What Israeli Startups Need to Understand about US Market Entry
Author: Jonathan "Yoni" Frenkel, Content Marketing Strategist
We may be at the beginning of the end of this phase of the pandemic; we either learn to live with it, or eventually, multiple versions of a vaccine will appear on the market in the coming months. Either way, life must go on, and that includes our work and professional goals. For founders here in Israel, their startups still need to grow their sales and marketing efforts to acquire new customers, and ultimately open their US presence as they expand.
However, the United States many Israeli entrepreneurs left pre-COVID is not the same country they are planning on reentering. The pandemic, along with the social protests for justice has caused significant changes. This has been particularly felt in major urban centers such as New York and San Francisco, which saw major migrations to locations outside the coasts. In the coming months, as startups begin to ramp up their expansion efforts, there are a number of factors Israeli startups should look for in an American city when they seek US market entry. I would advise a hybrid model, as location is still important as some in-person meetings may happen, but other factors should be taken into consideration as well. While we are all digital-first for now, we may assume the second we have a sense of normality people will revert to their old ways. We just do not know when that is going to happen so that is something to keep in mind when looking at locations.
Access to talent
When you look at some of the most successful Israeli/American startups- - Lemonade, Yotpo, Gong, Monday.com--they have a strong focus on building a US culture as well. Pre-COVID talent was centrally located in certain locations such as New York and the Bay Area. And while it has been addressed often, COVID really is the great accelerator, and trends that have been moving slowly only increased. For the time being, work is remote, and as such communities vital to our mental wellbeing will start to take on more form and meaning, human beings being the social creatures we are.
In this case, remote working, which was already in the ascent became the norm. We’re also going to see the further decentralization of talent as many of the big tech companies are already stating that they’ll continue remote work into next year (and possibly forever). That is why being in a cluster of talent could also be important, and there are options outside New York and the Bay Area in a number of startup cities such as Cleveland, Tampa, and Tulsa. We’re also starting to see companies scale remotely from the get-go (with titles such as Head of Remote) and that will only continue. What will probably happen is a hybrid model, in which we’ll see clusters or communities of remote workers where there is a good work-life balance. This trend is already happening globally in European countries such as Portugal and will continue to go through changes as we learn to adapt to multiple waves of the virus.
Where money lives still matters… but location may matter less
Pre-COVID, Israeli startups focused their fundraising in areas where an abundance of investors were located such as New York and the Bay Area. Today capital’s home is becoming decentralized, and many investors feel comfortable going through the due diligence process and closing deals via Zoom. One of the largest acquisitions in the Israeli ecosystem which happened at the beginning of the pandemic was Moovit by Intel, and was a deal that was done entirely on Zoom. The centralization of VCs has started to disperse, and while many Israeli startups do open up an office close to a large investor (to operate in that particular ecosystem), we’re going to continue to see a change in how VCs view location and deploy capital.
As well-known San Francisco based investor Jason Calacanis tweeted recently “I've invested in about 30-40 startups during the pandemic and no longer require founders to come to see me in San Francisco.... & @launch accelerator is remote!.... since everyone is fully remote, we cut our costs 25%+ while making our team members 35%+ more efficient.” VCs are still going to look for further ways to improve their due diligence, and being around (and creating relationships) with investors is key, but you do not necessarily need to be living in a major tech and finance hub where you lived in the past for the simple fact many investors may not live there anymore.
An active and helpful ecosystem
This is something that is taken for granted here in Israel, as not every ecosystem is going to help you succeed, and has your best interest in mind. This has ramifications outside of work, as socializing, building relationships, and even our mental health has been impacted by the isolation brought on by WFH. Even during COVID times people still find ways to meet up, with masks on and outdoors, so it is important to be in a place where there are like-minded people and a friendly community that wants to help you succeed.
While there are active and helpful Israeli tech communities in places like NY and SF there are other cities with robust and helpful communities. As Sean McCroskey, of Tulsa based Atento Capital states, on the importance of community is “I think what to look for in a city for new market entry can be very easily simplified into an equation. You need a large pool of available technical and non-technical talent + access to capital + supportive and welcoming local government and universities + low cost of living = A great city for market entry. Fortunately, Tulsa has all that. Furthermore, if you combine all of the above with our remote worker friendly initiatives through Tulsa Remote then Tulsa is really an outstanding city for new market entry.”
In addition, the Israeli ecosystem tends to focus on places like New York and the Bay Area. There are other cities in the United States which have helpful communities. There is a parallel between how the ecosystem is in places like Tel Aviv as opposed to cities outside the center of Israel which tend to do more to help entrepreneurs succeed. Aside from the resources that are being devoted to help build these emerging startup ecosystems, there is the vibe that cities that are genuinely interested in helping budding startups succeed generate, which only adds to the standard of living.
The option of access to customers
Accessing customers is something that is also becoming decentralized. What Israeli startups need to understand about large corporates is that pre-COVID, cities like New York offered an abundance of access to corporations and Fortune 500s. There are areas, though geographically not as condensed as 5th Avenue in Manhattan, that offer access to possible customers, such as the American Midwest, which hosts a number of Fortune 500s. During COVID, many of these large organizations have gone completely remote and left their office space, or taken on hybrid models. The idea of taking a meeting with a key decision-maker in person depends on a number of factors, but could still remain an option.
Another challenge that many Israeli companies have here is that they are not always aware of what types of corporates and customers are out there. While global Fortune 1000s play an active and oversized role in the local ecosystem here, that does not paint the whole picture. For example, in the United States across verticals, there are companies that are selling for millions every year and you may not have heard of them in Israel. Many of these companies are located in regions in the United States in what may seem like boring verticals but would be open to speaking with an Israeli founder if approached correctly. Being in a centrally located area such as a Midwest city, or one in the Northeast offers you access a plane ride away, and it is not vital to be in a densely populated city anymore.
A work-life balance
In certain cities where hustle is king like New York people were willing to sacrifice their standard of living and well-being in pursuit of oftentimes financially driven goals. COVID has put into focus what is truly important: our health, family, friends. While WFH is not perfect, and Zoom fatigue and other challenges are real, workers are not thinking about the ‘Day After’ COVID but how to live with it.
Places like New York offered access to people, resources, and a community in which one could network and forward their endeavor. The price many people willingly paid was a shoebox apartment, high prices, and a cut-throat environment. COVID has reshaped many professionals’ priorities on what is truly important. If the urban grind is not as important anymore, then why not choose a location which is pastoral, and has an active and supportive community? It is not about having it all, it is about using technology to help enable you to do things such as sell to customers and raise money remotely while maintaining a high standard of living and spending your free time with real intention.
At this point, no one has the answers, and there is much uncertainty about where things are headed. There are aspects of the new normal we understand will not change, as WFH will be a key feature, if not a hybrid approach to how we work. Israel-based founders still have their eyes on US market entry, but the America they may have left pre-COVID is not the same place today. Many of the basic assumptions must be challenged in this brave new world.
Jonathan 'Yoni' Frenkel has been involved in the US-Israeli tech community for many years, mentoring startups on marketing, hosting events connecting investors with startups, and publishing on the topics of tech and venture regularly and is now in Tel Aviv. Professionally, he heads a content marketing agency, YKC Media, and works with VCs, corporates, and startups in creating written content, social, and advising on marketing strategy focused on engaging a US audience. He is currently in Israel working with the Tulsa-based fund Atento Capital. He can be reached on LinkedIn here.