I've spent the week in Israel -- my first time ever visiting the country -- as the guest of Israel Cleantech Ventures (I'm a bit biased toward these guys, I admit), visiting a bunch of cleantech startups and getting a first-hand view of the market. And it's been fascinating.
Israel is among the most innovative countries, especially on a per capita basis. Israel was recently ranked 4th in terms of scientific activity, and ICV claims to be tracking 800 cleantech venture investment opportunities here. And all this activity is taking place in a country with only 7 million people -- just a bit more than the total population of Arizona. As was recently written about elsewhere at GreenTech Media, cleantech innovation is particularly emphasized here as energy and water issues are very top of mind among Israelis.
In terms of first impressions, I have been very impressed by the entrepreneurs I met this week. Very strong technical teams, driven entrepreneurs, and a lot of pragmatism (which we all agree can be critical in the cleantech market) and emphasis on capital efficiency. I met entrepreneurs working across a number of different sectors, from solar to wind to water to industrial processes. I began to joke that no Israeli pitch deck needs to be more than one page -- each conversation basically was the CEO flipping to the first page, then verbally downloading the entire story of the startup for the next 45 minutes, and then flipping rapidly through the rest of the presentation over the last 15 minutes just to recap what was already said!
But joking aside, it's also clear that there are a number of significant challenges to investing in Israel. First of all, it is a tough to penetrate market for foreign investors. The innovation and investment community really is that -- a community. So many people either are friends or related or served in the same military unit, that as one person told me, "it really is an 'old boys network' here." Coming in as an outsider and trying to jump into a couple of deals would be very tough.
Secondly, the innovation side of the equation may be strong, but with such a small country the market isn't sufficient to support venture-type startups by itself. By necessity, VC-backed Israeli startups will almost always need to find significant export markets in order to grow to significant size. The eventual acquirer of the startup is also likely to be overseas. So Israeli entrepreneurs and investors have to be very outward-facing in order to succeed.
So my overall lesson is that Israel cleantech is an area that looks rich in investment opportunities. But that it can't be effectively done alone either just by outsiders or just by Israelis. Many other investors have clearly reached the same conclusion -- numerous US-based generalist VC firms have Israel-based offices to have people on the ground here, and ICV as a pretty unique sectoral specialist firm here has clearly made a practice of syndicating with external funds when appropriate, so that you see a lot of efforts by investors to do exactly what I'm suggesting: Invest with on the ground presence but also with access to overseas markets.
My many thanks to the team at Israel Cleantech Ventures for being such incredibly gracious hosts (a special thanks to Melanie Braunold!), it was a very productive week and a great introduction to the country's cleantech sector.




