“For the first time many Israeli tech companies have become the ones who acquire companies instead of waiting for foreign companies to buy them,” says Jeremy Lustman, head of global law firm DLA Piper’s Israel office. “This is changing the way Israeli companies do many aspects of business, including their own approach to compliance to international laws and regulations as they pursue more daring goals.”
Lustman has observed a lot of changes to Israel’s hi-tech ecosystem in recent years. As the founder of the Israeli office for one of the world’s largest global law firms, Lustman advises more than 70 Israeli tech companies a month. Over the past year, his office has advised more than half of Israel’s unicorn companies worth more than a billion dollars, and many of the companies have gone public on the Nasdaq market in New York, he says.
Impressive for an American immigrant with a law degree from Georgetown University and an undergraduate degree from Yeshiva University.
“I came to Israel in 2009 for the purpose of examining the option of establishing DLA Piper’s business activity in the country,” Lustman says. “Now we work with many of the leading corporates here. My goal is to create close relationships with companies here and help them benefit from our connections in 40 countries all over the world.”
Israel’s tech industry has grown rapidly during his time here, but the pace of the ecosystem’s growth in the past three years is “off the charts,” Lustman says.
“There are a number of factors, including the SPAC markets as a whole, the market for mergers and acquisitions that Israelis are very comfortable with, and the very frothy capital markets. There’s a big herd mentality, and Israeli companies see their peers doing successful offerings, which generates more interest. That’s been boosted by the entrance of sophisticated foreign investors, whether it’s SoftBank, Tiger Global, Hellman & Friedman, Carlyle or Blackstone opening an office here. When you think about the combination of these and the level of sophistication here, we have companies that are very strong and making strategic decisions that are creating very significant value.”
The coronavirus pandemic, perhaps counterintuitively, accelerated the pace of deal-making, Lustman says.
“It used to be that closing a deal always required in-person meetings with the company’s heads, and visiting the site in person. No VC would ever make an investment without first meeting the founder. But suddenly, we are in a world where that is not possible. At the same time, there were a lot of funds that have closed rounds raising tens of millions of dollars months before the pandemic started, and they had a lot of investment capital they needed to deploy. So they had to stay active.”
“The Zoomification of meetings actually created a new level of intimacy and closeness that was never there before. First of all, you could just hop on a Zoom for 20 minutes on short notice and get to know each other over several conversations instead of trying to coordinate your schedules so you could get coffee for an hour and feel like you needed a make a decision. And when you’d meet, you’d have your kid coming into the room or your sports poster on the wall, or your treadmill, and there was a sense that we were all going through this challenging time together. And you’d ask about each other’s families, and all this created a level of closeness and friendship because it wasn’t so formal.
“Zoom didn't replace meetings in person, but it created a placeholder that made future conversations more fruitful. And from a business perspective, it actually prompted more activity because we wanted to get to know each other better and were craving this type of interaction. And I believe that this opened a lot of doors for Israel, because we could now be on the map for many people for whom we previously weren’t.”
The investment market started to come back around July last year, Lustman says.
“In the early days of the pandemic, from March through June, we were all in a state of shock and despair. It was about July and August when we started seeing the economy open up a bit that we started to see the light. That’s when we started to see announcements about bigger investment rounds and realized that we were going to have to learn to live with this. From October, we heard a lot more conversations about going public, and saw that the shock had turned into opportunity.”
And the size of the opportunity keeps growing.
“A decade ago, companies used to ask for much smaller sums, while today we’re seeing more $100m. mega-rounds,” Lustman says. “That money enables them to quickly expand to different locations simultaneously, and think much more broadly and ambitiously than they could in the past. The level of Israeli companies’ ability to recognize the dots connecting around the world and make big moves is far more sophisticated. Ten years ago, a company at that phase would be interested in an exit. Now they are looking to open in 10 different markets at the same time, with a high level of daringness and ambitious growth plans.”