Hidden Valleys

What It's Like to Build a Tech Startup in One of the Oldest Cities on Earth

Photographer: Ariel Jerozolimski/Bloomberg

The skyline in Jerusalem, Israel, on March 16, 2014. Close

The skyline in Jerusalem, Israel, on March 16, 2014.

Photographer: Ariel Jerozolimski/Bloomberg

The skyline in Jerusalem, Israel, on March 16, 2014.

Like most Israeli tech entrepreneurs, Lia Kislev lives in Tel Aviv. But her online styling company isn’t based in the country’s startup capital alongside the nation's fledgling fashion industry. Instead, she and her co-founder commute every day to Jerusalem.

Kislev's startup WiShi sits in a whitewashed building about a kilometer from the ancient stone walls of Jerusalem's Old City, a popular tourist attraction that houses sites holy to all three monotheistic religions. The tech complex in the holy city was built by Erel Margalit, the founder of Jerusalem Venture Partners, who is now a lawmaker for the Labor party.

Despite JVP’s location, it's taken 11 companies public on the Nasdaq, and 15 others have been acquired in the past two decades since the firm was founded. That track record is helping the venture capital firm attract startups from Tel Aviv and other cities to help nurture a Jerusalem tech scene. While JVP doesn’t require its portfolio companies to move to Jerusalem, close mentoring is a benefit for those who do.

"We knew Jerusalem Venture Partners was one of the most successful funds in Israel and Europe," says Kislev, 31. "If they wanted to invest in us, then we would do whatever was necessary."

Related: Jerusalem Spurring Startups as Ancient Rules Bend

Bringing startups to the city is high on Mayor Nir Barkat's agenda. The city is creating programs to support high-tech businesses and keep university graduates from fleeing to Tel Aviv. JVP, Hebrew University, the municipality and the government are partnering in a program that offers incentives to startups, including tax breaks, grants and low-rent office space in renovated campus dormitories among other sites.

New retail developments aim to keep professionals entertained. A plaza at the old train station adjacent to JVP is now open, and other sites are under construction. The city's first multi-screen cinema threw open its doors last month.

"Startups need good cafes to open their laptops and share thoughts," says Mayor Barkat, a former venture capitalist who invested in network-security company Check Point Software Technologies.

Margalit made an early bet on Jerusalem’s technology revival. He opened the JVP Media Quarter, where WiShi and other startups are based, in 2008 when shootings, stabbings and bulldozer attacks were regular occurrences. The nascent industry has "started a new narrative in a city branded as a security risk with a not-so-forward-looking atmosphere," says Margalit.

Margalit has been a proponent for change in the ancient city for decades. When Jerusalem was run by Teddy Kollek in the early 1990s, Margalit, as a member of the Jerusalem Development Authority, convinced Kollek to take a bet on technology. He brought dozens of tech companies to the city then, and helped plan for a technology park where the venture capital firm he later established initially set up shop.

With the JVP Media Quarter, Margalit aims to bring the creative class back to Jerusalem. He uses an analogy that many in the city can relate to — because it’s pulled straight from the Bible. "The Media Quarter is near the very spot where Isaiah stood looking at the Old City walls during Jerusalem's most difficult time of exile and had a vision of the city as a center of creativity,” he says.

To viably compete with Tel Aviv, Jerusalem will have to remake itself beyond a few hip workspaces and movie theaters, according to Avner Warner, a Tel Aviv-based member of researcher Compass. The crunchy San Francisco-style liberalism that the tech collective craves is often at odds with Jerusalem’s religious roots.

"Jerusalem is a complex city with a large population that isn't 'western' minded,” Warner wrote in an e-mail. "Considering that a mere 40 minutes away is the 'liberal' city of Tel Aviv with nightlife, beach and a gay scene, Jerusalem struggles to retain many of the talents that graduate from its academic institutions."

The other question is whether Israel can sustain two vibrant technology hubs. Tel Aviv has been on a bit of a tear lately, but few countries have been able to create one credible tech industry, let alone two. But Warner isn't worried about competition for talent. Because Israel is a very small country, the tech scenes would be codependent, he says. "It is doubtful that the strengthening of other clusters within the Israeli ecosystem should damage Tel Aviv. Rather, they would probably complement and strengthen the general Israeli high-tech ecosystem."

Kislev, whose fashion-centric social website WiShi has attracted more than 400,000 visitors since it launched earlier this year, says Jerusalem is almost like a foreign city. With a melting pot of Jews, Christians and Muslims, as well as the mix of old and new, the city has "magic," she says. "There is a combination of things that exist nowhere else in the world."

When Kislev tells people where she works, they often think, "Wow, a startup in Jerusalem," she says. "Here you can enjoy the fact that you can enjoy the fact that you are special."

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