October22015jtelavivtech1
October22015jtelavivtech1

Startup Synergy: Silicon Valley, Tel Aviv tech worlds link up

To Eyal Ben-Eliyahu, customers who browse the racks at retail stores aren’t individuals so much as roving electronic signals, just waiting to be captured and analyzed.

Talking animatedly in a glass-paneled conference room at Mindspace, a hip Tel Aviv co-working space for startups, the 25-year-old CEO explains how his product works and how he plans to convince retailers around the world to buy it.

 

on the cover: Eyal Ben-Eliyahu, StoreSmarts CEO

By tracking the Wi-Fi signals from customers’ cellphones, Ben-Eliyahu said, StoreSmarts can paint a picture of how they behave in retail environments. The technology counts the number of customers visiting a store at different hours of the day, measures how long they stay and tracks their browsing patterns. The software then translates that information into valuable data, which can inform stores and influence how they operate, from adjusting their staffing levels to changing their window displays.

 

“It’s Google Analytics, but for the real world,” Ben-Eliyahu said.

Ben-Eliyahu, who founded his company with two friends, is an entrepreneur whose business sense was honed in Silicon Valley. And now, just a few years out of the Israeli army, he is heading a startup that has raised $750,000 in its second round of funding from an Israeli venture capital firm whose previous investments include companies later sold to Google and IBM.

StoreSmarts was born in Israel, but Ben-Eliyahu envisions moving back to the United States with members of his team. To realize those dreams, he’ll have to successfully navigate the business climates of Israel and North America, Silicon Valley and Tel Aviv.

Tel Aviv is one of the world’s leading hubs for technology startups, and Israeli entrepreneurs are increasingly comfortable transitioning between American and Israeli business environments — because they have to be. To build a big company in a small country, Israeli entrepreneurs think in terms of global markets, and it’s not uncommon for companies that become successful in Israel to move at least part of their operations to the United States.

Just as Israeli entrepreneurs understand the importance of having a foothold in Silicon Valley, with more and more startups establishing offices there, U.S. tech companies are keenly aware of the value present in Israeli companies. Google, for example, bought the Israeli mapping app Waze for about $1 billion in 2013. Waze employees now work out of offices in Israel and Silicon Valley.

 

StoreSmarts cofounders Eyal Ben-Eliyahu (left) and Ilai Fallach in their small, glass-paned office at Mindspace. 3. StoreSmarts staff at work in their Tel Aviv office.

Silicon Valley companies increasingly are establishing a presence in the Israel startup world, as well. To boost up-and-coming businesses, Google has created a “Campus Tel Aviv” to bring together entrepreneurs and encourage innovation. In September, Yahoo-sponsored SigmaLabs Accelerator launched in a city east of Tel Aviv, offering mentorship and resources to new Israeli startups.

 

Born in Los Angeles to Israeli parents who were in Ph.D. programs at UCLA, Ben-Eliyahu moved with his family to Tel Aviv when he was 4. After high school, he served for three years in a special-forces combat unit in the Israel Defense Forces. He traveled for a while, then ended up working as a door-to-door salesman for a home security company in Canada.

“I was literally going door to door knocking in the snow. I learned so much in this job,” Ben-Eliyahu said. “It’s the very basics of sales.”

After making a connection with Silicon Valley-based Israeli entrepreneur Yuval Spector, Ben-Eliyahu moved to Ladera, near Stanford, to work as the head of marketing and sales for UpToUs, whose online tools help parents, schools and teachers organize children’s activities. Ben-Eliyahu didn’t have any experience with startups, but Spector thought he was smart and gave him a chance at his company. The fact that both men were Israeli was a point of common connection, Ben-Eliyahu said. “We can understand each other a bit better.”

 

Yuval Spector

Ben-Eliyahu worked for a low salary with the opportunity for high commissions. “Yuval would never give the terms he gave me to an American because an American would be insulted, but I saw it as an opportunity. He’s giving me an opportunity to learn about the Silicon Valley startup thing.”

 

Still, Israel beckoned. Ben-Eliyahu would talk on the phone to his childhood friend Yarden Morgan, who was starting a business venture with his longtime friend Boaz Bechar. In spring 2013, Ben-Eliyahu came home for Passover, and Morgan and Bechar urged him to join them in launching their fledgling company.

“San Francisco is wonderful, but I also missed Israel,” Ben-Eliyahu said. He decided to return to Tel Aviv and join forces with his friends; a month later, they officially launched their company.

Late one afternoon this summer, Ben-Eliyahu was bent over a table in a common area at Mindspace going over the next month’s schedules with his graphic designer, Elad Stein. The company is in the process of rebranding and changing its name from Analoc — a play on the word “analytics” that Ben-Eliyahu said “sounds good in Hebrew” — to StoreSmarts, which Ben-Eliyahu believes will appeal more to the North American market. The transition requires a new logo, new website design and new business cards. Ben-Eliyahu had a trip planned to Brazil later in the summer to visit clients and a distributor, and he carefully studied his overscheduled Google calendar on his laptop as he set deadlines for the work.

The StoreSmarts office is a small, glass-paned cube set amid a row of other tech companies on the second floor of Mindspace. The interior is stylish and new, with wood floors and finishings punctuated by dark metal beams. The décor is eclectic, trendy and yet, upon close inspection, confused: One conference room is filled with knickknacks that inexplicably include balls of yarn, colored paper, a horseshoe, a typewriter and a monkey holding a paintbrush. All the interior walls are glass, putting the offices, filled with young entrepreneurs busy at work, on display.

 

StoreSmarts staff at work in their Tel Aviv office

Five desks are crammed into the StoreSmarts space, which measures maybe 10 by 10 feet. The eight young men who work there (they are all men) have scribbled notes and bits of code on the glass walls; all of the writing is in English, which is also the language the company uses in its internal emails for practice.

