It is no secret that Israel thrives on its tech start-ups, and many succeed in getting the attention of foreign investors. However, the success of Israeli start-ups can lead to subsequent sales of the firms or the transformation of the original business into a shadow of its former self.
High-tech accounts for 12.5% of Israel’s GDP and half of its industrial exports, according to Reuters. However, there are many cases when foreign buyers sell off the acquisition a few years later, dramatically cut jobs, or turn the business into an R&D satellite for the purchaser.
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Avi Brenmiller sold Solel, a solar power company he founded to Siemens of Germany for $148 million in 2009. Siemens has since abandoned the segment, and its workforce is reduced to 50 workers from 500. Karin Mayer Rubenstein of Israel Advanced Technology Industry Association, says “In the last few years, most of the companies being bought don’t stay here as a separate entity, ” according to Reuters.
To reverse this trend, Israeli start-ups need to grow into larger entities that can make their own acquisitions, rather than being acquired. Dov Moran, who sold his company M-Systems to Sandisk for $1.6 billion says, “The fact that companies are sold is not really great for the country. Only R&D is kept in Israel, not sales, not logistics. We need companies that are creating jobs not just for talented engineers and programmers.” Moran said that if he had held on, he could now have a company with $3-4 billion in sales per year, and his former business has been reduced from 1, 000 to 700 workers.
It takes patience to build up a large business, but the short-term gains of selling a start-up often proven difficult to resist. However, more Israeli entrepreneurs are staying the course before selling. The number of Israeli IPOs in 2014, compared to acquisitions, was on the increase. Some believe the incentives from the government could help new start-ups hold out before selling out too soon.