By Christina Henderson, Executive Director, Montana High Tech Business Alliance
“[Israel is] small, but not a small player. We have a lot of success stories, and we’d love to expand that to Montana.”
-Dr. Andy David, Israeli Consul General for the Pacific Northwest
Few Montanans know that Israel – a country of around eight million people beset by frequent terrorist attacks and wars – is a global high-tech powerhouse. Israel is second only to Silicon Valley in the number of start-ups and venture capital investment. The U.S. is 40 times Israel’s size.
On January 20, 2016, Dr. Andy David, the Israeli Consul General for the Pacific Northwest, made a compelling case for high-tech partnerships between Israel and Montana while visiting Missoula and Bozeman. The Montana World Trade Center (MWTC) and Brigitta Miranda-Freer, the center’s executive director, hosted the visit. Events included a business roundtable discussion at First Interstate Bank in Missoula. Dr. David and his colleagues, Maya Vardi Shoshani and Gili Ovadia, met with several Montana companies, including Montana High Tech Business Alliance members:
- Jordan Lind, Clearas Water Recovery
- Alex Philp, GCS Research and Upstream Health Systems
- Joel Henry, Agile Data Solutions
- Sherri Davidoff, LMG Security
- Larry Johnson, Montana Photonics Industry Alliance
- Some Montana firms have already established trade partnerships with Israel. Alliance member Spika Design and Manufacturing in Lewistown was named “Montana Exporter of the Year” in 2014 and exports products to Israel among other countries. Only a few Montana-Israel partnerships exist now, but the Israeli consul sees potential for growth.
- The MWTC arranged for a phone interview with Dr. David – a dentist-turned-diplomat now based in San Francisco – a few days before the official visit. “[Israel is] small, but not a small player,” Dr. David said. “We have a lot of success stories, and we’d love to expand that to Montana.”
- According to Dr. David, “If you look at almost any major American company – HP, Google, Coca Cola, Facebook, Oracle, Intel, Microsoft and many more – they all have R&D centers in Israel. After the United States and California, Israel has the highest number of companies listed on NASDAQ.”
- Israel’s interest in partnerships with U.S. companies is expanding beyond multinational corporations and big cities to include start-ups and less-familiar places like Montana. “A lot of Israeli companies know other states – the East Coast and California,” Dr. David said. “But there are opportunities in other areas where they don’t frequently go to. Montana certainly falls under this definition.”
- Dr. David points out that Israeli companies and Montana companies don’t know much about each other, and his role as Israeli Consul General for the Pacific Northwest is to “represent the government in strengthening those relationships,” not just between companies, but also between people. “Israel is very networked as a society. When there are one or two success stories immediately many others hear about it.”
Some of Israel’s success stories have roots in the Treasure State. One innovative Israeli start-up, Beta O2, is testing an implantable “bioreactor” to replace the defective pancreas in Type 1 diabetes patients. The solution developed by founder Yossi Gross creates a self-contained micro-environment that includes oxygen-producing algae from the geysers of Yellowstone Park. (Start-up Nation: The Story of Israel’s Economic Miracle, Senor and Singer, 2009.)
- Dr. David emphasized the importance of being open to surprises. “Sometimes the best return on your investment comes from the unexpected. We’re trying to connect with as many people as possible because you never know behind which corner is the next big thing. Everything today is so dynamic. Sometimes things that look like they cannot connect really do connect.”
Here are three reasons why Montana and Israel could be excellent business partners:
1. Start-Up Density and Venture Capital
According to Dr. David, Israel is the number one country for spending on research and development (R&D) – 4.5 percent of Gross Domestic Product (GDP). And this R&D output is commercialized by countless Israeli entrepreneurs. Israel has the highest density of tech start-ups in the world. “At any given moment you’ll find between 5,500 and 6,000 start-ups in Israel, about 500 new ones every year,” David said.
Start-up density is a trait Montana shares with Israel. A Kauffman Foundation report in 2015 found Montana’s startup density range was 195.7 startups per 100,000 residents, nearly twice the national average and the highest ratio in the United States.
In spite of our high start-up density, Montana ranks last for venture capital dollars invested and number of VC deals according to the National Venture Capital Association’s 2015 state-by-state report. But partnerships with Israel through efforts like the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation and trade missions from Montana to Israel could help the state improve those dismal numbers.