 

“The language of coding is English,” pointed out CTO Ilai Fallach, 26. “Most clients know English the best.”

Some in the technology sector argue that Israel’s mandatory military service instills discipline and helps young people mature faster. “When you give a task to someone in Israel and you tell them you need to do it by this date, you know it’s going to happen, and if it’s not going to happen, he will let you know,” said Al Azoulay, the CEO and founder of Tel Aviv-based Rumble, a mobile publishing platform for media sources. “In North America, you have no idea: Will it happen, won’t it happen? There are 22-year-olds in North America, they are like juvenile kids. Here, a 23-year-old is like a machine, is a grown-up.”

It’s no accident that many startup entrepreneurs served in the IDF’s Unit 8200, an intelligence unit that draws people with technical and computer science skills (some of the founders of Waze served in the unit).

“My unit was like a small startup inside the army,” said Sagi Gidali, 29, co-founder of SaferVPN, a web-access and security company that received funding from a San Francisco-based Maverick investor. Gidali and his co-founder, Amit Bareket, both served in Unit 8200.

 

Ori Soen

The elite unit has such an active alumni network that in 2011 its members launched a nonprofit accelerator for budding startups. New companies accepted into the accelerator’s competitive program get five months of mentorship and training; they then present their businesses to investors from Israel, the United States, Europe and China at a “demo day.” Ninety-five startups have gone through the program, and about 70 are still in business, employing 400 people in Israel and overseas and altogether raising $250 million.

 

All Israeli entrepreneurs — including those who didn’t serve in Unit 8200 or who didn’t serve in the military at all — are eligible to apply; the accelerator has had ultra-Orthodox and Arab Israeli participants, according to managing director Guy Katsovich. One of its goals, he said, is to make Israel a better place. “It’s kind of a Zionist mission.”

Mindspace is located on Rothschild Boulevard, in an upscale area where many startups are located. Founders and entrepreneurs regularly trade ideas at meetups, parties and networking events. Like in Silicon Valley, the entrepreneurs skew young and male. The community is small and informal, according to Joe Raby, director of finance and operations for Maverick Ventures, the venture capital firm that gave StoreSmarts its second round of funding.

Raby is a New Yorker who moved to Israel five years ago; as an entrepreneur in New York, it would take him a month to get meetings with venture capital firms. It’s different in Tel Aviv, he said.

“We’ll run into somebody; they’ll say they have an interesting company,” Raby said. “They’ll come later that afternoon or the next day in flip-flops or shorts and tell us about their startup. I like it much better here.”

Though Silicon Valley startups have grown used to large infusions of cash from flush American venture capitalists, Israeli venture capital firms like Maverick offer more modest investments.

 

Joe Raby

“The Silicon Valley style is to bet big,” Ben-Eliyahu said. “In Israel, the entrepreneurs are expected to achieve with $200,000 what in the Valley you’re expected to achieve with $1 million. In Israel you’re expected to maneuver things, live with your mom, be more creative … You have a million dollars, in Israel you put it on five companies. In the U.S. you put it on one. One [VC] told me that Google would never have succeeded in Israel because Israeli VCs, they’re not giving you enough.”

 

Still, the smaller scale of Israel’s business climate has its advantages. When StoreSmarts was getting off the ground, Ben-Eliyahu audaciously sent a text message to the CEO of Hamashbir Lazarchan, which he describes as the Walmart of Israel, after getting his number from an army buddy’s father. The CEO replied within five minutes and set up a meeting for Ben-Eliyahu with a staff member. The chain later agreed to pilot the product, which at the time required installing sensors throughout its stores (StoreSmarts is now a downloadable software program).

Ben-Eliyahu also leveraged his personal network to land a large Israeli jewelry company as a client. He offered a free trial to the CEO, who had been Ben-Eliyahu’s Scout leader when he was a child. After three months, the company became a paying customer.

That ease of access makes Israel an attractive place to start a business and a good testing ground for new products. However, for any company to succeed, it has to spread beyond the borders of a country that is about the size of New Jersey.

Some of the most well-known successful American startups in recent years, like Uber and Airbnb, offer platforms for personal consumer services, but Israeli startups are known for focusing on business-to-business ventures rather than consumer products.

“ ‘Business-to-consumer’ means businesses selling to American consumers. For a guy from Israel who grew up in Haifa to understand how the average American thinks, it’s impossible,” Ben-Eliyahu said. “Think about the Israeli nerd from the army developing the right [cultural] content for a young American girl. It’s impossible.”

Though Tel Aviv is an important and highly regarded center for technology, it is invaluable to be closer to the U.S. market and within the orbit of major tech companies, according to Ori Soen, the Tel Aviv-based CEO of Kampyle.

Soen attended San Francisco’s Lowell High School in the late 1980s when his father was posted at the Israeli Consulate, and he worked at startups in Silicon Valley for five years. Now back in Israel, Ori heads a company that creates tools companies can use to assess and improve customer experience.

“There’s a big advantage for moving because there’s exposure to all this culture,” Soen said. “On a work level, today with technology and video conferencing, you can run a company from Israel. But the big difference, and people underestimate it, is let’s say I sit down for a  meeting in a coffee shop on University Avenue in Palo Alto. I’ll say, ‘Let’s meet again next week.’ If I live in Israel, we’ll meet again in two to three months. [In Silicon Valley], you shorten the distance and the relationships. That is extremely valuable.”

Ben-Eliyahu agrees. “In order to build an international company, you need to be where the big business happens,” he said. “That’s the U.S.”

Drew Himmelstein
Drew Himmelstein

Drew Himmelstein is a J. parenting columnist and former staff writer. She lives in Brooklyn with her husband and two sons.