Why isn’t Israel, the "Startup Nation," also the Crowdfunding Nation?

By Helen Wexler and Sean Lewin , written on January 27, 2014

From The News Desk

Last week was big for Israeli crowdfunding. PowerUp 3.0,  which is an iPhone-controlled paper plane Kickstarter campaign, came to a close. It's the first Israeli Kickstarter project to raise over $1 million.

Crowdfunding is growing, with $480 million raised through Kickstarter in 2013. Many of the most successful and best publicized crowdfunding projects involve design and hardware. This isn’t a coincidence. Consumer products are sexy. They are new, shiny, and you can give them as gifts. Many crowdfunding backers are early adopters going shopping. They like the product and want to have it, even if it will take six months to deliver. They are even willing to risk the project failing; that is how much they want to buy what you are selling.

More startups, less crowdfunding

The US has seen a flurry of entrepreneurs launching projects on Kickstarter and other crowdfunding platforms, while in Israel, the so-called “Startup Nation,” there are far fewer crowdfunding projects brought to life. The numbers show 9.3 US projects for every Israeli one. As for projects over $100,000 there were 3.6 US projects for every Israeli one.

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These findings are quite the opposite of the highest Israeli startup per capita ratio illustrated in the book Startup Nation. Interestingly, out of the seven most successful Israeli Kickstarters, only one was registered in Israel, the rest were registered in the US.  I consider them Israeli because the founders are Israeli and the operations are based in Israel. In contrast, Formlabs and Kano both had Israeli founders but are based in the US and London.

Why can’t Israelis do consumer?

Crowdfunding is about building a community around your project and ultimately, about selling. Selling yourself, selling your product and selling your vision. This is the place where Israelis are lacking. Many mull this issue, one of the main causes can be attributed to the distance between Israel and target markets and an absence of a built in audience as addressed in a TNW post.  The CTO of Fiverr, Shai Wininger illustrated this when saying: “It is hard for me to hire Israeli designers – try to explain to an Israeli designer what a ‘cool’ font means”. Israelis are newcomers to Western culture making it harder for them to build winning consumer products that embody cultural norms.

Israel is known for its technological innovation, and historically we’ve been good at what can be called “hardcore tech.” We are great at building chips, cyber technology and big data, but enterprise software is not something to presell on Kickstarter. In recent years, Israeli companies have started to appeal to the consumer.

Waze is a notable example, and as such is inspiring a lot of Israeli software startups. Consumer software is definitely on the rise. Waze isn’t alone in the consumer space; the likes of Wix, Any.Do, Billguard and Fiverr are also taking to the spotlight. This changing trend isn’t exclusively consumer software; it is also penetrating into the realm of consumer products. Sodastream is dominating the US for home soda machines, Sabon soaps are very popular in Japan and Max Brenner is tapping US chocolate addiction. But what about crowdfunding consumer products? That is what is really raking in the dough on crowdfunding platforms.

What is holding Israeli entrepreneurs back from launching more crowdfunding campaigns? There are a few challenges that we see facing the Israeli crowdfunding entrepreneur.

From idea to Kickstarter -- with challenges along the way

First is the mentality. Israelis are good with military and security products. When it relates to emotions and design, that is not our forte. We are becoming better with software products but consumer goods encompass both physical components and sometimes software -- not a strongpoint for Israelis. Israel does not have a history of craftsmanship, like the Swiss for example, or of esthetics like the Italians. We lack the traditional expertise in a given domain. Michael Eisenberg, a prominent Israeli VC, addresses this exact issue in a recent blog post.

Second, there are tactical barriers such as language, citizenship and the location of bank accounts. While most Israeli entrepreneurs have professional proficiency, they struggle to express creative ideas and product vision in a foreign language; and language matters, in fact, in a study done by Ethan Mollick at Wharton, he found that the number of spelling mistakes was a significant indicator of the success of a Kickstarter project.

Additionally, there is the American bank account and citizenship debacle. If you are hard bent on Kickstarter, you need to be an American, Canadian, UK, Australian or New Zealand citizen. Just having an American bank account isn’t sufficient. You need to have a social security number as well.

