YL Ventures, the San Francisco-based firm where Leitersdorf is a managing partner, just closed its second fund. The firm raised $27.5 million to invest in young Israeli tech companies after its first fund reaped generous returns for investors.
Israel is a hotbed of engineering talent, but companies can only grow so much in a small country before needing to expand elsewhere, Leitersdorf said. Leitersdorf visits Israel about five times a year, which he said is plenty. The investment team has just one person based in Tel Aviv to scout entrepreneurs.
"There's no point in doing business development in Israel," Leitersdorf said. "Most of our work is actually not in finding the companies, but rather appreciating the companies after we invest. And that we can only do in Silicon Valley."
YL Ventures likes Israel because the companies agree to take investments at lower valuations compared with their counterparts in Silicon Valley. Tel Aviv is home to as many as 700 early stage startups, according to city data. But venture capital in the region has been drying up. Efforts to build a tech scene, including free Wi-Fi in public places and a Startup Visa for skilled workers, haven't yet paid off.
Some of Israel's largest acquisitions recently have come from the U.S. Cisco Systems bought Intucell in February, and Google acquired Waze in June. YL Ventures' portfolio companies, including security startup Seculert and enterprise-software maker ClickTale, have gone on to raise from Silicon Valley venture firms and other investors.
"Everybody is now interested in Israeli technology," Leitersdorf said.
The companies YL Ventures invests in generate about three-quarters of their revenue in the U.S. on average, Leitersdorf said. They tend to keep their roots, or at least their research and development, in Israel, while Leitersdorf helps a U.S.-based team find partners, venture capitalists and potential acquirers.