s raining unicorns — tech startups valued at more than $1 billion — and as a result the Israeli tech scene is going absolutely crazy.
Business Insider just spent a week in Israel meeting with over a dozen tech companies and VCs. They all told us:
Everyone is dreaming of becoming the next unicorn. Instead of selling their startups for $1 million to $30 million, founders are turning down multimillion acquisition offers, wanting to build big companies.
2015 is a record-breaker for VC funding. For the first half in 2015, 342 companies have attracted $2.1 billion, up from 334 companies nabbing $1.6 billion in the first half of 2014.
The private-equity bankers have arrived in droves, including Blackstone, SilverLake, KKR, Apax Partners, TPG, JPMorgan, and Morgan Stanley, and they’re writing huge checks.
Chinese investors are swarming the country, joining Israeli VC funds as limited partners as well as doing a lot of huge, direct investments into startups, too.
“If we’re going to do $4 billion in venture in 2015, the estimate I heard is that at least $500 million of that will be Chinese money, and that’s direct investment not including the LP stuff,” Israeli powerhouse VC Jon Medved told Business Insider. “And I think that’s probably underestimated.”
Medved, founder of investment startup OurCrowd, is widely known as one of the fathers of Israel’s tech-startup scene.
Chris McGrath/Getty Images
Chinese investors are “at all the parties” a startup founder told us.
The joke here is that Israeli border control needs to open up a special customs line “just for Chinese investors with bags of money that they can just get in the country for free,” Medved quipped.
This hot economy has led to …
- Big, well-funded Israeli companies starting to acquire other Israeli companies for big sums of money, too.
- The first crop of Israeli serial entrepreneurs, such as Avigdor Willens, who sold Annapurna to Amazon earlier this year for a reported $350 million to $375 million. Willens sold his first company, Galileo, for $2.7 billion in stock back in 2000 to Marvell Technologies.
It started when Google dropped a billion on Waze
Business Insider/Julie BortIsraeli flags fly in Jerusalem.
When Google bought Waze for $1 billion in 2013, it was a milestone event for the country, says Medved.
“Billion-dollar companies are now all over the place. Waze was the first and most important,” he told us.
Waze cofounder Uri Levine explained to Business Insider, “This was the first time a billion-dollar app, and a consumer app, came out of Israel,” and it set “a new beacon for Israel” telling entrepreneurs to aim higher than a quick exit.
The next year, Japan’s Rakuten (the eBay of Japan) acquired Israeli messaging app Viber for $900 million, and unicorn fever in the country began.
Over and over, startup founders told us they had no interest in selling their successful companies — some of which were doing millions of dollars in revenue, and some of which were doing hundreds of millions in revenue. They wanted to grow their companies past $1 billion to many billions.
“Israel entrepreneurs are obsessed with building unicorns,” Hillel Fuld, CMO of Israeli startup Zula told us.
Billion-dollar startups include …
- Taboola (who raised $117 million in February, $157 million total)
- IronSource (who raised $105 million in two rounds from private-equity funds run by JPMorgan and Morgan Stanley)
- Outbrain (who filed confidential SEC documents for an IPO at a reported $1 billion valuation)
- Conduit, who said it was the first Israeli internet unicorn, in 2012
There’s also a new crop of public tech companies worth $1 billion:
- MobileEye: IPO’d in 2014, $12 billion market cap today
- CyberArk: IPO’d in 2014, market cap of about $2 billion
- Wix: IPO’d in 2013, market cap of about $900 million
- And there are some half-unicorns, like Varonis Systems, which IPO’d in 2014 and has a market cap of nearly $600 million — nothing to sneeze at.
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