Israel’s tech startup ecosystem

A small nation with around 9 million inhabitants, Israel is one of the most developed countries globally and in the IT cluster. The country is also ahead in producing ground-breaking startups in the world. Israel’s mix of questioning culture, the tradition of national military service, higher education, risk appetite and team spirit make it a productive place for fast-moving companies. It ranks second in the world in the success of the startup ecosystem.

Israel fought several wars and signed several peace treaties, becoming the land of survivors and immigrants who were entrepreneurial risk-takers. It is believed that the geopolitical reality of Israel and having no neighbouring allies has created a country-wide mindset that excellence is the only element of survival. Israel has built a robust national economy over the years leading to significant industrial expansion. The country’s GDP grew by 16 times in the last 39 years. In 2019, it was US$ 394.7 billion, up from 23.8 billion in 1980. 

In the first article of the Startup-Nation Series, we dive into the vibrant tech startup ecosystem of Israel.

Land of Technology

Israel might not have a Silicon Valley, but it has the ‘Silicon Wadi’ – its high-tech cluster. While the capital of Israel is Jerusalem, Tel Aviv is its technological capital, also the state and the city of startups. Israel ranks second in startup industry development, Silicon Valley being the first one and Tel-Aviv has the highest number of startups per capita. 

The cultural push into technology is pretty strong in the country. Children from the age of 13 are encouraged to learn advanced computing studies. The salaries of software professionals are also handsome in the country. The high-priority technological areas in the Israel startup ecosystem are mainly biotechnology, cybersecurity and eCommerce.

Israeli Cybersecurity Investments
   Israeli Cybersecurity Equity Investments – Source

 According to a study, Israeli companies account for nearly 40% of global cybersecurity technology sales, including anti-virus software, intrusion detection prevention systems (IDPS), internet and database security and other cyber-defence solutions. The startups in this field focus on real-world physical and virtual security challenges, especially in tackling automotive cybersecurity, an area of increasing importance to consumers and manufacturers alike. Some of the prominent startups in the cybersecurity industry are C2A Security, CyberArk, Cato Networks, Hunters AI and Octopus among others. Some startups that raised massive rounds of funding in 2020 include SentinelOne (US$ 467M), Snyk (US$ 350M), and CATO (US$ 207M).

World leader in R&D

Israel is the world leader in expenditure on R&D. Around 4.3% of Israel’s GDP is spent on R&D, which is even higher than some of the most advanced countries like the USA and Germany. Big corporations such as Microsoft, Intel, Google, Facebook, Apple, Oracle, SAP etc., have set up their Research and Development centres in the country. 

Israel bagged 6th place in Bloomberg’s ranking of innovative states, published in 2020. The rankings were made based on indicators like research and development costs, production capacities, the concentration of high-tech companies, the level of higher education, the number of patents and the added cost of production.

Investment Scenario

Both 2019 and 2020 were great years for Israel’s startup landscape. Over the last decade, the startup funding for its entrepreneurs increased by 400%. In 2020, Israeli companies attracted around US$ 10 billion of investment. After the record-breaking year, the funds raised by companies in January 2021 alone exceeded US$ 1.2 billion, the highest amount raised for a single month ever. The top IPOs among startups were Lemonade, an AI-based insurance firm (listed on New York Stock Exchange) and Nanox, life sciences firm (it raised US$ 165 million on the Nasdaq).

Funding to Israel startups
Monthly funding amount raised by Israeli startups

It is not a difficult task for Israeli startups to receive funding in Israel during their growth stage. There are around 363 private investors in Israel. Moreover, international business angels from all over the world are interested in financing Israeli startups.

At the beginning of 2021, more than 30 tech companies in Israel were valued at over US$ 1 billion. And four startups passed the US$ 1 billion valuation last year – Moon Active (mobile game developer), Cato Networks (cloud-based enterprise security platform), Gett (ride-hailing app developer) and BioCatch (behavioural biometrics startup).

Israel Invetsments

While the pandemic took the world by storm, Israeli startups adapted well in the COVID era. According to a survey by Startup Snapshot, 55% of startups profiled had changed (or considered changing) their product due to COVID-19. Moreover, remote-working, which is quite common for Israeli entrepreneurs, gave them an advantage over the current conditions much easily. 

