Step aside San Francisco, New York and Boston. The next potential hub of digital health innovation may be in Israel.
And it comes as no surprise to people from there.
“We’ve been called ‘startup nation’ so many times and in so many different industries,” said recent Israeli expat Idan Eidlman, vice president at New York City-based private equity firm Kain Capital. “Food tech, agricultural tech, climate tech and a lot more.”
Now it’s digital health’s turn to benefit from the culture of Silicon Wadi, a nickname for the country’s tech region in Tel Aviv. U.S. health systems and venture capitalists are partnering with Israeli startups and health systems to invest in and launch digital health companies. In turn, Israeli companies are making inroads in the U.S.
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“The combination of the government and private sector efforts around innovation and venture has been really robust there,” said Daryl Tol, head of health assurance ecosystem at General Catalyst. “And I think what that’s done is just brought to life the intellect of the country. The people there are thinking about ways to solve problems.”
On Wednesday, General Catalyst added the Tel Aviv-based health system Sheba Medical Center to its network of 16 hospitals and health systems.
In terms of both transaction volume and total number of deals, Israeli companies ranked fifth in digital health venture capital funding last year, according to Modern Healthcare data. In the last few years, health systems such as Mayo Clinic, Hartford Healthcare and Jefferson Health have formed relationships with Israeli health systems and investors.
Rochester, Minnesota-based Mayo aligned with Sheba in June 2022 when the two organizations agreed to share data from startups at Sheba’s innovation center and Mayo’s Platform Accelerate program. Dr. Eyal Zimlichman, chief transformation officer and chief innovation officer at Sheba, said organizations are looking to Israel as a pipeline for innovation.
“Digital health companies coming out of Israel will lead the transformation of this industry, much like we’ve seen other industries transform over the last 20 years,” Zimlichman said. “Israel has been leading many of these digital transformation efforts in other industries and digital health is next in line.”
Israeli digital health companies such as artificial intelligence firm Aidoc and data analytics company MDClone have reaped the benefits of this interest, scoring significant funding rounds from U.S.-based investors last year.
But while some Israeli digital health companies are making their mark in the U.S., others have struggled to adapt to the complex regulatory environment and slow sales cycles.
“An Israeli company that wants to make it in the U.S. needs to have the right evidence from the right people and the right institutions, which are well-known and connected,” said Neta Gruber, director of international health tech at the government agency office Israel Innovation Authority. “And before doing that, it’s hard to proceed and it’s hard to penetrate and convince those institutions to give you a chance.”
Israeli culture breeds innovation
For a country with roughly the same number of people as New Jersey–roughly 9.3 million–Israel is home to more than 6,000 startups, according to a report from consulting firm Deloitte. Innovation is embedded in the country’s culture, which makes it an ideal place to launch a startup, said Yonatan Adiri, CEO of Tel Aviv-based Healthy.io, which has developed a smartphone app that can test for kidney disease.
Adiri, who served as Israel’s first chief technology officer under then-Prime Minister Shimon Peres, said the country’s political and business leaders fund innovation because Israel lacks the natural resources of its Middle Eastern neighbors. Adiri said he’s personally invested six times into other companies.
Also, some people who come out of the Israeli Defense Forces, which is compulsory for most Israelis, enter the tech field because of their experience in the army’s technology units, Adiri said. That has helped build the country’s talent base, he said.
Venture capital firm Connecticut Innovations has invested in Israel companies such as A.I. wearable developer EyeControl, based in Tel Aviv and focused on non-communicative patients. Connecticut Innovations CEO Matt McCooe said the country moves with urgency.
“They face existential threats. It’s sort of like carpe diem. You’ve got to move fast. You don’t know how long you have,” McCooe said. “In this world of digital health applications, devices and therapeutics, wherever you are in the world, no matter how great your ideas are, there’s somebody else working on the exact same idea at the same time. So, speed wins. They move fast and aren’t afraid to fail.”
McCooe took a trip to Israel last year with Dr. Barry Stein, Hartford Healthcare’s chief clinical innovation officer, and Connecticut Gov. Ned Lamond (D). The trip reemphasized why Hartford Healthcare has done business with the Israel Innovation Authority, Stein said.
“Israelis are very connected,” Stein said. “You pick up the phone and one person knows the other. And they can get their work done very efficiently with a lot of trust. There’s a very dense, well-developed connective tissue among the population and the startups. Everybody knows everybody. And that’s how you get things done quickly.”
Challenging U.S. market
For all of Israel’s potential, the country is not immune to the economic headwinds facing other global economies. Companies are struggling to add U.S. health system customers, Zimlichman said.
“Hospitals in the U.S. had a very bad financial year in 2022…which means it’s a challenge for Israeli companies to try and come in and close deals,” Zimlichman said.
Beyond economic cycles, the U.S. system is hard for outsiders to understand, said Shlomi Kofman, vice president of international operations at the Israel Innovation Authority. “It’s not an easy task to find your way and succeed on a big scale, especially if you’re a smaller company,” Kofman said.
Eidlman said successful Israeli companies will often shift product development and other operations to the U.S. as they mature. That makes it easier for companies to navigate the differences between each regional market within the U.S., he said
McCooe said entrepreneurs, particularly those from outside the country, underestimate how long it will take to sell digital health solutions to health systems in the U.S. They also have a hard time understanding how the payment system is structured.
“It hits them like a 2×4 over the head,” McCooe said.
Source : Modern Healthcare