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Silicon Valley:  Connecting to Israel

Insight June 06, 2011

Recent moves into Israel by companies from the Silicon Valley are a reminder that there are still many untapped opportunities for economic cooperation between two of the world's foremost centers of high technology.  Innovative business cultures and common values make Israel and the Silicon Valley natural partners in the world of high-tech and venture capital.

 

Silicon Valley:  Connecting to Israel

Silicon Valley and Israel are both known for their high-tech start-up and venture-capital industries.  While there is already a great deal of connection between the regions in the flow of funding, personnel, and technology, the similarities in the business cultures of the two regions provide opportunities for greater expansion from Silicon Valley into Israel, and from Israel into the U.S., via the Silicon Valley.

One company poised to take advantage of the opportunities to be found in Israel is the Silicon Valley Bank Financial Group (SVB), headquartered in Santa Clara, California.  David Cohen, who is slated to run SVB Israel following a 13-year tenure as CFO of the venture capital firm, Gemini Israel Funds, recently gave an interview where he said that “there’s an opening for successful activity here (in Israel), because Israeli high-tech companies have the potential and the need, while Silicon Valley Bank has the platform for meeting those needs.”

SVB was founded thirty years ago to provide banking and financial services to technology and life science companies in the Silicon Valley, and now they are planning on applying the knowledge that they have gained to expand into the untapped opportunities available providing service for those same sectors in Israel.  While SVB has been operating in Israel remotely since the 1990’s, they recently decided to open a branch in Herzliya in order to expand operations there.  SVB is not the only company that can use the knowledge and experience gained from operating in the Silicon Valley to find a natural outlet for growth into Israel.

High-tech U.S. companies, including such stalwarts as Microsoft, Intel, IBM, and Motorola, have been operating in Israel for as long as twenty years, while some companies are only recently seeing opportunities for expansion into the country. 

The tech companies Advanced Micro Devices (AMD), and EMC both recently decided to open R&D centers in Tel Aviv and Beersheva, respectively.  EMC’s COO Pat Gelsinger explained the opportunity in an interview where he said, “Here (Israel), with the quality human capital and academe, we are planting the first seeds of a new Silicon Valley.”

While India and China are most often discussed as locations for American technology companies to invest and expand abroad, Israel provides a very different set of advantages and opportunities.  Israel does not offer the vast pool of labor or the access to large markets that can be found in China and India, but does offer great value in its high-tech workforce and a stable, well-functioning legal system.  Additionally, Israelis have a high rate of fluency in English, and a Western business culture that encourages innovation.  Israel is certainly not the answer for every U.S. company looking to expand overseas, but can be a very attractive location for high-tech and life-science companies looking to save on R&D, as well as for the companies that have expertise in servicing these sectors.

Israel’s entrepreneurial business climate, along with a stable, democratic government, helps business between Israel and the United States flow smoothly and allows an easy transition for companies looking to expand.  Silicon Valley, also with a strong business culture of innovation, especially in the high-tech and biotech industries, is a natural point of connection between the two countries.  With the rise of virtualization and cloud-based technology, doing business remotely from over 7,000 miles away is as simple as having a laptop computer and a high-speed internet connection.

Lest anybody be mistaken in believing that these opportunities only move in one direction, look to the number of Israeli companies that are already being publicly traded in the U.S., and the growth that some of these companies have already achieved.  Some of the better-known companies include the pharmaceutical giants Teva and Perrigo, as well as the IT-security firm, Check Point Software Technologies.  There have already been over 200 Israeli companies that have offered an I.P.O. on NASDAQ, and, within a year, there are expected to be three Israeli companies with market capitalization over $1 billion.  All three companies, Mellanox Technologies Ltd., EZchip Semiconductor Ltd. and Given Imaging, are high-tech and life science companies.

While the worst of the economic downturn appears to be behind us, there is still some uncertainty about where to find new opportunities in the changed business landscape.  Businesses looking for savings should turn towards Israel’s talented, and relatively cheap, labor field, in a foreign country that has strong intellectual property protections and a culture of innovation.  The economic downturn requires companies to find new areas to grow their businesses and to look for savings. There are ample opportunities for companies to take advantage of the similarities between the business environment in Israel and in the Silicon Valley.  Israeli companies can find the Silicon Valley as a great point of entry to connect with American investment and markets, while Silicon Valley companies may be uniquely situated to take advantage of the favorable business climate offered in Israel.

If you are going to do business in a foreign country, it is prudent to find competent legal advice from a law firm that is familiar with the local business and legal environment.  Rimon Law Group is well positioned to assist you and your clients with cross-border legal and business issues, especially between the U.S. and Israel.  Our attorneys have extensive experience and expertise in international tax and cross-border transactions.  Every attorney in our Israel Practice Group is licensed to practice both the United States and in Israel, is fluent in both Hebrew and English, and has at least ten years of experience at top U.S. and Israeli law firms and companies.  If you have any questions about our services, please contact a member at info@rimonlaw.com.