Venture Investors and Angels 

In Israel, many organisations connect venture investors and business angels. Some of them are Angel Investment Network Israel, Access Silicon Valley Tel Aviv, iAngels, iStartup Angels and Spinach Angels. 

Here is a list of some of the most active Israeli venture investors:

1. AltaIR Capital

Number of portfolio companies: 250+

Amount under management: US$ 400M+

Successful exits: 20+

This venture fund mainly invests in Productivity Tools, FinTech, InsurTech, SaaS, Digital Health, AI, Cyber, D2C and Consumer Internet. It is headquartered in Tel-Aviv, with offices in San-Francisco, Moscow and Vienna.

2. 83North

The total number of investments: 195+

Total funds: US$ 1.3B

Unicorns: 12

Exits: 20

83North is a venture company headquartered in London and Herzlie (Israel). It mainly invests in European and Israeli startups from fintech, mobility, IT, SaaS, eCommerce and SaaS sectors.

3. OurCrowd

Portfolio Companies: 255+

Venture Funds: 27

Companies vetted: 14,200+

OurCrowd is a global crowdfunding platform and investors community headquartered in Jerusalem. Founded back in February 2013, the platform has attracted US$ 1.8 billion funding for their projects. OurCrowd has offices on four continents: America, Europe, Asia and Australia. It mainly invests in business products and services, energy sphere, health care, information technologies, SaaS, security and e-commerce.

Incubator Programs

The Israel startup ecosystem provides support to the startups in every development stage. Numerous conferences, networking events, workshops and hackathons offer brilliant opportunities for young startups to find all kinds of support. 

Some of the famous events are – “Bad-Idea-Start-Up Meetup” (workshops that help to work on bad ideas to turn them into a worthy project), AI Week conference sessions (Held at the Tel-Aviv university, dedicated to innovations in the AI sphere, study of data, computer-assisted teaching), Cybertech Tel-Aviv conference etc. 

There is an abundance of accelerators and incubator programs in Israel. Here are a few of the famous ones – 

1. Microsoft Reactor – Based in Tel Aviv, this accelerator is one of the most active players in the Tel Aviv startup market. It supports startups in various fields, from FinTech to autonomous driving. It conducts live events every week on topics related to technology and startup support. The reactor invites developers and offers them spaces for technical events, focusing on Cloud and Artificial Intelligence.

2. Founders Institute – It is an international Pre-seed accelerator founded in 2009. It helps early-stage startups in finding and testing entrepreneurial ideas and then scale them to the global market. The accelerator’s claims that its alumni have raised over US$ 950 million in investment, with a combined valuation of US$ 30 billion. Founders Institute has launched more than 4,500 companies in more than 200 cities and six continents. 

3. Campus Tel Aviv — It is a joint project with Google for Startups. In the framework of cooperation, there is a school for startups. Google for Startups built campuses to support a global network of top tech hubs and accelerators across 125 countries. The startup school provides hands-on virtual training to founders and their teams. The sessions are conducted by Google experts, industry leaders and notable entrepreneurs worldwide. 

4. AWS Floor28 — It is an education hub based in Tel Aviv for everyone interested in innovations. It conducts many thematic events and meetings with experts. AWS Floor28 is a project powered by Amazon Web Services (AWS). The last summit by AWS in Tel Aviv was conducted in 2019, before the COVID-19 pandemic.

Conclusion

The high-tech startup ecosystem of Israel is the backbone of the country’s economy. The govt. of Israel has also made sure to provide a conducive environment for startups to focus on world-class innovations. The availability of funding to entrepreneurs is a crucial factor determining the successful development of the startup ecosystem. The startup ecosystem of Israel is valued at US$ 47B, with early-stage funding totalling US$ 3B. 

The Israel startup ecosystem supports early-stage startups, allowing them to quickly validate their ideas before scaling them on the global market. The ecosystem of Tel Aviv and Jerusalem is well integrated, both in the Middle East region and also in the European or American market, giving the startups a wide range of opportunities to scale their businesses worldwide.

For more extensive analysis and Market Intelligence reports feel free to approach us or visit our website: Venture Capital Market Intelligence Reports | VCBay.

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