The state of the Israeli B2C ecosystem
The success of the Israeli start-up ecosystem has long been centered around deep technology, cyber solutions, hardware and semiconductors, and enterprise software, serving businesses, enterprises and governments around the world, and forming a thriving B2B and B2E (Enterprise) industry.
When we first opened the Facebook office in Israel, I remember speaking to an investor who told me Israel will never become a B2C tech leader. Despite him being very convincing, I remained optimistic, thinking that there’s no way that the “boom” of B2C companies in the Internet era is going to skip the start-up nation. But even in my most optimistic outlook, I could never imagine the hyper-growth that Israel’s consumer-facing ecosystem has experienced in the past five to 10 years. It is therefore no surprise that today nearly 40% of Israeli startups are consumer-facing and more than 20% of Israel’s unicorns are B2C companies.
So how did we get here? It all started with Israel’s gaming industry, which has always been a global leader in the field, and the pioneer for consumer-facing businesses in Israel. Over the years, a lot of know-how and best practices started accumulating with regards to consumer products, online marketing and user acquisition, global growth strategies and customer support, building a new generation of talent with the expertise in growing B2C companies.
Following that, in recent years we are seeing a new “hybrid” category emerge that is B2SMB. These companies sell to businesses (and in that sense they are B2B), but their go-to-market strategies and the way they interact with their customers is much more in-line with a B2C business. Think of Wix, or Monday.com who just went public, Elementor, etc. These are selfserve digital native products that no longer require sales demos, long sell-cycles, procurement processes and the other complexities of a classic B2B business.
Between these two trends, the market now has an influx of talent that truly gets how to build B2C products and how to market them to drive scale and growth, and are now building their own B2C or B2SMB startups. As a result, VC investors, who were historically more hesitant to invest in B2C, are starting to see the value and potential of such companies, and more and more funding is flowing into this space, and even to new sub-verticals within B2C such as e-commerce, which was historically a sector that was outside of the VC scope.
So for the past 15 years, the Israel B2C landscape has gone from very few gaming companies and the likes of Wix and Waze, to the growth engine of the start-up nation, with fully established industries in the fields of digital health, digital publishers, fintech, marketplaces, commerce and consumer tech at large.
And then came COVID. While the pandemic had significant challenges for people’s lives, livelihood and economic situation, it has also accelerated several global trends that set a strong foundation for digital native businesses, particularly in the B2C space. This has pushed more and more companies to go digital, use digital services, and sell to consumers online. This acceleration has also brought more and more consumers, even in populations that previously never dreamt of purchasing goods and services online, to do so now more than ever before. Studies show that within two months of COVID, the adoption of digital consumption was equivalent to the one we have seen in the 10 years prior. Just like the adoption of any new technology, it takes time and it’s sometimes scary, but once so many consumers around the world have been “forced” to adapt to digital consumption, most of them won’t go back – and this will have a massive impact on “the day after” COVID.
Israel will always have its deep tech industry as one of its key strengths, but now we can also take pride in building ourselves as a meaningful player in the B2C tech space globally. It’s been incredible to watch this space evolve over the past years, seeing the crazy talent and drive that exists in this ecosystem, and to witness the creation of the next chapter in the story of the start-up nation.