The Headquarters of an Israeli Company

2 weeks ago, at the 1st Tech Aviv California Meetup, one of the participants (Eyal Herzog from Metcafe if I recall) brought up for discussion one of the oldest dilemmas of the Israeli startup scene. Should the CEO of the company be based in Israel or in the US?

This dilemma is part of the DNA of every Israeli company. As Israel has no market, the company needs to establish a clear US strategy from the get-go, and that strategy is closely linked to the location of the CEO. Clearly, there is no right or wrong here. Some of the best Israeli companies were directed from Israel (Checkpoint, Saifun), but others succeeded after moving their entire operation (R&D included) to the US (Quigo). I have listed below some issues that are relevant as companies debate where to place their CEO.

	Israeli-based CEO	US-based CEO
Management	When a company is HQ out of Israel, overall management is usually easier. Most employees are based in 1 location, and although remote offices exist in the target markets, those are usually managed by sales executives that are easier managed remotely	Management is always a challenge. The employees in Israel (R&D, Support) are far from the action, yet usually want/need to get involved in key decisions. Management meetings become a key success factors. The success of this model is usually linked to a strong site manager based in Israel, and a CEO that is highly involved in the Israeli office
Acquisition of Talent	Much harder in the US. Top-notch marketing/BD executives will not feel comfortable in joining a company with the CEO being 8000 miles away	Talent acquisition is much easier, definitely at the VP/GM level.
Market Understanding	Probably the #1 negative for Israeli-based CEOs. In some verticals (Semi, Telecom) this is less of an issue (It’s a technical sale), but in SW/Internet this is a huge disadvantage. You need to run the company with a real hands-on experience in the target market.	Again – it’s a no brainer out of the US. No wonder 5 of my 6 portfolio companies are HQ out of the US (1 in NYC, 4 in Silicon Valley).
Access to Capital	Easier when raising money from Israeli VCs, and sometimes easier when raising money from East Coast VCs	Key if you want to reach out to the wide net of Silicon Valley based VCs. Some VCs will invest in CEOs in all territories, but most VCs still prefer proximity to their CEOs.
Cost	Probably the #1 positive for a single geographical location. Opening the US HQ (with an Israeli based R&D) has a huge cost implication.	In some cases, non Israeli-CEOs ague against the Israeli R&D altogether. This is where Israeli engineering teams need to show their real value, and how they stand out compared to lower-cost alternatives in Eastern Europe or Asia

What’s the bottom line? I guess the current rule of thumb is quite relevant and useful. CEOs of SW/Internet companies are based in the US, and CEOs of HW/Semi companies are based in Israel. As target markets shift from the US to Europe/Asia, and as Israeli talent continues to improve, we will probably see more Israeli SW companies leaving their CEOs in Israel.

Comments

[Yossi]

Please note that almost all the larger Israeli high-tech companies (i.e. companies that sold more than $100M) had/have their HQ in IL: Checkpoint, Aladdin, NICE, TEVA, Amdocs, Comverse, ECI, Elbit, Scitex, Elscint, Alvarion, Gilat, Given Imaging, Orbotech, Cineron, Lumenis, New Dimension, Magic, Sapiens.

One exception in mind is Mercury.

May be the above list explains the reason for the failure of the Israeli Hich-Tech market to create $1B companies in recent years. It has become a common practice to have the CEO relocate to the US. Breaking the company to two is extremely painful and I would argue that few companies really recover it.

When the CEO relocation is early, that breaks the communication between the marketing/sales and R&D, which is crucial to the success of building the right product and addressing the market needs.

When the CEO relocates on a later stage(i.e. after there are sales and there is already an established S&M infrastructure), this infrastructure collapses and the company goes into hibernation until the CEO establishes in the US and builds the alternative S&M infrastructure. This is something most companies will probably nevr recover...

[Daniel Cohen]

Yossi – Thanks for the comment and note. The list that you gave has companies that were all started before 1995. Does that have something to do with it? Could it be possible that companies back then could grow with management in Israel, but that is not the case anymore. 3 points to think about: 1. I agree that broken companies (2 locations) is a huge liability. But companies that are far from the market is also an issue. 2. Checkpoint was HQ out of Israel, but had a strong executive in the US. Is that a solution? 3. You forgot Shopping.com. And also, look at companies that are perceived as up and coming in the Israeli market. Oberon? Imperva?