Hanan Brand: Jerusalem’s venture success bodes well for other Israeli cities

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Jerusalem’s rise on the startup map is not merely a fringe benefit of being in Tel Aviv’s orbit. Although the city is not as prosperous as its beach-facing neighbour, its own venture capital resources hearken back to the early days of Israel’s VC scene.

Hanan Brand, one of the co-founders of Made in JLM, provides years of venture capital experience to the team and helps to compile the group’s data on private investing. He spent a few years with Jerusalem Venture Partners (JVP) before moving on to form his own VC, Cornerstone Venture Partners, which is just getting off the ground.

Brand gives a shout-out to Geektime for helping organize a Startup Weekend in Jerusalem back in 2012, saying it was one of the early events that marked an era of renaissance for the city. “It was very successful and we ended up going deeper into the tech world.”

According to Brand, during the 1990’s Jerusalem was considered to be had been on par with Tel Aviv when it came to the tech and VC scene. He cites the Yozma (initiative) program wherein the government matched venture funds. Moreover, Brand says that there was a push to direct much of that funding to the capital, leading to a thriving tech community. The initiative coincided with the introduction of over 100,000 immigrants from the collapsing Soviet Union, many with medical and engineering backgrounds who played a role in building up the relatively small market and industry.

Then in 2000, the city experienced a down turn due to the combined forces of the dotcom bubble bursting along with the increased violence of the Second Intifada. Facing these obstacles, much of the local industry and many venture capitalists left to seek out greener pastures in Tel Aviv.

Jerusalem returns

It’s taken some time, but the ecosystem appears to be steadily returning to itself. The same people who were driving economic and technological development 20 years ago are spearheading the rejuvenation. The city’s venture resources are exploding with a great bench, including players like Jerusalem Venture Partners (JVP), OurCrowd, Jumpspeed Ventures, Van Leer Xenia Ventures (VLX), Terra Venture Partners, Jerusalem Global Ventures, JS Capital, Integra Holdings, Hadasit Bio-Holdings Ltd., Shavit Capital Fund, MediTech Partners and Wadi Ventures.

“None of them are focused exclusively on Jerusalem. JVP took a small office in Malcha and created empire with its media quarter on Hebron Road. OurCrowd also brought a lot of people to the city who were active in the VC space 10 or 15 years ago,” says Brand, adding that, “Jumpspeed Ventures has its own particular focus on the city.”

The city is growing quickly according to Brand. He says that over the past two years, Jerusalem has successfully added 100 new startups annually, marking a reverse of the exodus in 2000.

For now, the ascent to the holy city is being led by founders living there. Brand says that he has seen a gradual return of startups who had left Jerusalem but are not making the journey back home. He cites Wisestamp as one of those companies who originally moved out to Ramat HaChayal to be near the Tel Aviv scene, but four years after founding, they’ve recognized new opportunities closer to home, opening up an office in the industrial neighborhood of Talpiot.

Jerusalem-based VCs are also taking an active / cooperative role in growing the ecosystem, lending a hand to startups that they would not likely have involved themselves with otherwise. “I see companies that might not relevant to me as an investor, but I can send them to certain angels for whom they would be.”

“Most of the companies are still young and will need bigger funding rounds in order to succeed,” explains Brand. While not necessarily startups in the strictest sense, companies like NDS ($5b), MobilEYE ($12b at its highest market cap) and Ex Libris (sold for $500m-$600m) have reached or approached $1 billion valuations.

Jerusalem, one of many clusters

Jerusalem venture investments have exploded over the last three years (source: Made in JLM)
Jerusalem venture investments have exploded over the last three years (source: Made in JLM)

“Tel Aviv branded itself rather than Israel, so they’re kind of equivalent. If Israel is political and conflict, Tel Aviv is cool and hip,” Brand postulates, adding that the concentration of lawyers or accountants who serve the startups from the rest of the country being housed in the coastal city feed this perception that even a company outside Tel Aviv is located there. “There are around 1,000 startups in Tel Aviv and only about 500 in Jerusalem, but there are 5x that in Petah Tikva, Hod HaSharon, Herzliya and Netanya.”

Brand believes that the trimultaneous growth of Jerusalem, Haifa and Beersheva gives Israel the “potential to be quadricore. They all have their own abilities and advantages.”

He says that some venture firms are doing an impressive job in drawing from Jerusalem’s history as a charity magnet for wealthy foreigners and turning philanthropies into investments with long term reaches. Small seed investments — say between $50K and $100K — match some of the heftier charitable gifts he explains, citing this new spin on the old adage of, “Give a man a fish and he eats for a day. Teach a man to fish and he eats for a lifetime.”

“Most of them are investing millions of dollars or at least $400k-$500k per year. What if instead of donating money, I invest money and help them to grow? They have an opportunity to invest [just] $50k in a young entrepreneur. I can be a rich guy from some well-off country with a personal interest in something like medical devices and I can invest in a Jerusalem company. Part of the pitch is that you can give money to teach kids to be more successful. We’re building a kind of pool where people can swim together.”

Jerusalem quadrupled its VC investments between 2012 ($58.1 million in 26 startups) and 2014 ($227 million in 57 startups). The numbers for 2015 are also looking pretty optimistic. Brand says that things are pretty even right now through the end of November, but that the situation has a good chance of changing as more deals get made before December is out or other deals only reach the papers in Q1 of 2016.

“There are a lot of angels here, and they’re different than the ones we all know from Tel Aviv!” It used to be — and sort of still is — uncommon for angels by the coast to come visit the mountains. Brand says that many of these VCs have an attitude of “They should come to me,” when thinking of Jerusalem’s startups, but that’s turning into a huge loss for people who like their Tel-Avivian comfort zone.

The golden city still has some work to do, though.

“$240 million is very nice, but in Israel the total was about $3 billion in 2014. That’s less than 10% and maybe 15% or 20% of the companies doing the investing,” Brand calculates, noting that, “Not so many big companies have raised north of $20 million, mostly $.5m, $1m or $3m.”

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