Is it true that Israeli entrepreneurs can’t create tech giants? No, but it depends where.
New research published last week by the National Foundation for American Policy found that seven Israelis founded or co-founded tech companies worth over $1 billion each. The combined valuation of their six companies (one of them has two Israeli co-founders) exceeds $22 billion, and together they have 3,660 employees, most of them in the United States.
The study found that 44 of the 87 companies that were examined for the study — privately-held companies valued at $1 billion or more and based in the United States — had at least one immigrant co-founder. These are the companies that are sometimes called “unicorns” and they include some of the biggest names in high-tech, such as Uber, WeWork and Palantir Technologies.
The researchers call on the U.S. government to make it easier for high-tech entrepreneurs seeking to relocate to the United States to obtain work visas, emphasizing the contributions of such immigrants to U.S. economic growth, job creation and quality of life in areas including health, transportation and technology infrastructure. In this, the report’s authors echo calls by founders of some of the world’s biggest tech companies, such as Mark Zuckerberg of Facebook and Bill Gates of Microsoft to increase the number of H-1B temporary visas for immigrants with high-tech skills.
“The achievements of the immigrant entrepreneurs cited in this report are impressive,” write the researchers. “The job creation generated by their businesses has benefited tens of thousands of Americans, while the products and services produced by these immigrant-founded companies have been enjoyed by millions of American consumers.”
The study found that in addition to the high proportion of immigrants among the founders of these “unicorns,” immigrants fill key management and product development positions in 62 of the 87 companies, or 71%. The most common positions they held are CEO, chief technology officer and vice president of engineering.
Immigrant founders of American’s $1-billion startups have created an average of approximately 760 new jobs per company in the United States. The collective value of the 44 immigrant-founded startups is $168 billion. The 87 companies studied were each valued at over $1 billion dollars as of January 1, 2016 that are yet to be publicly traded on the U.S. stock market and are tracked by The Wall Street Journal and Dow Jones VentureSource, according to NFAP is a nonprofit research organization based in the Washington area.
Israelis account for 3.5% of the total
A 2006 study conducted with the National Venture Capital Association found that 25% of venture-backed companies that became publicly traded between 1990 and 2005 had an immigrant founder. A follow-up study from 2013 of such companies that became publicly traded between 2006 and 2012 found that this figure had climbed to 33%.
A 2012 study by the Ewing Marion Kauffman Foundation, which also funded the new study found that 3.5% of the companies established between 2006 and 2012 by immigrants were founded by Israelis. Of the 24,000 to 28,000 tech companies formed in the United States during this period, 23.4% had at least one immigrant co-founder. In 2012 these companies had 560,000 employees in total and generated revenues of $63 billion. India was the leader of the six countries of origin included in that study, accounting for one-third of the companies started by foreign nationals.
An interesting finding from the 2012 study was that the number of companies founded by immigrants had slowed, particularly in California’s Silicon Valley, for the first time in decades. The researchers called this a “reverse brain drain,” as immigrant entrepreneurs who have acquired knowledge and experience in the United States increasingly return to their countries of origin.
In the new NFAP study, too, India was the single biggest contributor of founders of the $1-billion companies, with 14 entrepreneurs. It is followed by Canada and the United Kingdom, with eight each. Israel is in fourth place — quite high considering its relatively small population — with seven company founders. It is followed by Germany (four), China (three), France and Ireland (two each) and 12 other countries with one founder each.
The company founded by an Israeli entrepreneur with the highest valuation is WeWork, based in New York and one of the biggest American unicorns. This month the company, which was founded by Adam Neumann, raised $430 million at a company valuation of $16 billion, a $6 billion increase over when the study was conducted. Moreover, WeWork increased its valuation at a time when other companies in Silicon Valley and New York were dropping.
WeWork operates office centers in which space is rented out to entrepreneurs and creative professionals. In Israel it has locations in Tel Aviv, Herzliya, Be’er Sheva and soon in Jerusalem. WeWork recently opened a research and development center in Israel to develop the company’s digital products, an area headed by an Israeli at the company.
Other prominent Israelis on this list are the husband-and-wife team of Adi Tatarko and Alon Cohen. They are behind the interior design platform Houzz, located in Palo Alto. The company has 800 employees and was recently valued at $2.3 billion.
“In 2009, my husband Alon Cohen and I started renovating a 1950s ranch home we had just bought in Palo Alto,” Tatarko is quoted in the report as saying. “We were excited for the renovation, and had big dreams for our home and what it would be like to renovate it together. Unfortunately, we quickly found the process to be incredibly difficult and frustrating. We had a hard time finding good resources and inspiration to help us articulate a vision for our home and selecting the right professionals to make it a reality.”
Others at the top
Another prominent Israeli on the list is Moshe Yanai. Infinidat, the data storage company he founded outside of Boston, has a company valuation of $1.2 billion. Doron Kempel also founded a data storage startup not too far from Boston — SimpliVity, with a $1-billion valuation. Kempel and Yanai, an Israeli data-storage pioneer going back to the 1970s, co-founded Diligent, which IBM bought for $165 million.
SpaceX, the spacecraft manufacturing and service company founded by South African Elon Musk, a cofounder of PayPal and Tesla Motors, has the largest workforce of the 44 companies on the list started by foreign nationals, with 4,00 employees. It’s followed by Mu Sigma, a big data and analytics firm founded by Dhiraj Rajaram of India, with 3,500 employees. Data analysis company Palantir Technologies, which has 2,000 workers, was co-founded by the German-born PayPal co-founders Peter Thiel.
Also on the list is the high-profile transportation company Uber, which claims the Canadian-born Garrett Camp as a co-founder. The company has just 900 people, but in December 2014, 162,000 Americans reported being active drivers using the Uber app.
The easiest way to become an entrepreneur in the United States, according to the study, is to come as a college student. That’s how the founders of nearly half of the unicorns started by immigrants reached America.
Among them is Tomer London, an Israeli who studied electrical engineering at Stanford and co-founded the human resources automation company Gusto (valuation $1.1 billion.) A colleague on the list, the Indian-born Jyoti Bansal of AppDynamics, had to wait seven years for a work visa.
The study’s authors are adamant about easing the barriers to entry for immigrants with the potential to establish tech companies in the United States. “Despite the achievements of these foreign entrepreneurs and their companies ... currently it can be difficult for foreign-born entrepreneurs to stay and grow their business due to the absence of a reliable immigration category,” they write, adding, “The low quota on H-1B temporary visas also can make it difficult for startup companies to hire new personnel in their fast-growing businesses.”
Looking to the future, they warn: “New immigration restrictions would likely prevent many future cutting edge companies from being established in the United States.” It is an allusion to a bill that would require a minimum of 10 years of work experience abroad as a prerequisite for obtaining the H-1B visa commonly used for highly-skilled tech employees. Critics of this approach, which is being promoted by the heads of big technology companies in Silicon Valley, argue that senior officials seek to lower the salaries of engineers and other high-tech employees.
In their conclusion, the report’s authors write: “Entrepreneurs are the lifeblood of a market economy. But startup companies do not happen everywhere or by luck. Entrepreneurs need a legal structure and access to capital and workers to take an idea and make it a flourishing reality. In the case of individuals not born in the United States, they also need immigration laws that allow them to work in the United States legally and hire other foreign-born individuals with technical expertise to help them grow.”