Israel’s start-ups attract more venture capital dollars per person than any country – 2.5 times the U.S., 30 times Europe, 80 times India, and 300 times China. Israeli high-tech companies attracted more than $2 billion in venture capital in 2011 according to Israel’s Ministry of Economy.
20 years ago, Israel had no venture capital industry to speak of either.
Venture capital investment typically helps start-up companies grow through cash, mentoring, and introductions to business networks. But as Senor and Singer note, for most foreign investors, putting high-risk funding into Israel in the 1980s and early 1990s seemed absurd, particularly in the absence of local venture capital. “To them, Israel was synonymous with ancient religions, archaeological digs, and deadly conflict.” (Start-Up Nation, p. 165)
Israeli entrepreneur Jon Medved – who has sold several start-ups to large American companies – told the authors that back then, “You could talk to an American [venture capital] fund until you were blue in the face and say, ‘Hey, come invest in Israel,’ and they would laugh at you.”
(Substitute “Montana”, “cowboys”, and “national parks” and the story may sound familiar.)
In the absence of equity financing, Israel and the U.S. created the BIRD program to promote innovation and collaboration for mutual benefit. BIRD grants helped Israeli entrepreneurs get the attention of American venture capitalists and investors.
Israel also created a local venture capital industry by investing $100 million in government-sponsored Yozma funds between 1992 and 1997. Named after the Hebrew word for “initiative,” Yozma funds paired Israeli venture capitalists in training with foreign VC firms, helping to overcome the U.S. venture community’s reticence about doing business in Israel. (Start-up Nation, p. 166)
Montana’s own equity financing opportunities expanded significantly in 2015 when Next Frontier Capital, a Bozeman-based venture capital firm, announced the initial closing of its inaugural $20 million fund. Like the Yozma funds, Next Frontier Capital helps fill the need for experienced local venture capital investors who can help Montana start-ups build credibility with VCs in bigger U.S. markets.
2. Business Talents of Military Veterans
Dr. David highlighted Israel’s status as a nation of veterans – service in the Israeli Defense Force before college is mandatory for all young Israelis – and the opportunity for Montana’s large veteran population to work with partners who understand the value of their military service.
According to a 2015 report on the state of Montana veterans released by Sen. Jon Tester, there are nearly 100,000 veterans living in Montana, about ten percent of the state’s population. Montana is the number three state for veterans per capita behind Alaska and Maine.
Israeli entrepreneur Jon Medved told Senor and Singer, “When it comes to U.S. military resumes, Silicon Valley is illiterate. It’s a shame. What a waste of the kick-ass leadership talent coming out of Iraq and Afghanistan. The American business world doesn’t quite know what to do with them.”
As Senor explained, “In Israel, employers look for and value the leadership skills of young officers who have already received tremendous management skills by age 21. By age 25, they have both military experience and a university degree.” More typical in the U.S. is what one corporate recruiter told a veteran in an interview: “that’s all very interesting, but have you ever had a real job?”
By leveraging Montana’s incredible reservoir of ex-military talent, we could uncover an economic advantage for our state and an area of common interest with Israeli entrepreneurs.
3. Overcoming Geographic Barriers to Growth
As a state with 1 million people that is fairly distant from major population centers, Montana shares some common challenges with Israel, a country of just 8 million people whose neighbors aren’t all that collaborative. Technology is removing geographic barriers to growth for Montana, just as it has for Israel.
According to Dr. David, “In the world of knowledge, distance is no longer important. The borders today are the borders of your ideas, not of your geographic borders. In a click of your computer, you can buy whatever you need. Exports, imports today have a different meaning than they used to.”
Israeli companies think globally from day one. “Because we are a small market, usually companies that start in Israel think immediately about exporting; they think about external markets,” Dr. David explained. “If you compare it to other sizeable countries like Korea, Germany, China – they have a big enough market to start in the local market. And then when they grow beyond that market of 40-60 million people, then the adjustment is sometimes difficult. But when you start already thinking about globalization, as a language and as an international culture, it’s already part of Israeli culture and creativity. Although we’re not a lot of people, we are really well connected.”
As we write our own story of economic transformation in Montana, it’s worth studying Israel’s playbook. In particular, we can learn to cultivate resources – like venture capital, our military veterans, and global partnerships – and change how the world sees Montana.
