"Britain has great potential for Israeli entrepreneurs, but most first focus on the US. Britain isn't even their second choice. Instead of changing planes in Los Angeles to get from Tel Aviv to Silicon Valley, an Israeli entrepreneur can catch a shorter flight to London, with a time difference of two hours, it's the same language," says UK tech envoy to Israel Saul Klein, a partner in Index Ventures, who is familiar with the Israeli market, after living here for a period, and who serves as a director in several leading start-ups, including MyHeritage Ltd. and Outbrain Ltd. In December 2012, UK Prime Minister David Cameron appointed Klein as Britain's tech envoy to Israel. In this capacity, he promotes collaboration between the UK and Israel through the UK Israel Tech Hub, an initiative by British Ambassador to Israel Matthew Gould that began in late 2011 with the aim of forging business ties between the UK and Israel.
"Opportunities are being missed on both the Israeli and British side," says Klein. "There is a lack of understanding in Britain of just how strong Israel and its technology industry are. On the Israeli side, they don’t realize that Britain is a global leader in technology use, innovation, and its impact on the economy. There is an opportunity here to connect the two sides and the two countries to promote growth in both of them."
Although Klein resides in London and is familiar with the local high-tech industry, he was recently surprised to learn that the UK has the largest Internet economy among the G-20 countries, accounting for 8.3% of GDP, according to a study by Boston Consulting Group. The study found that Britain's Internet economy had a turnover of £121 billion in 2010, more than £2,000 per capita, ahead of healthcare, real estate, and education.
"There is potential here for Israelis, and not just because of the proximity or the language. Britain has elite universities, a global village of tourism, and workers from all over the world, and is outstanding in retail, media, and telecommunications. From these aspects, Britain is a wonderful place to go to, not necessarily to raise capital, but to reach users, because when all is said and done, what every start up needs, more than investment, is users."
"Globes": With all these advantages, why do Israelis pass over the British market?
Klein: "I think that part of the problem is awareness and part is habit. You go to the places you already know. There is a strong technology tie between Silicon Valley and Israel, and good ties between New York and Israel."
This habit also resulted in the establishment of a very strong network on the West Coast.
"Correct. I don’t think that Israeli entrepreneurs will get that in London. There is no advanced networking there yet.
The UK Israel Tech Hub was established to develop these ties between the parties, with the aim of bringing the two sides together to form strategic and economic partnerships. In 2012, 15 Israeli start ups were brought to London, and three of them are now setting offices there, and six others are in collaboration talks with local companies. This week, the Hub will host a delegation of British retailers, including executives from Burberry and Marks & Spencer to experience the atmosphere of the start up nation and find business opportunities.
"What makes the Hub unique is that, as a center which aims to help, it works in both directions. Usually when there are all kinds of government initiatives they are mostly one-way. 'Hey, come invest in Britain because we're great.' Here, this contributes to both countries," says Klein.
Even before an Israeli entrepreneur is persuaded to look at Britain, Europe in general is not really taken into account, and there is a reason. Israel is considered as a leading start up creator, possibly second only to Silicon Valley. Until recently, Europe did not really count in this context. But there has been a change in the past few years, and more and more breakthrough technology companies are emerging on the continent and quickly achieving global recognition.
"It is possible to grow through Europe too, and not to think straight away about the American market. Spotify (which operates a music streaming service - R.G.) built its business in the Nordic countries, and then went to Britain and France, and only reached the US in the next stage," says Klein, adding, in the same breath other examples, British games creator Playfish, and Finnish Rovio Entertainment Ltd., which is behind Angry Birds.
"I was part of the Skype team before it was sold to eBay. Skype (which was founded in Sweden - R.G.) changed the tone of how people think about European technology companies. That was seven years ago. Since then, a lot more innovative companies have been founded in Europe," says Klein. In the music field, he mentions companies like Britain's Last.fm, Germany's SoundCloud, and Sweden's Spotify Ltd..
"In gaming, there are companies like Rovio, Playfish, which started in London and was sold for $400 million to eBay in 2009, and London's King.com, which is considered number two in social games after Zynga," says Klein. He also mentions European successes in other fields, including Net-a-Porter.com, Wonga.com, ASOS.com, ARM, Autonomy, and SAP AG (NYSE; DAX: SAP).
"There are no lack of successes by European companies in recent years, and the local market has definitely changed for the better. That is why there is no question that Israeli companies can benefit from collaborations and expansion to the continent," Klein concludes.
MyHeritage and Outbrain are far from the finish line
It is hard to talk with Klein and ignore his and Index Ventures' Israeli angle. Among Index Ventures' most prominent investments are MyHeritage and Outbrain. "When investing, we always look at entrepreneurs who have global ambition and operate in markets which can hold big companies. Gilad (MyHeritage founder and CEO Gilad Japhet - R.G.) and Yaron (Outbrain co-founder and CEO Yaron Galai - R.G.) are not only endowed with high personal ability, but they also have the ambition to build something big and a very serious team around them.
"We see this as a marathon, and we're far from the finish line as far as MyHeritage and Outbrain are concerned. They are not alone. One might also to mention Viber, Wix, and Fiverr. There are now 10-15 mid-stage Israeli companies and they can succeed as independent companies and not be sold prematurely," says Klein.
What is premature?
"We don’t look at $50-100 million exit companies. If that is the right thing for the entrepreneurs, fine, but that's not what we get excited about when we wake up in the morning. We're excited by companies like Outbrain and MyHeritage, which think in the long term. Both can go public."
How involved are you in what goes on in a company?
"As investors, we encourage, but we don’t manage. We don’t pick the team, we don’t play on the field. We support as parties at interest, but at the end of the day, we have a minority stake. Our work is to find companies and entrepreneurs who have the ability to dream big. At the end of the day, these two companies can go far."
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2013
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