The New York Incubator That Can’t Get Enough Israeli Tech
Of the 21 companies in the startup incubator Silvertech Ventures, 17 are Israeli, proving that Israeli loyalty is an asset too, the hub’s ‘spiritual leader’ says
By Haim Handwerker (New York ) May 17, 2019
NEW YORK — One cold New York morning a few weeks ago, a motley group of businesspeople got together at the offices of the startup incubator Silvertech Ventures. They included Charlie Federman, a seasoned high-techie, Maya Komarov, an Israeli who’s always shuttling between Tel Aviv and New York, and two Satmar Hasidim named Yedi and Abe, who arrived holding a bag of cookies.
The two came to Silvertech’s offices, at a new skyscraper at the World Trade Center, to consider investing in Cinch, Komarov’s high-tech venture that operates under Silvertech’s hood. Yedi and Abe long looked for a way to invest their community’s money in technology, but they needed someone reliable, they say. In the past, their community invested in many areas but either fell victim to swindlers or the vagaries of the market.
The two are now putting their faith in Silvertech. Over the last two years they have invested $10 million in startups linked to this incubator, most of them Israeli. They say they’re happy with Silvertech even if they still haven’t made profits.
The incubator is managed by three people; Federman is considered the spiritual leader, while Larry Wagenberg is a veteran venture capitalist, and Tal Kerret is an Israeli high-techie who in 2010 was appointed president of the U.S. real estate giant Silverstein Properties. That’s the firm that redeveloped the World Trade Center, where companies such as Spotify and Goldman Sachs are renting space.
A key company at Silvertech is Cinch, which was founded two years ago and is managed by Komarov. Through an app, Cinch, which has raised $9 million, lets business owners be in direct contact with local people. The Hasidic investors got to know the company a year ago when they visited Silvertech to invest in the Israeli company Hypr, which belongs to Gil Eyal, a startup veteran. The fact that Komarov is a woman didn’t bother these Hasidim; business is business.
Israeli high-tech is very active in New York, where some 380 startups from Israel or with Israeli connections are operating. Many of these youngsters are in the Flatiron District.
“Most startups have no choice but to be in New York, or in the U.S. in general, because investors want you close at hand. It’s easier to raise capital here, and there are many more sources of funding for small, midsize and large companies,” Eyal says.
“In Israel, the venture capital market and other funding sources are relatively small. How small? You’ll wind up a capital-raising round tapping all capital venture funds and investors in two or three months. Here, if you met three investors a day, you’ll still have a lot left over after a year.”
As Eyal puts it, “New York has become a lodestone for startups and technology-related companies, bit it’s still considered the stepsister of the West Coast and Silicon Valley. To be perceived as a company with significant tech, you’re expected to have investors from the West Coast.”
Roi Kliper is CEO of City Hive, a Silvertech e-commerce platform for wine and spirit shops across the United States; Kliper says 750 stores have registered so far. The company employs 11 people but is expected to grow to 18 this year. City Hive recently raised $3.6 million.
“First we were at Cornell Tech, a new institute associated with Cornell and Israel’s Technion, but then we moved to Silvertech,” Kliper says. “We’ve been there for two and a half years. They let companies remain under their wing until they’re ready to operate on their own. On the one hand, there’s support, but on the other it’s like a young man still living with his parents after university. You’re not independent until you leave.”
Kliper, who hails from Kibbutz Lotem in the north, says working in New York is preferable for several reasons. “In Israel, regulatory rules require startups to hire a lawyer, an accountant, a salary assessor, an insurance broker dealing with pension benefits, a trustee and a comptroller, and that’s before you’ve written one line of code. That’s expensive and unnecessary,” he says.
“In the past you could argue that corporate taxes were significantly lower in Israel than in the U.S., but that’s no longer the situation. Israel’s investment infrastructure isn’t sufficiently developed or balanced. We received many offers there that in retrospect seem strange or aggressive.”
Still, there are challenges being in New York. “The real difficulty is the lack of a fabric of family, social and professional life,” Kliper says. “It’s a lonely job managing a startup, and it becomes that much harder when your family, friends and most of your team are in Israel.”
As far as the human capital is concerned, Kliper says “Israelis have nothing to be ashamed of in comparison to American candidates for jobs, including graduates of the best universities. Americans excel in presentations, and their resumés are impressive, but their actual abilities are less impressive.”
Twenty-one companies operate under Silvertech, which was founded four years ago. Seventeen of these are Israeli. In 2017, the companies in Silvertech’s portfolio raised $86 million. In 2018, this increased to $110 million. The development hubs of most Israeli companies are in Israel. Each startup manages itself, but all the CEOs are connected to one another and the managing team at Silvertech.
Federman is considered a brand name in the Israeli and New York high-tech world. “He’s the father of these companies,” says one Israeli CEO. “He listens to you, and at the end of the conversation you come out with a strategy. If he wants to link you with somebody, he picks up the phone and everybody answers.”
In the ‘90s, Federman was the deputy CEO at Broadview, an investment bank that took part in one-quarter of the high-tech mergers and acquisitions in the United States.
After he left Broadview, Federman joined Nir and Eli Barkat, who founded BRM, an investor in high-tech in startups; they invested in Check Point Software Technologies. Federman invested in Payoneer and earned a tidy profit.
