Silicon Valley investors have been going to Israel for decades to take advantage of its pool of hardcore tech entrepreneurs. But a new generation of consumer-focused companies has been emerging in the country over the last few years — and they’re facing a few challenges. One is that the local market is relatively small, which means that it can be harder for them to design and iterate products for mainstream users in large markets elsewhere. Another is that local venture funding has been skewing towards later-stage investments. Finally given the distance, access to potential partners and the Silicon Valley knowledge network can be difficult to reach.
UpWest Labs has a solution, which is is bringing new Israeli entrepreneurs to live in Silicon Valley. The setup in some ways looks like the many other incubator/accelerator programs that have sprouted up here and everywhere in the world. Founding teams live together in a house in Menlo Park for three months, work together out of an office in Palo Alto, and meet a set of mentors from around the area. In exchange for up to 8% equity, they receive a small amount of seed funding, usually in the $15,000 to $20,000 range.
But look under the surface and UpWest has some things going for it that suggests it could start producing especially strong batches of companies. The focus is on bringing in founders who already have some sort of product going, who can use their time in the Valley to build on what they have, establish new relationships and learn best practices that they can bring back to Israel.
This is distinct from many seed-stage programs, which more typically look for smart and ambitious people with lots of ideas. The difference in approaches has to do with Israel itself.
“Israel has a long history of producing more entrepreneurs per capita than almost any other eco-system. They have a strong technical education system which when coupled with the universal military service provides unique pool of talent.” explains program advisor Robert Goldberg, a long-time executive and investor in Silicon Valley who has been active with Israeli companies for years. “While there have been a number of successful Israeli startups the proportion of homerun exits has been low. UpWest Labs aims to change this by leveling up and arming entrepreneurs with access to knowledge, people and capital. ”
To date, most of these people have been building companies in tech-heavy areas like security and databases, that could then be sold to multinationals, as this recent Economist article explores. While the overall venture industry in Israel has had its ups and downs, the data suggests early internet companies are being ignored. One recent study, by the Israel Venture Capital Research Center, indicated that angel funding has dropped as a share of total venture investments to under 2009 levels; while internet investing has gone up, it hasn’t been at the early stage, and it’s still not in proportion to the pool of quality companies.
UpWest Labs’ founders decided to start the program after watching the Israeli startup scene change over the last decade. Gil Ben-Artzy spent the last six years doing corporate development and operations management at Yahoo, responsibilities that involved regularly going to Israel, working with Yahoo’s local team there, as well as local entrepreneurs and investors. Shuly Galili, meanwhile, is the cofounder and executive director of the California Israel Chamber of Commerce. The organization that has spent more than a decade helping Israeli companies with marketing, fundraising and general business development here.
The program pairs companies with some 30 mentors, ex-patriots and others with some connection go Israel and the program founders, who are also Silicon Valley-based experts on particular areas. After startups finish their three months, the goal will be for them to have the connections that will keep them coming back to Silicon Valley and other parts of the tech world.
While some programs have been expanding their class sizes over the years, Ben-Artzy says that’s not the plan at this point. Instead, he’s aiming to keep a small -class feel so each of the companies can get maximum attention. This might seem a little risky considering that breadth of investment is often the best way for early-stage investors to actually make money. But it makes sense, considering that UpWest is bringing in companies that already have something to show for themselves.
For now, UpWest is just getting started. The first class arrived in Menlo Park last month. The six companies in it are working on consumer mobile, social, gaming, SaaS and enterprise software (so, it’s not entirely consumer, but still heavier in that direction). We’ll be looking at the more closely later on. In the meantime, the program has started recruiting its next class of start-ups. Israeli TechCrunch readers, you can get more details on it here.