After his subsurface mapping startup 4M Analytics raised $11 million in a round led by Viola Ventures, it was clear to co-founder and CEO Itzik Malka that he had to move to the US. "Today, there are Israeli startups, even unicorns, whose managements have remained in Israel, but we, who work with more traditional companies in construction and infrastructure, have to be close to the mass of customers in the US," he explains. In order to decide where exactly in the US he should move to, Malka took a scouting trip in August and examined two main possibilities: Silicon Valley, and Austin, Texas.
"My impression was that Palo Alto in Silicon Valley is a charming place, a sort of little Paris, full of green parks and playgrounds and with a superb climate, but everything there costs accordingly. I looked at houses in Sunnyvale, half an hour's drive from Palo Alto. We're a family with three children, and for a suitable house, one in which it would be possible to host relatives from Israel as well from time to time, you have to pay $10,000 a month. In Austin, you can find a whole estate with a swimming pool for $5,000 a month. We're a startup still living at our investors' expense, so costs are an important consideration," Malka says.
Apart from the cost of living, another factor attracted Malka to Austin. "I grew up on a kibbutz, and I keep my children away from brand names and preoccupation with money," he says. "My impression was that the community in Silicon Valley was of workers in very well established companies and entrepreneurs who have made big money, that it would be much more competitive there. I didn't want to put my family in the middle of all that, and Austin seemed to me to be a much more up and coming and innocent place."
Were there also disadvantages to Austin?
"In Austin, you're a long way from the investors and venture capital firms of Silicon Valley, but in any case these are not people you talk to every day. You're still only a two-hour flight away, which is a lot more convenient than a fifteen-hour flight from Israel."
Unless there's a last-minute change of plan, Malka intends to move to Austin during the coming winter, and he is certainly not the only Israeli techie choosing the Texan capital.
Tesla to set up a factory, Oracle shifts HQ
Austin has always been a city with a strong connection to technology. In 1984, in his student dorm at the University of Texas, Michael Dell founded the computer giant that bears his name. Dell's head office is still in Round Rock, near Austin. Over the years, technology giants such as IBM, Google, Facebook and Apple have set up offices in the city, taking advantage of Austin's well-educated population, which totals about one million.
But during the coronavirus pandemic, "Silicon Hills", as Austin's technology center is known, became a real alternative to the world technology capital in Silicon Valley, thanks to lower costs, no state income tax, and the fact that Texas, unlike California, stayed open throughout the period.
In the summer of 2020, Elon Musk's electric vehicle maker Tesla announced that it would construct its second US car factory outside Austin. After well publicized battles with the health authorities in California over Covid-19 restrictions, Musk himself announced that he would move to live in the area, and forecast that Austin would be the fastest growing city the US had seen in fifty years.
Computing giant Oracle also announced last December that after four decades in California it was shifting its head offices to Austin. Other well-known figures who moved to Austin during the pandemic are storage company Dropbox founder and CEO Drew Houston, and entrepreneur and investor Joe Lonsdale, who brought his venture capital firm 8VC to the city.
Startup Quali, which deals in automation of computing infrastructure, was one of the first Israeli companies to set up an office in Austin, in late 2018. It was followed by Next Insurance and payroll solutions company Papaya Global. In 2021, Israel representation in the city has expanded considerably, with the addition of startup companies Rivery, DealHub, and 8fig. REE Automotive, which recently made its IPO on Nasdaq, chose Austin as its US headquarters. Other Israeli startups planning to expand to Austin in the near future are robotic site inspection company Percepto, and payables automation company Tipalti.
"Employees in Austin stay at an enterprise for a long time and are proud of being part of building a company from the ground up, which suited us very well," says Quali CEO Lior Koriat, who himself moved from California to Austin three years ago. "Unlike in other places, workers in Austin don’t constantly feel that they're missing out on opportunities in other companies, and that is what helped us to build a strong marketing, sales and support team in the city," he adds.
Sivan Avihud, founder and CEO of Link2USA, a recruitment company that provides services to Israeli companies in the US, sees Israeli startups flooding to Austin. "Three to four years ago, Israeli companies were attracted to Austin because it was possible to find cheaper manpower there," Avihud says. "Then political considerations came into play. Austin is perceived as less extreme than Democratic California on matters such as taxation, which are critical for businesses and entrepreneurs.
"If it's a matter of a startup that sells to major technology companies, or is looking to collaborate with companies like Facebook or LinkedIn, then it will be better off in Silicon Valley, where its managers can meet people from these companies for lunch. But if you're a startup selling a consumer product, Austin offers a lower cost of living, and it has enough talent," says Avihud.
The pool of technology talent certainly grew in Austin during the coronavirus pandemic. According to figures from LinkedIn, Austin was the city to which the most technology people migrated during the period. Between May 2020 and April 2021, 217 workers in software and IT companies moved to Austin for every 10,000 existing technology workers in the city. San Francisco, meanwhile, lost 80 out of every 10,000 workers, Boston lost 54, and Chicago lost 53, during the same period.
$150,000 annual saving per family
One of those migrants to Austin is Nadav Weizmann, who even compiled a mini guide to the city in Hebrew spelling out its advantages. Weizmann, director of product management at Epic Games, lived near Silicon Valley for four years, before moving to work remotely from Austin a few months ago. According to Weizmann's calculations, the move from California to Texas will save his family over $150,000 annually on housing, education, and taxes.
