San Francisco: The New Golden Gateway for Israeli High-tech Startups

It’s easy to miss the entrance to the offices of IFTTT, a startup company on San Francisco’s Market Street. The door to its office is hidden between record stores and souvenir shops on a thoroughfare that, in the afternoon, is full of tourists riding the city’s famed cable cars, along with a number of beggars.

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Narrow, rickety wooden stairs lead to the company’s offices on the fourth floor of the old building. From the 1990s, this commercial building – like many others in the area – stood vacant, but it was revived thanks to the young startups that now occupy it. As a result, young, hipster startup employees have also become part of the scene here.

IFTTT (which derives its name from the phrase “if this then that”) is one of the more interesting startups that have developed in San Francisco in recent years.

The company provides what it calls a recipe service for the Internet, customizing services to users’ individual day-to-day needs. For example, if it’s snowing in Jerusalem, the service will send a text message to friends in Tel Aviv letting them know. The service is available to accomplish countless tasks. Recently, it became possible to link it to users' cars, so that if a warning light comes on, for example, a message would automatically be sent to the customer’s repair garage.

The sunlit offices on the fourth floor are occupied by Web developers and designers in their 20s and 30s. The floor underwent a minor facelift, but it’s apparent that the building wasn’t designed for startups.

“The center of gravity of Silicon Valley has shifted,” says Leor Stern, IFTTT’s business development director. In recent years, the most interesting Internet and startup firms have emerged not in the longtime corporate centers of Silicon Valley – Palo Alto, Mountain View, Cupertino and the surrounding area – but in San Francisco, to the north. It all happened because young singles didn’t want to live in the suburbs, preferring instead to set up their businesses in the city, close to their homes and avoiding long commutes.

In addition, many of the new firms place an emphasis on design and interface, and need a workforce with the more bohemian outlook that can be found in San Francisco. It’s become unfashionable, Stern said, to set up a company in the suburbs, and the trend has gained momentum in recent years.

The American version of Tel Aviv

San Francisco has also become home to a number of Israelis who work at high-tech firms founded by Israelis in the Silicon Valley suburbs. “Young Israelis who relocate to work for big companies try to combine the challenges of Silicon Valley careers and the lively growing hipster scene of San Francisco,” says Tom, an Israeli who lives in the city and works for a cloud-computing startup in Silicon Valley.

“Those who relocate with families prefer the safer neighborhoods in the suburbs, along with their schools, which are some of the best in America,” he said, adding that the American version of Tel Aviv – the nonstop city – is more attractive to younger people than the suburbs. “And it’s more similar to what high-tech types who live in Tel Aviv are familiar with.”

Tom compares the choice between San Francisco and Silicon Valley is being like the choice between Tel Aviv and the suburb of Petah Tikva, although Silicon Valley is farther from San Francisco than Petah Tivka is from Tel Aviv, and the Silicon Valley suburbs are sleepy places. And San Francisco has a concentration of young Israelis who know one another from Israel, usually either from their army service or from prior places of employment, he adds.

Over the past two or three years, San Francisco itself has become a major center for Internet firms. Many of them have located in the SoMa neighborhood, which derives its name from the fact that it is south of Market Street. Not far from IFTTT’s offices, for example, you will find Twitter, as well as Dropbox, the cloud-based storage firm; Zynga, whose products include the popular FarmVille social network game; and Airbnb, the website that shook up the hotel industry by providing a booking service for short-term accommodations.

Most of the companies attracting the most media attention in recent years are not in the city’s central business district.

Before going to work for IFTTT, Stern worked at Google for 10 years and helped set up its operations in Israel. “I discovered that I enjoy the process of setting things up and it seemed natural for me to join a startup,” Stern said, explaining why he left the comfort and stability of Google. He lived in San Francisco when he first started with IFTTT, and said he and his friends hated the 90-minute commute to Silicon Valley, although the company addressed the situation to some extent by providing company buses from the city. It also rented office space in the city, which have recently expanded considerably.

In our tour of San Francisco startups, we found a large contingent of Israelis. In one complex with a number of high-tech firms, we found Na’ama Moran, the founder and CEO of Sourcery Technologies, a platform that brings together buyers and sellers of food. Nearby was a company that develops sophisticated document software – one of its founders lived in Israel for several years and speaks Hebrew.

Up to now, there hasn’t been a major flow of Israeli startups seeking to open offices in the city itself. But there are some – including Any.do, which developed mobile phone application featuring a “to do” list. Also in San Francisco is Commerce Sciences (in the field of e-commerce personalization). But most Israelis who transfer their operations to the area come with families and prefer to locate in Silicon Valley. And that raises the question as to what the most appropriate location is for an Israeli firm wanting to set up shop in the area.

“If you’re a consumer-oriented company and need more cool and creative people, they’re mostly in San Francisco,” said Itai Sadan, cofounder and CEO of DudaMobile, an Israeli startup in Palo Alto. “On the other hand, if you’re an enterprise firm or an organizational software company, then the people are mostly here [in Silicon Valley]. When I tried to recruit people from San Francisco, they told me there are enough companies in the city and that they didn’t want to get on a train every day. So it helps to open an office there [in San Francisco itself].”

Sadan himself wouldn’t open an office in the city, he confesses, because it’s 40 minutes – without traffic – from where he lives. “The question is where your customers and potential partners are. If you’re in media and advertising, it’s actually New York where there are a lot of companies. If you’re a field that maybe is closer to Hollywood, things like television, then of course it’s Los Angeles.”