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Many Similarities Between the Pittsburgh and Israel Technology Sectors

On July 29, 2013 by Schnader in News

By Elliot Dater

As I looked out my Pittsburgh window on May 12, it was 50°F outside with 16 mph winds, gusting to 28 mph, which resulted in a wind chill of 40°F. This caused me to observe (for not the first time) that there is no confusing the Steel City for Israel.

However, there are many similarities when it comes to the technology sector. For example, both places have extensive programs in place for very early stage technology development. These include universities; in Israel:  The Technion, The Hebrew University of Jerusalem, Ben Gurion University, Haifa University and Tel Aviv University; in Pittsburgh:  Carnegie Mellon University, the University of Pittsburgh, and University of Pittsburgh Medical Center; government-funded investments from entities like the Office of the Chief Scientist in Israel or incubators like Idea Foundry, Pittsburgh Life Sciences Greenhouse and Innovation Works in Pittsburgh.

Both regions are imbued with the entrepreneurial spirit.  Israel developed the “Start Up Nation” out of necessity. Without any natural resources and needing to develop its own defense electronics industry, Israel cultivated the math and science strength of its academic and immigrant communities. Pittsburgh’s technology industry also developed out of necessity, growing a new industry on the math and science strengths of its local academic community. Israel’s investment in technology transformed the nation from a primarily agricultural export economy to a technology powerhouse. Similarly, Pittsburgh has been transformed from “Steel City” to a center for “Eds and Meds,” as well as software, medical devices and robotics.

One of the common complaints that I hear in both communities is the lack of funding after the development phase and before a company is ready for a Series A round of venture capital financing. Part of the explanation for the dearth of funding at that stage is a lack of locally available venture capital financing. Although there is a significant Israeli venture capital industry, the bulk of venture capital financing for Israeli technology companies comes from foreign funds. Similarly, in Pittsburgh the vast majority of venture capital financing comes from funds outside of the Pittsburgh region while funds within the region seem to make most of their investments outside the region.

One interesting new development for raising additional capital in Israel is the new accredited investor crowdfunding website, Our Crowd, which was established by veteran Israeli investor Jon Medved. Our Crowd exposes accredited angel investors to Israeli opportunities, which in turn provides start-ups a new potential source of investor capital. Similarly, a number of new crowdfunding websites are popping up in the United States, however, they cannot sell securities to non-accredited investors until the crowdfunding portions of the JOBS Act of 2012 become effective. Another source of capital that may be available to local innovation companies is funding through angel investor networks such as Blue Tree Allied Angels and the Pittsburgh Chapter of the Keiretsu Forum. In fact, the Keiretsu Forum recently began an Israeli deal flow program, which resulted in Israeli companies presenting to Keiretsu members here in Pittsburgh.

Time will tell whether the new avenues of investment such as Our Crowd and the Pittsburgh Chapter of the Keiretsu Forum will speed the development of innovation companies in Pittsburgh and Israel, but these and other new ventures are certainly a good start.

Elliot Dater is a partner in Schnader’s Business Services Department,  and represents Israeli companies doing business in the United States and U.S. companies and investors doing business in Israel, as well as emerging growth companies in the technology and medical device industries

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