Israeli Firms Generate $12 Billion in Business in Massachusetts

Forget Silicon Valley: Massachusetts has become a magnet for Israeli high-tech entrepreneurs in its own right.

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When Israelis think about American high tech, what comes to mind is California’s Silicon Valley, home to the headquarters of Google, Apple and Facebook along with major venture capital firms. It’s no surprise that when Israeli high-tech businesses wish to gain better access to markets, investors and potential strategic partners, they frequently open offices in that region. But Silicon Valley isn’t the only high-tech stronghold in the United States. The Boston area has also been a major hub in recent years.

Like Silicon Valley, the Boston area has proven to be a supportive environment for tech-based companies. The region has excellent universities that produce a sophisticated potential workforce. It also has a strong base of investors along with the presence of multinational firms. Israeli entrepreneurs, particularly those involved in life sciences and organizational software, have become a significant presence in Massachusetts.

According to a study released last week by the New England-Israel Business Council, last year these Israeli entrepreneurs were directly responsible for $6 billion in business activity. The study was carried out by Stax, a consulting and research firm. The total impact last year by Israeli entrepreneurs and companies actually came to $12 billion in Massachusetts, according to Stax. This includes not only the firms’ revenues but also its expenditures on the local market on items such as salaries, rent and payments to providers of services. All in all, that represents 2.9% of the state’s gross domestic product.

More than 200 Israeli companies have a local presence in the region, the study states, including Israeli entrepreneurs’ firms that were founded in Israel and operate in the state of Massachusetts.

The study’s results were formally released last week at an event attended by Massachusetts Governor Deval Patrick and leading business figures in the state. Israeli firms employ a total of 6,600 in the state, according to the study, and between 2010 and 2012, Israeli companies in the state raised more than $700 million in venture capital.

Interestingly 30% of companies set up in Massachusetts by Israelis are headed by graduates of universities in the state. According to the study, many Israelis use contacts that they have made while in school for their business ventures. Some even start their businesses while in school or immediately after graduation, but most then return to Israel and set up businesses there, returning to Massachusetts later as the business grows.

Avi Hasson, the chief scientist at the Economy Ministry, noted that in addition to many Israeli businesses choosing Massachusetts when they decide to expand abroad, many Massachusetts companies choose to invest in Israel.

That raises the question of whether Massachusetts is responsible for a brain drain of entrepreneurs who would otherwise grow their businesses in Israel. “It’s a natural stage in the development of any company, especially a high-tech firm that wants to operate in the world,” says Yisrael Shamai, who heads the chief scientist’s office that deals with U.S.-Israel economic cooperation. “Usually the main research and development activity continues to be carried out in Israel.”

Israelis living in the Boston area describe a lively Israeli community of business entrepreneurs in addition to about 300 Israelis studying at area universities including Harvard and the Massachusetts Institute of Technology. There is even a scout troop for Hebrew speakers. Boston has a 200,000-member Jewish community which provides assistance to Israel entrepreneurs who come to the area.

The Foreign Ministry provides advice to Israeli businesses that are seeking investors or other contacts in the New England region. Over the past two years, dozens of Israeli enterprises have set up shop in Massachusetts or have expanded operations that were started in Israel, says Eyal Geffen, who is the director of innovation and economic affairs at the Israeli consulate in Boston. Over the past three years, Israeli companies in Massachusetts have on average experienced 12.6% growth in annual revenues and have increased their workforces over the period from 2009 through 2012 by 5.3%, which is five times the overall employment growth rate in the state.

Boston, Massachusetts skyline.Credit: Dreamstime