US-BASED ISRAELI 'UNICORNS'

A Mixed Bag Of Companies

BY MIKE WAGENHEIM | JNS.ORG

The United States is home to a record 88 Israeli-founded unicorns—privately held companies that have at one point been valued at $1 billion or above. That’s according to the United States-Israel Business Alliance (USIBA), which notes a 10% jump, from 80, in Israeli unicorn companies stateside since last May.

To qualify for the list, a unicorn must have at least one Israeli founder, and its global or regional headquarters must be in the United States.

A record 11 states now serve as headquarters for Israeli unicorns, including a growing number outside the traditional hubs of New York and Silicon Valley.

“The rising number of Israeli-founded unicorns in the United States is a testament to the strategic value that this market continues to offer Israeli entrepreneurs,” stated Aaron Kaplowitz, president of the USIBA. “In recent years, there’s been a better product-market fit between Israeli technological solutions and American enterprise challenges.”

This data reflects both promising and concerning trends. The number of U.S.-based Israeli unicorns is increasing, but some are seeing their evaluations drop or are even having to file for bankruptcy.

Cybereason, a Boston-based, Israeli-founded cyber detection and response company, recently took in a $100 million investment from SoftBank, based on an estimated $400 million valuation. The company remains on the unicorn list based on its $2.8 billion valuation in 2021.

And in July, New Jersey-based cryptocurrency lender Celsius

Network, co-founded by an Israeli, filed for Chapter 11 bankruptcy.

“This is a complicated year, particularly. The market is insane,” Kaplowitz said. “We had to reassess our understanding of valuations a little bit better.”

Israeli-founded unicorns have not been immune to the decreased valuations across the global tech economy. USIBA research indicates only about 55% of U.S.-based Israeli-founded unicorns could raise funding at a $1 billion or greater valuation at this moment.

“I don’t see the investments as dwindling. I just see them as getting more personal, smarter and even safer,” Jonathan Weiss, vice president of strategic innovation for the Florida-based medical-device unicorn Insightec, said.

“When the markets were doing better and [were] more stable, folks were tolerant of taking on more risk and there may even have been an additional element of excitement for people to be part of the Israeli startup investing ecosystem altogether,” he said. “That was part of the drive.”

Weiss said investors were willing to take on some extra risk, especially in earlier-stage startups, which were not commercial or selling yet.

“There was extra cash around to take riskier bets. Now ideally you want to see sales, cash flow, and even better, cash-flow positive companies,” said Weiss. “More than ever, it’s about relationships and trust in the team that they will deliver on their projections.”

Liquidity Group, headquartered in Manhattan, is the only Israelifounded unicorn in the country to cross the $1 billion valuation threshold so far in 2023. Twenty-one companies hit the mark last year, with 38 reaching unicorn status in 2021 and 14 in 2002. Current market conditions are keeping the number of unicorns artificially high, because late-stage companies that would have otherwise gone public by now are holding off with the IPOs, waiting for the market to improve.

Since last May, only two Israeli-founded unicorns with U.S. headquarters—Selina and Pagaya—have gone public.

Kaplowitz also said that he senses some Israeli-headquartered companies are holding back from setting up shop in the United States as they await more certainty in the market.

“Anecdotally, we’ve seen companies over the last six to 12 months put their expansions on hold. A lot of Israeli companies that inevitably have plans to expand in the U.S. are just optimizing their operations and waiting this out a little bit,” he said.

Conventional wisdom might hold that domestic Israeli strife and instability might scare off some potential investors, but Weiss hasn’t seen that play out.

“When it comes to investing in Israeli companies, we’re talking about things that are, in a way, above politics,” he said. “When we talk about healthcare, it’s above politics. When we’re talking about advancing technologies that create value for people, it’s above politics.”

“Politics has the ability to infuriate people on different sides. So, if you don’t see eye to eye on politics, you just don’t talk about it,” he said. “Focus on what you have in common and the mission at hand.”

Insightec, whose global headquarters is located in Israel’s Tirat Carmel, is one of two Israeli-founded unicorns with Florida offices.

In 2022, Israeli-founded unicorns were headquartered in nine states. This year, Landa, a 3D-printing innovator, set up its U.S. headquarters in Atlanta, while NextSilicon, a semiconductor processing company, relocated from Texas to Minneapolis. The moves put Georgia and Minnesota on the Israeli unicorn map for the first time.

The COVID-19 pandemic and its resulting state-level regulations had a significant impact on the Israeli unicorn scene. While California (35 Israeli-founded unicorns) and New York (30) remain leaders, other states with more favorable business environments became active in recruiting new companies.

Israeli-founded unicorns have tended to set up their own supportive ecosystem structures, but Weiss said that Israeli companies exploring new frontiers in the United States can become viable on their own, opening the door for more to join.

“Because of what the world as a collective just went through, the previously established hubs for innovation were broken down,” Weiss said. “Politics aside, the lockdowns sent talent and intellect to new areas as the work-from-home concept became a way of business survival. It ultimately didn’t matter where you lived.”

As regions have opened up, Weiss has observed a “dramatic buildup of need and yearning for community, to see people, to interact and as people emerged from their quarantine place of choice, the new hubs were born.”

“I don’t think we’ll ever be able to remove community from the picture,” he said. “I think community is the source of people’s motivation, of excitement to create value for the world.”

Weiss thinks that Israeli companies spreading stateside will lead to greater business opportunities.

“The locations that are harboring young innovation hubs are adapting. Local governments are realizing they’ve got a really great garden growing and [are] focused on how to water it,” he said. “New policies and support systems are being put in place to sustain and cultivate the new ecosystems, and I think these are the natural next steps where these new communities are established.”