A new study published Wednesday by the New England-Israel Business Council showed the economic activity of Israeli companies in Boston increased by 30% in three years.
The study claims Israeli entrepreneurs and Israeli knowledge helped found 216 companies in the Boston area which are responsible for 4% of Massachusetts’ GDP. In 2015, Israeli-founded companies in the state generated $9.3 billion in revenue compared to $6 billion according to the previous study in 2012.
A third of the growth is attributed to companies that were not included in the previous study, with the other two thirds coming from the growth of companies already included.
14 cyber companies in two years
Exactly one year ago, El Al inaugurated its direct flight from Tel Aviv to Boston three times a week because of the growing travel base between the destinations. Some 20,000 Israelis live in the Boston area, mostly in the suburbs of Brookline, Lexington, and Newton. Some 300 Israelis are in Boston continuing their education at universities including Harvard, MIT, and Brandeis.
The Boston Jewish community is strong and vibrant, offering educational services and communal events.
Thirty percent of the Israeli-founded companies in the Boston area were founded by alumni of the state’s universities. One of the better known of those ventures is Akamai Technologies, founded in the late 1990s by Daniel Lewin (who was killed in the September 11 attacks of 2001) after a joint study with a mathematics professor at MIT.
Other companies were founded in Israel but chose Boston as their primary operations center abroad. A notable example of that model is cybersecurity company CyberArk which started working out of Boston a decade ago with 10 employees. Today, after its IPO, the company has a $1.5 billion market cap and employs 700 people, with a third in Boston and another third in Israel.
One key Israeli entrepreneur in Boston is Moshe Yanai, a former executive at EMC and IBM who recently raised $150 million for storage solution company Infinidat. In all, Israeli companies raised $1.2 billion from VC funds in 2013-2015, according to the study.
Seventy Israeli companies went “Bostonian” after they were acquired by investors from Massachusetts, and two firms are actually foreign firms that bought intellectual property developed by Israeli scientists: EMD-Serono purchased Rebif, a medicine developed at the Weizmann Center; and Takeda, which purchased Velcade, a product developed based on the research of Nobel laureates Aaron Ciechanover and Avram Hershko from the Technion.
David Goodtree, a private investor who is active in promoting the economic ties between Israel and Massachusetts and the person who launched the study the fastest growing “Israeli” sector in Boston is cyber security, which grew in two years from 2-3 companies to 14 companies. Other fields experiencing a positive growth momentum are Internet of Things, e-health, energy, and water.
“Cybersecurity is a massive growth sector showing fast increases in revenue which fits in with the characteristics of Boston,” Goodtree told “Globes”.
“We aren’t doing the social media thing. If you’re looking for a social media company go to Silicon Valley. But if you’re interested in algorithms, engineers, medicine, and these type of things then Massachusetts is the place.”
The unmistakable advantage offered by the Boston area is its available, qualified workforce. Boston generates the highest number of bachelor degree graduates; it ranks first not only in quantity but in quality, as seven of its universities are counted among the elite compared to only two in California.
But human capital is only one consideration. The study shows cost of living in Massachusetts may be a third higher than the US average but it is relatively low compared to Boston’s main two competitors for Israelis: New York (59% more expensive than average) and Silicon valley (53%).
In terms of its tax burden, it ranks 25 in the US, much better placed than either New York (58) or Silicon Valley (48). Boston trails Silicon Valley for number of new startups and IPOs but it does have a considerable lead on New York.
Another significant advantage to Boston for Israelis is the geographic distance from home, which translates to a flight time six hours shorter even after the new direct flight to San Francisco was launched. “If a senior manager needs to travel once a month, it means losing a full work day every month,” says Goodtree.
He uses Desalitech, which sells water reclamation and recycling technology for industrial and agricultural purposes, as an example that proximity to the client base (in this case, markets dealing with water shortages) is not necessarily a central consideration in picking a center of operations.
The present study looked at 216 companies founded by Israelis or whose operations are based on IP developed in Israel and which operate in the Boston area in fields including cyber security, storage, 3D printing, medical devices, pharmaceuticals, e-health, energy, and water tech.
4% contribution to GDP
According to the study, the total revenue of these companies reached more than $9 billion in 2015 4% of the state’s GDP. The total economic contribution of these companies to the region, including services and other business needs, crossed the $18 billion mark.
These companies employed 9,000 by the end of 2015 and indirectly supported more than 27,000 jobs. The workforce of these companies grew five times faster than the economy of Massachusetts in 2013-2015.
The previous study published by the NEIBC in 2012 showed revenue of $6 billion by Israeli-founded firms. The results of the present study show massive growth in revenue and other business measures.
VC funds invested $1.2 billion during 2013-2015 in 48 Israeli-founded companies 10% of VC investments in Massachusetts in those years. The mergers and acquisitions of Israeli-founded companies in the Boston area in the past 17 years passed the $10 billion mark.
The success and significant contribution of companies founded by Israelis to the Massachusetts economy have led the state government to undertake a variety of initiatives to expand economic relations between the two states. The charm offensive hopes to encourage Israeli companies specifically tech and life sciences to base their global operations in Massachusetts.
One of the main activities taken by the administration is its organization of delegations led by the Massachusetts governor to Israel in order to encourage them to expand their operations and undertake strategic agreements with companies from his state.
“Israeli businesses play a leading role in our state’s robust economy, in both tech and life science and we greatly value our special relationship,” said Governor Charlie Baker. “The future looks bright for the Commonwealth and Israeli companies to bring even more world-changing innovations to global markets together.”
“Massachusetts continues to prove itself as a global model for economic cooperation with Israel, and as a premier destination for Israeli businesses and entrepreneurs looking to expand and grow in North America and beyond,” said US Ambassador to Israel Daniel Shapiro. “The people of Massachusetts and Israel continue to meet together at the epicenter of history, tackling the most intractable problems in health care, biotechnology and life sciences, cyber security, IT and water technology just to name a few.”
“The Massachusetts-Israel innovation partnership is about more than just revenue; it is about improving the quality of life for Israelis, Americans, and the world as a whole,” said Israeli Consul General to New England Yehuda Yaacov. “As illustrated by the 2016 Impact Study, the economic relationship between Massachusetts and Israel is a model for other US states to follow when collaborating with us. Israel will work tirelessly to ensure that the next study demonstrates even more growth.”
Published by Globes [online], Israel business news - www.globes-online.com - on June 9, 2016
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