Israel’s Proptech Scene Turns Toward International Expansion
Political unrest and a constrained market are propelling more startups to focus on the U.S. in particular
By Philip Russo February 27, 2023 8:00 amreprints
Israel is the land of sun, sand and silicon, providing a fertile entrepreneurial environment for proptech startups. So why, then, are many of those companies finding it necessary to put down roots in other countries in order to survive and grow?
First, the good part: Few nations can boast the technological and entrepreneurial talent that is incubated in the country of 9.4 million people. Part of this is due to Israel’s widely compulsory military service, including an elite unit that trains its soldiers in all manner of technology.
However, Israel’s abundant high-skilled workforce faces the challenges of a small domestic market and an uncertain political and business outlook, which together are driving more proptech startups beyond the country’s borders. The result is a growing Israeli-founded cohort of proptech companies that are entering the global real estate market, especially in the U.S. and New York City in particular.
The journey to America’s most complex real estate market — New York’s metropolitan area — while potentially financially successful, is fraught with challenges for proptech startups coming from a much more insular and relatively unsophisticated marketplace, said some entrepreneurs who have made the cross-border leap.
One such Israel-founded proptech startup that has established itself in Manhattan is Otoos, a construction site safety company known as Safeguard Applied Innovation in Israel, where it is headquartered in Jerusalem.
“It’s a really incredible experience,” Izhak Paz, CEO of Otoos, said from Jerusalem about coming to America to grow his business, which is also active in the U.K., France and South America. “The U.S. is different from Israel, some in a good way, but in many different ways it’s more challenging. In a good way, there is way more awareness to being compliant to achieve safety objectives.”
Yaron Goldman, Otoos’ general manager based in Manhattan, added: “People here are more disciplined than in Israel,” noting that construction in Israel produces between 30 to 40 construction fatalities each year, while the New York City metropolitan area is approximately 10.
Several factors have made Israel a tech power, said Omri Stern, the Israeli-born founder and CEO at Jones, a Manhattan-based proptech company that automates insurance compliance across real estate asset classes.
“Israel has proven over the past couple of decades that there is this magic intersection of a great university system, the Israeli military that produces young talent before they even hit university, and a capital base and successful venture investments that have over the past few years proven out that Israeli companies can scale and not just be targets for acquisition,” Stern said.
That intersection has produced successful companies across industries. This is in part because Israel is a small country that is forced to innovate and establish sustainable companies beyond its borders, Stern said, who has written on the subject of Israeli-founded proptech startup development and cross-border migration.
“What’s made the proptech and construction tech industry in Israel really start to accelerate is that we now have a couple generations of software categories that learned the hard way that Israel is too small a market to build real businesses,” he said. “Therefore, you have to make that bridge sooner. There’s been a maturation of founders that have learned from other startups they’ve followed or worked at. They’ve learned that we need to be in the United States and to be there pre-product market fit to establish a base.”
Moshe Yeli, co-founder and CEO at SeeCares, a tech platform that aids the commercial real estate underwriting process, agreed with Stern. Founded in 2019, SeeCares is based in Tel Aviv, which is the unofficial tech and proptech capital of Israel.
However, Yeli said he plans to soon expand SeeCares to New York City. “The business is there,” he explained. “Basically, everything happens there in terms of proptech, the ecosystem and the industry. Also, the capital is there, the clients, and the VCs and other investors in that specific domain. It’s the right place to be to take the business a few steps forward.”
A prime example of the university connection to real estate technology development is the proptech program that Reichman University administers in Herzliya, Israel, said Daryn Videlefsky, a Tel Aviv-based senior proptech research analyst for CREtech.
Among the many Israeli-created proptech startups coming out of the military and university complex are Agora, a real estate management platform; Buildots, a tech-enabled company for construction sites; Cherre, a real estate data firm; Guesty, a short-term rental property platform; Home365, a rental property management company; Lendai, U.S. financing for global investors; Localize, for tech-enabled home buying; MyTower, property management intelligence; Placer.ai, retail real estate location technology; Structure Pal, concrete reduction artifical intelligence; Veev, high-tech home building; Venn, resident experience operating system, and Younity.io, a tenant communication platform.
“Israel is known as the startup nation,” Videlefsky said. “More recently, it’s becoming known as the scale up nation as our tech ecosystem begins to mature. That being said, some of Israel’s proptech leaders have even gone on record recently expressing their confidence in the nation’s ability to become known as the proptech nation. I couldn’t agree more with this.
“But, personally, I’m incredibly passionate about the climate,” Videlefsky added. “As such, I really hope that we start to see more ESG and sustainability solutions emerging from the Israeli proptech ecosystem.”
Another major factor often cited for producing Israel’s technological talent is the country’s compulsory military service, especially those chosen for its elite Unit 8200.
A unit of the Israeli Intelligence Corps within the Israel Defense Forces, Unit 8200 is responsible for a range of highly technical operations, including clandestine ones. It also conducts signal intelligence and code decryption, counterintelligence, cyberwarfare, military intelligence and surveillance. The unit is credited with turning out some of the top technological talent in the world.
One proptech professional who held the rank of major in the Israeli Defense Forces’ technology division is Doris Pitilon, chief technology officer for Faropoint, a Hoboken-based, tech-enabled investment platform for industrial real estate. Pitilon heads the company’s research and development division in Tel Aviv.
“In the army, you are faced with the most complicated challenges, and you have to find a solution because eventually people’s lives depend on it,” said Pitilon. “You don’t have the privilege to not get the job done. So it encourages people to be more creative, more collaborative, to take risks, develop new technologies and prototypes. A lot of things that established create a good startup or company, so that was my first journey as a tech entrepreneur.”
More than ever, Israeli venture capital is looking to fund proptech startups that can grow quickly beyond the country’s borders, experts said.
In 2022, Israel VCs invested $360 million across 23 companies (mostly inside Israel but grew outside, too), with the largest rounds going to Guesty at $170 million, Buildots at $60 million, and Agora at $20 million, according to CRETI, a proptech research firm.
In comparison in 2021, VCs funded $120 million across 17 companies, with the largest rounds to Mindspace at $72 million, Homez at $30 million, and Viisights at $10 million. In 2020, it was $26 million across 13 companies, with the largest rounds going to Juganu at $18 million, RealFriend at $4.4 million, and SparX at $1 million.
However, venture capital for Israel-founded proptech startups may become harder to secure due to Prime Minister Benjamin Netanyahu’s recently proposed changes to the country’s judicial system. Some fear those changes will weaken the rule of law in Israel, making contracts and investments less stable, and undermining business confidence in general.
“If you look at what’s going on right now in Israel and how that’s going to affect the proptech industry, I think you’re going to see that a lot of proptech founders end up in New York,” said Kobi Lahav, an Israeli native and attorney, who has been a consultant to proptech startups in both countries, as well as senior managing director and director of sales for Manhattan-based residential real estate firm Living New York.
“I think they’re going to feel more comfortable licensing the IP to a U.S. company and not to an Israeli company,” he said. “And I think the investors will want assurances that a lot of the technology can be licensed to the company and not kept by the military, because in my opinion there is a schism coming between Israel and the U.S.
“‘This is not a political statement. This is what’s going on if we’re using military technologies for real estate, or for anything, and the military is under pressure,” he added. “Now, with [the Netanyahu] government, there could be some IP issues that could be generated in the near future.”
Philip Russo can be reached at email@example.com.