For the longest time, it’s been presumed that Israel will never create great consumer-focused tech companies. After all, we’re known as great cyber experts and chip developers, but our engineers could never really ‘crack’ the connection with the end consumer, usually located somewhere in middle America or Northern England. But times are changing. Israel’s tech scene is now creating some amazing consumer companies with proven success. In fact, it’s time to publicly say that the consumer-tech potential from Israel is huge.
Ever since I finished business school (way back in 2000) I have been fascinated by consumer companies, and specifically with consumer internet. Although some of my previous roles were in the printing and semiconductor equipment industries, my passion has always revolved around the simple things in life, like shopping, entertainment and consumer goods. I always thought it is inspiring to think about the end consumer, and now that I’m a General Partner at Carmel, I couldn’t be happier about our bullish (very bullish, actually) approach to consumer internet companies.
Here are some of my thoughts on the main drivers behind the rising success of Israeli consumer companies:
1) We have the talent. Success is always driven by people, and the common thinking is that we don’t have people that understand consumer internet. But in reality, we now have a lot of people who have amassed considerable experience in this area. More and more entrepreneurs in Israel have gained significant experience by working at companies like Facebook, Google, Twitter, and recently even Airbnb and Uber. In fact, I searched LinkedIn for Tel-Aviv University graduates who work at Facebook and found 50+ people, as well as somewhere between 5-20 Israelis in almost every big consumer internet company.
And it’s not only in the tech world. Entrepreneurs are now emerging from consumer goods companies, with backgrounds in Nestle, Unilever and others. Is experience all that is needed? Probably not. We need to have recognizable success stories too, to provide inspiration and serve as references for successful consumer companies. Some of the strong brands we have seen emerge in Israel in the past few years, for example, include Waze and Slotomania (Playtika), and also some shopping mall favorites like Michal Negrin and Sabon.
2) It’s about tech marketing. Great consumer companies rely on great marketing. In the distant past, marketing was primarily about the creative. However, in recent years it’s become also about analytics and the ability to leverage strong data and iterate fast through agile technology. Data, analytics and iterations are some of the strongest qualities in Israeli tech. Actually, it’s not just a high level statement. Some of the best gaming companies use these capabilities to market efficiently, and many marketers who were exposed to the potential of these capabilities while working in gaming companies have used this knowledge to create new consumer companies, focusing on other verticals beyond gaming.
3) It’s a global market. In the past, the only relevant consumer market for Israelis was the US, which meant that we were at a huge disadvantage compared with US companies. But now that the markets are global, and that the internet has become relevant to many if not all of them, US companies no longer have an ‘obvious’ edge. It’s true that we don’t have a local market, but we can effectively compete in Asia (Viber), UK (MySupermarket), Europe (Moovit), and the US (Waze).
4) Monetization is more straightforward. As a sub-industry, we have learned a lot about monetization, and we see constant enhancement and improvement in the ways that consumer companies monetize. This can include all types of advertising (Playbuzz), virtual goods (LuckyFish), subscription and per download (LIghtricks), marketplaces (CellSavers) and a few others. As investors, we are very comfortable investing in fast growing companies, because we’re confident that the monetization aspect can and will be figured out. Some of our best consumer companies are already generating tens of millions of dollars.
5) We’re getting much better at nailing product market fit. This is probably the Achilles heel for many Israeli startups. We can build products, but we’re always a bit “off” on product market fit. Is it the design? The attention to detail? The lack of long term thinking? The good news is that we are improving. We’re seeing exceptional products emerge from Israel that are winning awards globally. In our own portfolio we can point to products like Facetune, where five young entrepreneurs built an app that has been a category leader for years. Another great example is Fitness22 (not in our portfolio), which is a leading company in the space of fitness apps.
So far, it seems that everything is great: We have talent, experience, and ambition.
Unfortunately, there is still a vicious cycle between entrepreneurs and investors in Israel. Most Israeli investors shy away from consumer internet companies, and as such, entrepreneurs prefer to focus on SaaS, Cyber, and enterprise. And since it’s common knowledge that consumer is less relevant in Israel, the “quality” entrepreneurs prefer to pursue other areas, which is a shame. For the consumer segment to thrive, we need great founders, backed by strong dollars and of course, strong reference companies.
At Carmel, we have backed several consumer companies including LuckyFish, Playbuzz, Lightricks (the creators of Facetune), CellSavers, Worthy, Tapingo, Splacer, and a few others. In fact, close to 35% of our latest fund has been invested in consumer related companies (so far), and the results are already showing, as some of our fastest growing companies are in this sector.
We’re big believers in the potential of Israeli consumer companies, and we plan to continue backing more companies in this space over the next few years.