Jerusalem Spurring Startups as Ancient Rules Bend: Cities

Photographer: Yaniv Yur (Yoyo) via Bloomberg

People work in the offices of Lightricks, creators of the Facetune App, in the High Tech Village in Givat Ram, Jerusalem. Close

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Photographer: Yaniv Yur (Yoyo) via Bloomberg

People work in the offices of Lightricks, creators of the Facetune App, in the High Tech Village in Givat Ram, Jerusalem.

It’s been more than 2,000 years since Jerusalem made a mark with technology.

That’s when King Herod used the then-most modern construction methods to build his temple. Now, Mayor Nir Barkat is aiming to vault the ancient capital into the global fight for high-tech talent and investors.

“Cities that take off the fastest are those who know how to leverage strong science, strong art and strong management,” Barkat, a 54-year-old former venture capitalist, said in an interview in his office. “A city that develops a platform to enable and host more startups will be a city that is eventually more successful.”

It’s an uphill battle. Barkat’s got to transform Jerusalem’s image from a zone wracked by conflict into a place to stay for graduates of Hebrew University’s computer-science program and the Bezalel Academy of Arts and Design. About half of the more-than 800,000-person population lives in poverty, mainly the ultra-Orthodox, who tend to opt out of the work force in favor of religious studies, and Arab residents, the Jerusalem Institute for Israel Studies research institute says.

Innovation and entrepreneurship are prized in Israel, where technology contributes more than half of industrial exports and sales abroad account for about one-third of gross domestic product. The country is known as Startup Nation, stemming from a 2009 book of the same title.

Photographer: Yaniv Yur (Yoyo) via Bloomberg

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University dormitories, stands in Givat Ram, Jerusalem. Close

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University... Read More

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Photographer: Yaniv Yur (Yoyo) via Bloomberg

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University dormitories, stands in Givat Ram, Jerusalem.

Catching Up

Barkat, who backed the information-security company Check Point Software Technologies (CHKP) Ltd., will need every bit of his investing experience to catch up to Tel Aviv. Israel’s commercial hub is the world’s second-best startup area behind Silicon Valley, according San Francisco-based Compass Inc., which collects data on technology companies. It’s also the base for Check Point and about half its almost 3,000 employees.

Tel Aviv’s labor-force participation rate was 65 percent in 2011, compared to Jerusalem’s 46 percent, according to the Jerusalem Institute. The national average was 57 percent.

“Jerusalem’s primary challenge is talent retention,” said Avner Warner, a Tel Aviv-based member of the Compass team. “To change the game, Jerusalem must and is working to create an environment that is attractive to young people.”

Moving Back

An outdoor plaza at the former train station, the renovation of an old leper hospital into a Bezalel Academy center for media and design, and an entertainment complex going up outside the Old City walls are part of Barkat’s effort to do just that.

Photographer: Yaniv Yur (Yoyo) via Bloomberg

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University dormitories, stands in Givat Ram, Jerusalem. Close

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University... Read More

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Photographer: Yaniv Yur (Yoyo) via Bloomberg

The High Tech Village, comprising of offices in renovated 1950s-era Hebrew University dormitories, stands in Givat Ram, Jerusalem.

“The atmosphere is starting to change,” said Dan Kaufmann, professor of business and management at Ben Gurion University in Beersheva. “For the first time, I have research assistants who left Jerusalem for Tel Aviv and are now considering moving back.”

Boosting the sentiment is a decrease in violence, from stabbings to shootings to suicide bombings, in a city where for years Israeli schools wouldn’t even take class trips. Better-run Palestinian security forces in the West Bank and a barrier built by Israel have helped lead to a drop in attacks.

“People now perceive Jerusalem as a much better place to come and study and learn,” said Barkat.

The West Bank city of Ramallah, the Palestinian financial center about 78 kilometers (48 miles) from Tel Aviv, is also seeing startups flourish. There are about 250 technology firms in the West Bank and Gaza Strip, according to the Palestinian Information Technology Assocation of Companies website.

Wrongway Migration

While better security, culture and entertainment may help stanch migration from Jerusalem -- about 19,000 people left in 2012 while only 10,000 moved in, according to the Jerusalem Institute -- Barkat’s success depends on the economy.

About half of jobholders are on the public payroll, with the largest percentage in education, health, social services and public administration. The average salary is about 7,600 shekels ($2,188) a month, below the national average and less than in Tel Aviv and Haifa, according to the Jerusalem Institute.

“The job market is the number one reason people leave,” said Barkat, who has made retaining talented youth a top priority of his second term.

Creating better jobs is the goal of Barkat’s effort, dubbed JNext. The initiative, jointly run by the municipality, the Ministry of Jerusalem and Diaspora Affairs and the Jerusalem Development Authority, offers startups reduced tax rates, relocation grants, and even help in paying employees’ salaries for the first four years.

Dorm Offices

For the 30 startups chosen for what JNext calls the High Tech Village, aid also comes in the form of offices in renovated 1950s-era Hebrew University dormitories.

Or Sharir, a 26-year-old computer-science graduate of Hebrew University from northern Israel, based his three-person company, here.a.story, in a former dorm room.

“Four years ago, I didn’t really hear about things happening in Jerusalem other than Intel (INTC) and Teva (TEVA),” he said, referring to the world’s largest computer-chip maker, which is based in Silicon Valley, and the biggest maker of generic drugs, based in Petah Tikva, Israel. “Now every week there are at least one or two events specifically for technology entrepreneurs.”

“I really love Jerusalem,” said Sharir, whose application for mobile devices allows users to record a location-specific story for others to hear. “There is something different here, a feeling of being small and big at the same time. There is magic in the streets.”

Events Multiplying

The Jerusalem Development Authority, established to spur the economy, gave out 12 grants to startups in 2012 and 24 in 2013. It expects to distribute more this year. A company with a staff of between three and 10 can receive 50,000 shekels per employee. Events for high-tech entrepreneurs are multiplying. Twelve were held in the Israeli capital in 2012, and 110 last year. More than 40 events have already been put on this year.

The municipality says 20 new kindergartens for the modern Orthodox and secular communities opened in the past 18 months, reflecting the growth in the city’s budget -- 14 percent last year, compared with 5 percent in 2009 and 7.6 percent in 2010.

Jerusalem, whose residents make up about 10 percent of Israel’s population, may begin to pull more talent from Tel Aviv after a high-speed train is up and running in 2017 and the expansion of the highway to coastal Tel Aviv, 70 kilometers away is complete, said Guy Preminger, high-tech leader at the business-advisory firm PricewaterhouseCoopers Israel.

“Today trying to get into Jerusalem is like Russian roulette -- you never know how long it will take,” Preminger said. “Once Jerusalem gets closer to Tel Aviv it will be possible to expand its ecosystem.”

Building a self-reinforcing network of angel investors, venture capitalists and startups -- the so-called ecosystem -- is key, said Kaufmann.

“There is momentum but the question is if the supporting infrastructure will develop at the same speed,” he said.

To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Andrew J. Barden at barden@bloomberg.net

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