“I was quite enthusiastic when I met Payoneer’s CEO Yuval Tal eight years ago ... that was my best investment in Israel,” Federman says. “When Nir Barkat decided to go into politics I decided to leave BRM. I thought that most of the group’s operations would be in Israel, and I had nothing to contribute there.”
Silvertech’s Kerret, meanwhile, was born in Bat Yam. His father worked for Motorola and was sent with his family to Ghana. They lived there for four years before returning to Israel. Kerret studied computers and math at Tel Aviv University and served in the air force for six and a half years. He met his wife Lisa at a business meeting at the offices of Silverstein Properties; her father is real estate magnate Larry Silverstein.
Federman and Kerret say they meet 50 companies a month on average; these outfits reach them through word of mouth. Of these, they choose one company every month or two. “We don’t specialize in any area and don’t relate to what stage any company is at,” Federman says. “What’s important for us is mainly the people and idea behind the company.”
He says “companies that join us get office space, but our relations at first aren’t about money. We only start investing at a later stage. In each of these companies we invest up to half a million dollars.”
Unlike other incubators, where companies are followed for only 10 to 12 weeks, at Silvertech it’s at least a year, with most companies remaining for several years. In exchange for office space, connections and Silvertech consulting, these companies “pay” 1% to 5% in equity.
Another arm of Silvertech is Guy Vardi, the chief innovation officer at Silverstein Properties. Vardi, who once worked for a Kerret startup in Israel, founded two startups of his own later. His uncle is Yossi Vardi, a founder of the Israeli high-tech sector.
The companies in Silvertech’s incubator haven’t reached the exit stage yet, but Federman is optimistic. “It’s true, up to now we’ve had no exits, and for me that’s the crucial test of success, but each one of our companies has finished a round of capital-raising, bringing in between $1 million and $27 million. A few companies are at the cusp of profitability. In the startup world, one second you’re successful and another second everything can turn upside down.”
One of the most successful companies at Silvertech is SQream, an Israeli creator of analytical databases for large amounts of data in finance, retail and the telecom industry. Most of its employees are in Israel, while its sales department is at Silvertech. So far SQream has raised almost $40 million, a large portion of which has come from the e-commerce giant Alibaba.
Another successful Israeli company at Silvertech is Vi Trainer, founded by its CEO Omri Yoffe. He’s a former helicopter pilot and the grandson of Ezer Weizman, a former Israeli president and defense minister. The company, which launched a personal trainer app, has raised $38.
Gil Eyal’s Hypr, another Silvertech company, is showing promising numbers. It helps companies to identify online “influencers” and communicate with them with a few clicks. The company was founded in 2013 and has raised $8 million.
“We built a business that brought in millions of dollars but very little profits,” says Eyal, Hypr’s CEO. “But then I met Charlie and he told me: ‘You’ve built a good company for your family, but you could build a bigger one that will still be making money for your grandchildren.’ He gave me space in their offices.
"There were four of us, including Guy Tamir, who once headed a programmers’ course at the army’s center of computing and information systems. We were looking at raising $1.5 million, but then Charlie took over. Ultimately, he raised $5 million. That gave me peace of mind. We changed direction and changed to a model of subscriptions and now we’re on the brink of profitability.”
According to Eyal, “even when you’re in a supportive environment, not everything flows smoothly. For example, we had a capital-raising round that fell flat, as did an acquisition offer. These things test your psychological mettle. They say that four out of five developers suffer from depression. That’s understandable, because you’re always on a roller coaster.
“At Silvertech they told me: ‘We won’t let you fall, we’re with you through hell or high water.’ Still, they expect you to learn and change, if needed, and adapt to circumstances. Charlie says that nine out of 10 startups he invests in end up doing something different than what they planned on doing and promised investors, with the 10th flopping. The greatest asset Silvertech gives us as entrepreneurs is the feeling that it’s okay to make mistakes.”
Nine out of the incubator’s 21 companies are led by women, seven of whom are Israeli. One is Michal Alter, one of Israel’s first female cadet pilots — until she was injured. She’s currently the CEO of Visit.org, which helps companies attract and keep the millennials among their employees.
The objective is to give these workers a sense that their job has significance beyond making money, Alter says. The company employs 14 people, six in New York and the rest abroad. It was founded in 2016 and has raised $2 million. Among its clients are Moody’s rating agency and BuzzFeed.
“We offer companies platforms, providing operations, services and connections to nonprofit organizations,” Alter says. “We also provide data analysis based on artificial intelligence, such as what interests a specific employee.”
Regarding the relatively high proportion of women at Silvertech, she says: “I don’t think the high number of female CEOs is a result of a wish to increase their numbers. Charlie looks for people with motivation and good energy, and that resulted in a large number of companies run by women.”
Often there are investors who complain about working with Israelis, but Federman takes a totally different view. “I gave a lecture at Yeshiva University and was asked if it was hard to work with Israelis. They expected to hear criticism,” he says.
“When I go to Israel I don’t go as a tourist; I feel I’m coming home. All this talk about aggressive behavior is BS. There are good people here and there are good people there. The loyalty of Israelis is something special. For me, the greatest fun is working with Israelis.”