Embracing the Local Power of Innovation
By Bruce Aust
I had the opportunity to move back to San Francisco in late 2014 when I was appointed Vice Chairman of Nasdaq. It was a great homecoming since this was where I had started with the company more than 15 years ago.
The entrepreneurial spirit of the Bay Area and Silicon Valley region is palpable. Aspiring company founders visit or set up operations here to be closer to the innovation ecosystem – be it to attract engieering talent or engage with venture capitalists who can help to nuture a company from an idea to reality.
Silicon Valley has also played a vital role in the substantial progress of innovation and entrepreneurship within the global economic landscape.
When I travel abroad to visit companies in a country like Israel – known affectionately as the “Start-Up Nation” – many are at various stages in their life cycle and are often seeking strategic advice on where to best achieve growth. They have reached that pivotal moment in their company’s evolution and are considering a substantial capital-raising event via an initial public offering or a sale of their business. Undoubtedly, however, these companies are looking at options beyond their own borders.
More than 100 Israeli technology companies saw exits in 2015, totaling over $9 billion in combined proceeds as M&A activity rose to new highs, up 52 percent from the prior year. This follows a steady trend over the last two decades, as Israeli entrepreneurs seek foreign buyers, diminishing the value they provide to the local economy as jobs are shifted away from Israel.
“Silicon Valley has also played a vital role in the substantial progress of innovation and entrepreneurship within the global economic landscape.”
So why are promising growth companies seeking capital outside their home market?
For some founders, they are looking to build their companies into global brands in the hopes of becoming the next Amgen or Google. Israeli companies are attracted to a foreign stock exchange listing for the chance to be listed alongside their U.S. peers and to tap the most liquid market for investment capital.
Since 2010, approximately 30 Israeli companies have listed on U.S. exchanges – predominantly from the healthcare and technology industries – raising a combined $3 billion in total proceeds. Over 60 percent of those listings occurred in 2014 and 2015 – far outpacing the number of IPOs in the local market the last two years.
For others, their business models can provide limited opportunities for international expansion and, through M&A, have become ideal targets by multinationals.
I will have the chance to reconnect with many of Israel’s most inspired entrepreneurs and business leaders in San Francisco this week for the annual Israel Dealmakers Summit. This year will mark the event’s debut in Silicon Valley – the epicenter of innovation and entrepreneurial growth – a fitting setting for such a gathering.
The discussions will focus on the challenges and opportunities that lie ahead for the “Start-Up Nation.” One theme I hope to convey is the opportunity to embrace the local power of innovation. From an outsider’s perspective like mine, a country like Israel has many of the right ingredients to replicate the structure of the Silicon Valley’s envied ecosystem.
Efforts are already underway in Israel to further connect emerging growth companies to institutional investors and establish a secondary market for private company liquidity. These measures will provide start-up founders in Israel with increased access to capital and a formal process for allowing early investors and employees the chance to see real value from their shares prior to an IPO or exit. The equivalent is happening right now in Silicon Valley and is a main contributor to the innovation generated from the region.
While companies may be undeterred from seeking an IPO or exit abroad, further developing these programs will allow Israel’s homegrown talent to remain competitive in the local market while further expanding the country’s role in the broader entrepreneurial ecosystem.