3 Ways for Montana Companies to Partner with Israel:
1. Binational Industrial R&D Fund (BIRD)
The BIRD Foundation promotes collaboration between U.S. and Israeli companies in various technological fields for the purpose of joint product development.
Dr. David describes BIRD as a “funding mechanism – which comes from both Israeli and United States governments.” Grants come in the form of a conditional matching fund where BIRD will cover up to 50 percent of R&D costs and the two companies together provide a match.
BIRD provides funding up to $1 million without receiving any equity or intellectual property rights in the participating companies or the project itself. No repayment is required unless the project is successful and funding is repaid as royalties from sales of technology products that were commercialized as a result of BIRD support.
While the grants were originally targeted at pairing start-up Israeli companies with medium to large U.S firms, today small or start-up U.S. businesses could be considered. BIRD can assist Montana companies with identifying potential strategic partners and facilitating introductions.
“Identify your vertical,” Dr. David suggested. “Then the first thing you can do is connect with the consulate. Mention that you would like to partner. The best partners are already in the R&D stage.”
In its 38-year history BIRD has invested over $300 million in 900 joint projects, helping to generate direct and indirect sales of more than $10 billion.
According to Dr. David, Israel is interested in collaborating with “knowledge-based businesses and industries – high-tech, biotech, cyber, energy – anything that includes innovation and ingenuity.” Recent projects receiving funding include bio-enhanced concrete, wireless displays, fitness products, medical technology, wastewater treatment, and machining and manufacturing systems. (The next deadline for applications is March 9, 2016.) See BIRD General Call for Proposals.
A recent collaboration between BIRD and the US. Department of Homeland Security is calling specifically for projects designed to improve and enhance the preparedness of First Responders, including fire, police, and first-aid units. See NextGen First Responder Technologies Call for Proposals.
For more information, contact:
Maya Vardi Shoshani
West Coast Representative
2. Israeli Consul for Economic Affairs (for non-R&D partnerships)
Companies interested in partnerships outside R&D are also encouraged to reach out to the Israeli Consulate.
“Gili Ovadia with the Consul for Economic Affairs can try to locate other companies or entities that could collaborate even if it’s not on the research and development side,” Dr. David said. “The companies have to find each other, and we can help them do that, expose them to different technologies and things that are happening in Israel and then they can sometimes incorporate those technologies into the products they provide.”
For more information, contact:
Israeli Consul – Economic Affairs
3. Montana trade Mission to Israel
The Montana World Trade Center is organizing a trade mission to Israel in 2016. Trade missions are a great way for private sector companies to pool resources, gain international visibility, and network with potential global partners.
“Sometimes when you come as a group you have more power,” Dr. David said. “When you’re just [one] company, you want to go out and present yourself but you don’t know how to do it, or you don’t have enough funds, or you’re afraid you’re going to misuse funds.” Advisors on trade missions can help companies with these details and navigate the cultural nuances of doing business in the host country.
For more information, contact:
Montana World Trade Center
To reach the Israeli Consul General:
Dr. Andy David
Israeli Consul General for the Pacific Northwest
Top photo caption: Dr. Andy David, the Israeli Consul General for the Pacific Northwest, visits with Montana companies at the First Interstate Bank boardroom in Missoula on January 20, 2016. Dr. David made a compelling case for high-tech partnerships between Israel and Montana while visiting Missoula and Bozeman. The Montana World Trade Center and Brigitta Miranda-Freer, the center’s executive director, hosted the visit. The Consul General visited with Alliance members Clearas Water Recovery, GCS Research, Upstream Health Systems, Agile Data Solutions, LMG Security, and Montana Photonics Industry Alliance. Photo courtesy of Montana World Trade Center.
Author: Christina Quick Henderson has served as executive director of the Montana High Tech Business Alliance since its launch in April, 2014. Henderson writes and speaks frequently on Montana business trends and high-growth companies for Montana Business Quarterly and other publications. She holds an English degree from the University of Iowa and an MBA from the University of Montana, Missoula.
Publisher: The Montana High Tech Business Alliance is a statewide membership organization made up of more than 250 high tech and manufacturing firms and affiliates. More information on the Alliance can be found at: www.MTHighTech.org.