The main component of the saving stems from the fact that oil and gas-rich Texas doesn't impose a state income tax, which can be as much as 13% of wages, in addition to Federal tax of up to 37% that applies throughout the US. This tax advantage is only partially offset by the fact that, in Texas, homeowners pay a higher property tax of 2-3% annually, which compares with 0.76% in California.
The relatively sane real estate prices in comparison with Silicon Valley allowed Weizmann to buy a house in Austin instead of renting in California, but he says that there were other considerations behind the move besides the financial saving. "In Silicon Valley and in San Francisco they dealt with the Covid pandemic very badly. Schools were closed because the teachers' union wouldn't let them open, and the city became a ghost city, with a lot of homeless people. While our friends in California are still dealing with daily Covid tests, we're living normal lives here," he explains. "When people work remotely, they need an additional room to serve as a home office, but at Silicon Valley prices, with real estate so expensive, there's no way you're suddenly going to have an extra room in the house."
Four times more Israelis in Austin
Another advantage of Austin, Weizmann says, lies in its similarity to Tel Aviv. "The Israelis who live in Silicon Valley talk all the time about their nostalgia for going out in Tel Aviv. In Silicon Valley, the mentality is to go to bed at 7 pm, and even in San Francisco, which has places of entertainment and restaurants, you won’t see people walking around at night like you do in Tel Aviv. In Austin, there's nightlife and a lively music scene. You see people going from one place to another."
But even Weizmann sees negative sides to the Texan capital. "In the end, Austin is a bubble," he says. "When you leave the city, you're still in Texas. In contrast to California, where you can drive to Yosemite National Park or Lake Tahoe at the weekend, here there are fewer surrounding attractions. Some Silicon Valley companies cut employees' salaries by 10-20% if they go to live in cheaper places like Texas, as an adjustment to the lower cost of living, but I took care that that wouldn't happen in my case. Even if I found a startup in the future, I'll do it in Austin, because in California it's harder for an early-stage company to recruit people and compete with the global giants."
Michael Reitblat, CEO of e-commerce fraud detection company Forter, has lived in both of the major technology centers in the US, first in San Francisco and later in New York. Early on during the Covid pandemic, he and his wife moved from New York to Austin. "At first we moved for three months, and after that we kept extending it for three more months," he says.
Reitblat says that the move to Austin even opened up surprising business opportunities for him. "I met investors who had also moved to Austin, and these are people whom I probably wouldn't otherwise have reached. The fact that in Austin everything is relatively close, and is twenty minutes drive away, makes people more accessible." After just over a year in Austin, Reitblat moved again, this time to London, to develop Forter's European activity. "In a world without Covid I think that New York would be my first choice in the US, but at a time when there's a new lockdown every two days, Austin is an excellent alternative."
Did an Israeli community develop in Austin during the pandemic?
"In the evenings, my wife and I almost solely mixed with Israelis, who had all moved to Austin from New York and San Francisco. The Israeli community in Austin consists of more experienced technology people and is made up of families, and not so much of young unmarried people. There a grocery store in Austin with Israeli products; there even an Israeli foodie group on Facebook set up by Amir Shavit (now a senior manager at Twitter - O.D.)."
Four years ago, Rinat Reuveni Lerner moved from Israel to Austin because of her husband's work at French technology company Thales. In Israel, Reuveni Lerner was a pharmacist, but in Austin she switched to become a realtor, and she now acts as a relocation consultant advising Israel technology people who come to the city.
"In the past two and a half years, the number of Israelis in Austin has quadrupled, and almost every week I'm contacted by Israelis moving here from California or from the East Coast. When people can work from anywhere, they don't want to stay in cold places like Boston and New York. At the same time, many technology firms are opening offices here, and there are families relocating directly from Israel to Austin," she says. "The community has grown, and people gather and celebrate festivals together. The Israeli grocery store opened here in the past six months. It started with an Israeli guy selling pita, something you couldn't get here in the past. Today, you can buy Israeli cornflakes and fabric conditioner in the store, which is great."
Reuveni Lerner says that the migration of techies to Austin has led to a 30% rise in home prices in the past two years, but that prices are still lower than in California. While Israelis coming directly from Israel prefer to rent at the beginning, those who come from other places in the US buy a home straightaway, she says. "They say that the real estate market in Austin is reminiscent of the market in Silicon Valley twelve years ago, and so there's a real investment opportunity here. An average house in the Austin suburbs with 250 square meters built area and another 250 square meters of garden with a pool will cost $650,000. In the center of Austin, prices are higher, and reach $1 million or more, depending on the house."
Texans fear immigration from California
Austin's veteran residents are not so happy at the techie invasion of the city, to say the least. "You come across signs such as 'Don't turn us into California'. They fear that an influx of Democratic voters from California will turn Texas into a state with higher taxation," Reuveni Lerner says. "The number of homeless people in Austin is also rising, and people don’t want to find themselves in a situation like in San Francisco and Los Angeles. Because property tax is a function of the value of homes, which is shooting upwards, there are Texans who suddenly have to pay more for the same house. Of course they're angry about that."
Published by Globes, Israel business news - en.globes.co.il - on September 23, 2021
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