Finally, there is the networking effect. Most beginning Israeli entrepreneurs simply aren’t well connected enough to key influencers. If you and all of you Facebook friends live in Tel Aviv, it is going to be a lot harder to get American eyeballs on your project; and not just any eyeball – you want to get key journalists and bloggers to love and write about your project. International press coverage is an absolute must to insure the success of your project, particularly if you can’t lean too much on your own personal network.

Bridging the gap

So how are Israeli crowdfunders overcoming these challenges?

There is no instant solution to overcome the Israeli mentality. It is what differentiates us from other innovators even if it holds us back from launching world leading consumer brands. Israelis are trained to be responsive to specific problems. Israelis are more tactically inclined than geared for the long-term brand building process.

Tactically, language is becoming less of a barrier, with easily available and surprisingly affordable services like Odesk or 1hourtranslate. In addition, you can have an American friend proofread the entire campaign before you go live.

Stifling bureaucracy discourages some Israeli entrepreneurs from crowdfunding, but it doesn’t have to. There are a few solutions to the American citizenship barrier. One could team up with an American friend, or if you want to go black hat, people have been known to pay for use of someone else’s American citizenship. Some have even gone so far as to pay an American to be the “front man” of the project, though our feeling about this is that it defeats the purpose of crowdfunding transparency. If one doesn’t want to deal with the American citizenship hassles, they could use Indiegogo or Selfstarter, platforms that don’t have citizenship as a prerequisite. Additionally, Israelis could use one of the local Israeli crowdfunding platforms, though the amounts raised tend to be significantly lower.

The founder’s personal network is a critical component in the success of one’s crowdfunding campaign. As Slava Rubin, CEO of Indigogo mentioned while visiting Israel, “typically, for your campaign to succeed, you need at least the first 20 percent of your pledges to come from your direct network”. Ideally, you would want to have closer to 30 to 35 percent to gain momentum. Many of the successful Israeli campaigns experienced significant boosts from a particular network the founders engaged with. Glowing Plants received significant support from the Singularity network. Pressy had an early boost from Reddit – the project became a trending story and helped Pressy raise $18,000 from Reddit referrals alone, making it their single most significant backer lead avenue after Kickstarter.

The number of Facebook friends you have, as well as their locations, are also important factors correlated to success. Design projects tend to fare better in New York, where as technology products fair better in California (see Ethan Mollick’s research on Dynamics Of Crowdfunding). While this is important information to keep in mind, your personal network is something you built up over decades and forging new contacts takes time. The answer to mitigating this challenge is press. If you get your product featured in leading blogs and news channels, you will be able to reach significantly beyond your personal network.

Visualize the project marketing like a snowball. You start with close friends and family, asking them to spread the word about your project. If you do this well, they will then tell their friends, and the personal network snowball will grow. The media also has a snowball effect. If you manage to get your story covered by one reputable publication, this validates you for other publications, giving you social proof, hence, making it more likely for you to receive more coverage. This “press credibility” snowball also helps give backers, who do land on your crowdfunding page, confidence to back you. Which is why we commonly see – as featured in X, Y, Z - on projects crowdfunding pages.

2013 – Startup nation is on a crowdfunding roll

What we’ve been seeing in the Israeli crowdfunding space was a slow start in 2011 and 2012, with then a big increase in 2013, launching six of the seven largest Israeli Kickstarter projects. There will be hopefully even more exciting new projects to look forward to in 2014! While the Israeli crowdfunding entrepreneurs may have gotten a late start in the game, they are certainly making up for lost time with the uber successful campaigns we have been seeing in recent months – like Pressy, Glowing Plants, Angel and PowerUp 3.0.

It's great that more entrepreneurs are becoming aware of how crowdfunding can help their companies. We are cultivating a shared pool of knowledge of what works, and what doesn’t – for the Israeli crowdfunding entrepreneur. Additionally there is a growing eco-system around crowdfunding of entrepreneurs who have been there and are willing to lend a helping hand.

Image via Wikimedia.