The Wall Street Journal recently published an updated chart on the billion dollar startup club. It lists 73 companies “valued at $1 billion or more by venture-capital firms”, but no Israeli companies. While Israeli startups have had many successful smaller exits, there have been few IPO’s or billion-dollar sales. Is this something Israel should worry about?
Not necessarily. Outside of Silicon Valley, huge valuations are pretty rare. Israeli startups doesn’t have a real local market, so they need to market themselves internationally, which is hard for a small startup. There’s also the risk that a startup will achieve initial success, refuse to sell until it’s big, but then fail before it reaches that point. So it makes sense that founders would prefer to sell their company for a ‘meager’ $30M-100M rather than wait for a multi-billion-dollar exit that may never happen.
Last Friday, I heard Yossi Vardi, one of Israel’s first high-tech investors, speak about startups. He said it was difficult for Israeli startups to open offices all over the world, so it made sense for them to get acquired after showing initial success, rather than trying to get big enough for an IPO. The international companies that buy the Israeli startup can then market the startup’s product throughout the world. The Israeli startups focus on their core strength in technology and innovation, but then let the big companies focus on their strength in business and marketing.
Vardi also mentioned that the international companies continue to employ many Israelis after acquiring a company, so it’s good for the Israeli economy overall. However, I wonder if these smaller exits can lead to the same “virtuous cycle” of startup founders building or investing in more startups after successfully exiting from one. The Paypal Mafia is the most famous example, where the founders from Paypal sold their company to eBay for $1.5B, and then went on to create a large number of successful tech companies. Can startups that “sell out” for only $30M lead to the same chain of success?