Warren Buffett may have just discovered Israel, dropping nearly $4 billion to buy a machine tool technology company but California businesses have been investing in the tech oasis for a long time.
Noam Lotan, chief executive of Chatsworth chipmaker MRV Communications Inc., began making acquisitions in Israel in 1996. A native Israeli, Lotan founded his company in 1988 in Southern California, "halfway between CalTech and UC Santa Barbara," he said. Today MRV has operations in Israel and is currently invested in four tech startups there.
"You want to keep the R & D; where it emanates," Lotan said of his company's Israeli operations. "Then you have a branch here (in California) to make it easier for the technology to be shared."
Berkshire Hathaway Inc.'s 80 percent stake in Iscar was Buffett's first investment outside of the United States, so it turned plenty of heads in the venture capital world. But for many in L.A., it was just a confirmation of what they've known for a long time.
"If you drive down Santa Monica Boulevard to Beverly Hills, you'll pass by the offices of close to $5 billion in private equity that is investing in Israel," said Glenn Yago, an economist and director with the Milken Institute. "The numbers are quite impressive, and there's been a huge pickup."
Yago referred to the investment juggernauts of Elliott Broidy's Markstone Capital Group, an $800 million private equity fund focused on Israel; Haim Saban's Saban Capital Group, Beny Alagem's Alagem Capital Group, and David Nazarian's Smart Technology Ventures, all focused on investing in Israeli companies, in some cases bringing them here.
But the pickup has come in other, smaller forms, as well. "We're seeing a lot of smart investors from Southern California who travel monthly to Israel to meet up with up-and-coming technology firms," said Sharona Justman, managing director of STEP Strategy Advisors, a business strategy firm that specializes in emerging Israeli companies with offices in L.A. and Tel Aviv.
Part of the reason, explains Aaron Levy, founder and chief executive of ETech Ventures Inc., is that "it's been difficult for the past few years in Israel to get high-tech funding, period." Etech is a management consulting firm that identifies Israel-based tech companies with proven technologies that want to expand and register in the U.S. "You're seeing an increase in other funding avenues that haven't been tried before."
While Silicon Valley tech companies such as Intel Corp., Cisco Systems Inc. and Google Inc. have research and development operations in Israel, Southern California's engineering culture meshes nicely with the business ideas coming out of Israel. "L.A. appears to be much more of a hub for homeland security and defense technology than Silicon Valley," Levy points out. And much of Israel's technologies come out of defense-related and military sector. It's the commercialization of those technologies that draws investors.
There is currently no clearinghouse for specific figures on investments between California and Israel.
There is a thick fiber connection between Southern California and Israel, stretching across two deserts and an ocean. The Israel Trade Commission tracks hundreds of tech companies with operations or headquarters in Southern California.
Optical switch maker Lynx Photonoic Networks, of Calabasas, has offices in Rosh Ha'ayin, Israel. Irvine-based e-commerce provider Magic Software Enterprises Ltd. has its other main offices in Or-Yehuda, Israel. Data storage firm StoreAge Networking Technologies Ltd., also based in Irvine, keeps its R & D; operations in Nesher, Israel. Costa Mesa-based Radware Ltd., which makes switches to manage network traffic, has a base in Tel Aviv, and Tustin-based Orbotech Ltd., which makes optical inspection equipment for circuit boards, calls Yavne, Israel, its other home.
There are also some big-name California companies with their roots in Israel.
Internet firewall company Check Point Software Technologies Ltd. is based in Redwood City, and trades on the Nasdaq, but it started life as an Israeli company. Who knew?
"It's the quiet powerhouse," Justman said. "Oftentimes Israeli companies operate in stealth mode." Part of the reason has historically been an Arab embargo on Israeli products, so it behooved companies to keep a low profile on their origins. In marketing terms, it's the opposite of Japan's strategy of building up "Made in Japan" as a brand.
"There is a national branding issue here," Justman added. "Boldly saying 'Made in Israel' has been downplayed in favor of saying, 'Here's the technology. Use it.'"
As a nation, Israel has the highest percentage of science and engineering grads per capita in the world, and has more than 100 companies trading in U.S. stock markets. In the past five years, technology exports jumped from 5 percent to 33 percent of Israel's exports. The country has more registered patents than all of China, Russia and India. Los Angeles has the largest population of Israelis outside of Israel, encouraging cross-pollination of business.
The Los Angeles Venture Association held a seminar in May that focused on investing in Israeli companies, and the Larta Institute launched a U.S.-Israel Venture Bridge Program in 2004 to incubate Israeli biotech companies to eventually make acquisitions in the U.S.
But business leaders are bracing themselves for the ripple effect of Buffett's giant vote of confidence in the Israeli economy. The Southern California Israel Chamber of Commerce has already been receiving more interest, according to member Jacob Segel, who focuses on homeland security companies.
The issue has always been, "Is it a safe place to invest, is it a stable country?" said MRV's Lotan. "You can very easily get discouraged." The world of high-tech is accustomed to the likes of Intel, Cisco and Microsoft setting up shop in Israel. "But we're not used to the 'Sage of Omaha' doing that."
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