Venturing Startup Nation

In my previous post, I have discussed why it’s almost always better for an Israeli startup CEO to move to the US as the company matures. But before you relocate, you need to decide where to set up your company’s main US office. This is an incredibly important decision and a discussion that occurs in every Israeli startup board room at some point.

I apologize in advance for narrowing this post’s discussion to only the Bay Area and NY and neglecting the rest of the US, but these are the two options that most of our Israeli CEOs consider today. Although there are many other cities with a vibrant startup ecosystem, including LA, Austin, Seattle, and Boston, for several reasons they are often not the first choice for Israeli entrepreneurs.

The Bay Area

The Bay Area is the Mecca of the world’s startup ecosystem. While several other cities around the world are also becoming startup powerhouses, the Bay Area is still (and likely will always be) the world’s top place for technology companies, startups and innovation.

The main benefits of setting up the headquarters in the Bay Area are:

• Investors- It is easier to raise capital when you are located close to potential investors. Since all the major VC firms have large offices in the Bay Area, you will ensure you are on everyone’s radar. You will also have more casual conversations with investors and gain more insights on your industry.
• Customers- If you are selling to other tech companies — this is where your market is. But even if your target customers are not tech companies, many of large enterprises set up innovation teams and hire innovation scouts in the Bay Area, and the ones that don’t have local presence there often send delegations in search of startups and innovation. For this reason, you are likely to meet more potential customers in the Bay Area than anywhere else in the world.
• Talent- One of the main benefits of the Bay Area is the quality of talent you’ll have access to. There is no shortage in experienced executives who have scaled companies before and are looking to do it again. If you are searching for top notch VP Sales or VP Marketing, you have a better chance of finding them in the Bay Area (although convincing them to join is another story). For Israeli companies, R&D will be conducted in Israel, so luckily you won’t have to participate in the difficult war for engineering talent.
• Strong ecosystem — There are many other less tangible benefits that come from locating at the center of the world’s main startup ecosystem: You have higher likelihood of connecting with other strong entrepreneurs to exchange ideas and just gossip; the tech media is concentrated there, so you are more likely to be covered more; many new tech trends begin in the valley, giving you a better pulse of what is happening, etc.

The main challenges you will encounter in the Bay Area are:

• Time Zone- the ten-hour time difference between the West Coast and Israel is challenging to cope with. There will be no overlap in regular working hours between your US and Israeli teams, which, if not handled well, can reduce productivity.
• Competition- While there is more talent in the Bay Area, it is also much more difficult to attract due to the area’s immense competition. You will very likely have to deal with leftover candidates from other more recognized or established companies (at least in the beginning). One way to overcome this obstacle is by giving more responsibility and ownership to talented but less experienced team members.
• Cost- Finally, the costs of operation in the Bay Area have soared in recent years (offices, compensation, etc.), but it’s hard to say whether this is a real factor when comparing costs to New York City.

New York City

Over the past decade, NY has become a larger and more dominant hub for startups. This trend has been noted by a growing number of Israeli entrepreneurs who decided to make NY their home. Mapped in NY maps more than 300 Israeli startups with offices in NY.

The main benefits of setting up a US presence in NY are:

• Time zone- Although there is a significant time difference between the East Coast and Tel Aviv, it is better than the West Coast. This is very meaningful since you get a few working hours overlap between the Israeli and NY offices.
• Flight- The more frequent and shorter direct flights between Tel Aviv and NY will translate to more in person visits between the two offices and hence better collaboration.
• Customers- if your target customers are banks, insurance, or media companies- NY is where your market is.

The main challenges you will encounter in NY are:

• Talent- This is factor often doesn’t get enough attention upfront. It’s more challenging to scale a startup in NYC. Although the NY startup ecosystem is growing, it is still much more difficult to find experienced talent there than in the Bay Area. Another problem is that younger employees sometime view living in NY as something temporary, which can result in higher employee churn.
• Customers- if your customers are not banks or media companies, they are not going to be in NY and will likely not be looking for technology or startups there.

Overall, there is no one right answer for where to set up a US headquarters. For most Israeli startups who can afford it and think big, I believe the default should still be the Valley, since you want to be where the major action is, but there are several benefits (especially the time zone) that make an NY presence valuable. I’d love to hear from Israeli and European entrepreneurs who made this decision what their experience was like.